General Market Index (GMI) table

Every once in a while my technical indicators point one way and my gut to another.   While I have never systematically analysed how often which way was correct, I suspect it was my instruments.   The market tends to move in a direction opposite to the way my emotions point. This may be one of those times. The GMI has signaled a new Buy as of Friday’s close and my QQQ short term trend indicator has also turned up (U-1). I just find it difficult to believe that this up-trend will last longer than a day or so.   The last few GMI buy signals occurred within a short bounce only to have each end and reverse in about 5-7 days.   The QQQ is now right at the top of its recent channel (see daily chart below) and could reverse down again very quickly. Or will the QQQ begin a major leg up? And there are so many rational reasons to expect a market decline:   Greek election results, deflationary effects of cheap oil, too strong a U.S. dollar, post earnings release lull on the horizon, to name a few. And technically the major indexes are diverging, with the SPY still below its 10 week average even as the QQQ climbs above this critical average. Clearly, tech stocks are outperforming the large cap industrial sector that might be hurt by some of these things I mentioned. So, what to do? Follow my instruments or my gut? My intellect and some of my trading gurus   have opined that when one does not know what to do one should lay low until the dust settles.   So I will not make major trading decisions today. I will hold my long positions, mainly concentrated in a few strong bio-techs, and will cut back or eliminate my SQQQ and buy a little TQQQ if Monday looks strong.

One reason the QQQ   appears strong is that AAPL has regained its 10 week average (blue dotted line).   I have always profited by owning AAPL when it is above this average. AAPL reports earnings this week and will have a large impact on whether the QQQ holds.

The GMI is now at 6 (of 6).

It is impossible to consistently predict what the market will do, except by luck.   It is still possible, however, to use technical signposts to give one an edge for acting. This daily chart of QQQ shows some interesting things I monitor. First of all, the QQQ is below its 30 day average (red line) that is curving down.   This is a very ominous short term sign. Second,   note that the GMI has been on a Sell signal since January 6 and my short term daily trend indicator   has now completed its 11th day (D-11, see GMI table below).   Since 2006, 40% of these short term down-trends lasted between 11-44 days, 4% lasted 50+ days. The two solid magenta lines show the channel that the QQQ is currently within. Last Friday it bounced off of the lower channel line at which it has found support three times.   It also found support near the lower daily 15.2 Bollinger Band (BB, see the bottom of gray area between the 2 bands). From all of the above, I think the QQQ is likely to rebound to the 30 day average, or to the top of the channel. If it should fail to hold Friday’s low, however, look out below………..

The GMI, at 3 (of 6), remains on a Sell signal since January 6, but the GMI-2 (1/8) is showing considerable short term weakness.

My indicators weakened on Friday and so the GMI Sell signal remains in place.   My more sensitive measure of the short term trend of the QQQ also remains down, now having reached 6 days.   I am holding mainly biotech stocks which have been miraculously bucking any market weakness, some SQQQ as a hedge,   and a lot of cash in my trading accounts.   I am about 40% cash in my more conservative university pension accounts. I am very cautious now. The market will become very volatile now as 4th quarter earnings are released and everyone focuses mainly on estimating the   impact of lower oil prices on the future profits of many companies.

Meanwhile interest rates continue to drop as government bonds strengthen.   Note that   TLT (20 yr treasury bond ETF) broke above the possible double top I wrote about around December 23rd. Check out this daily chart that I have now updated. I guess the entire world is seeking the relative safety and better yield of U.S. long term bonds! This pattern looks like a powerful cup and handle break-out. Bonds will probably continue to be bid up until the eventual bubble bursts!

Here are the GMI stats. Note that SPY has now closed below its critical 10 week average.

I will be unable to post on Monday night, as I will be far from my computer and my statistical software. I will post again Tuesday night.