General Market Index (GMI) table

For the first time since December 29, I recorded over 100 new 52 week highs in one day out of about 5100 U.S. stocks. The only GMI component that is still not positive is the most important. The QQQ is still below its 30 week average. On the other hand, the other indexes are strengthening. The SPY, NYSE, DOW 30 Industrial and the DOW 20 Transportation indexes have all reclaimed their 30 week averages. These indexes were the first to weaken and are now the first to strengthen. Remember that the T2108 also reached levels in January only seen at major market bottoms. Here is the weekly chart of the SPY. While it has retaken its 30 week average (red line), I will not be very bullish until that average turns up again.

The psychology of the market has changed. People can only stay scared for a limited amount of time. I believe we have worn out the fear surrounding oil and China. It will take something new to really scare investors again. Perhaps if the FED starts to raise interest rates again that will precipitate a major decline. Unless these indexes close back below their 30 week averages, I will continue to slowly reinvest in stocks.

The composition of stocks hitting new highs last week is amazing. Of the 152 stocks over $15 that hit a new high last week, 53% had dividend yields of 2% or more and 26% paid 3% or more. The most frequent  industries in this new high list were utilities, 24% followed by REITs, 7%. In other words 31% of the stocks that hit new highs last week were utilities and REITs. This is not a growth stock market. The winners of the bull market, especially biotechs,  have been decimated. The boomers, smarting from their losses and earning nothing in their savings accounts are piling into safe dividend paying stocks and ETFs. Perhaps in a few months after people become more confident of a market bottom, people will take chances with the more speculative stocks. For now, it looks like the solid dividend paying companies are where the new highs will be seen. Of course, if we get to the “Sell in May” season and the FED starts to raise, there may be no place to hide from a reinvigorated bear…..

Please note that my QQQ short term trend indicator is much more sensitive than the GMI and I may use it to trade a short term up-trend within a longer term down-trend, like we have now. I have found that if a new QQQ short term trend can last for 5 days, it often has legs. When a trend changes from down to up, it is very difficult to accept it because there has often been a long down-trend prior to the change. We all have our hands on the rear view mirror as we try to navigate the market (and life!). I sometimes buy the leveraged 3X QQQ bullish ETF , TQQQ, on the first or second day of a QQQ short term up-trend and try to ride the up-trend. Short term up-trends, once they reach 5 days, can often persist for many days, the majority go on from 11-44 days, based on an analysis I did of trend changes between 2006-2013. So, I may buy some TQQQ at the beginning of a QQQ short term up-trend and average up slowly if the trend continues. But right now the GMI is on a Sell signal suggesting that if this short term up-trend should fail, it could come down in a hurry. I therefore wager very little money on such counter-trend bounces. (Don’t ask me to define little or how I average up, it depends on one’s personal account size and tolerance for risk.)

But I am growing more confident of the idea that this market has  put in a bottom that will last for a while. There is too much open bearishness on the internet and CNBC shows. Plus the T2108 hit an extremely low reading of 4% during the January decline, a level that is very rare and typical of past market bottoms. The weekly 10.4.4 stochastics indicators for the QQQ and SPY and DIA are also at oversold levels not reached since 2013. Finally, the Investors Intelligence poll published in IBD continues to show more investment letters being bearish than bullish, itself a very rare phenomenon. Typically bulls far outnumber bears for very long periods, and when the reverse happens, the market fools most prophets by going up.

The GMI takes a long time to reverse and with the major indexes still trading below their 30 week averages, the coast is not clear yet. But a major reversal has to begin with a change in the very short term trend, and that has happened, for now. I therefore remain largely in cash, but I am tiptoeing in with small purchases of  TQQQ and a few other strong stocks. There are a number of stocks showing some technical strength, which I am putting on my watchlists to monitor and research. Any stock that can come through the recent declines at or near its all-time high is showing strong buying interest by others. Here are a few, most of which have had a recent GLB (green line break-out to an all-time high):

HA:

ELLI:

HOFT:

WBMD is heading towards a GLB, but must prove its ability to break through.

JBSS:

JBT:

VLRS:

One or more of these stocks may turn out to be a real market performer, but the GMI remains at 2 (of 6) and on a Sell signal since December.