General Market Index (GMI) table

The truth is that no one knows for sure.   IBD does still label the market in a correction. As I define it, the QQQ short term down-trend completed its 10th day on Friday.   Another flat or up day on Monday will end the down-trend and begin a new QQQ short term up-trend. I am   most certain of a change in trend when it persists for at least 5 days, however.   I sold most of my SQQQ on Friday and will sell the rest on Monday if the QQQ holds.   I will then buy a very small position in TQQQ and will only add to it at a higher price later in the week, probably on Friday. If a new short term up-trend begins and it is for real, then I will have many days on which to accumulate TQQQ.   The key is to not rush in but to ease into the new move.   On the other hand, if the QQQ weakens a lot on Monday, I will buy back some more SQQQ and ride the continuing down-trend.   One must be agnostic in this business and ride whatever trend becomes apparent…..

As my readers   know, I do not like to go long stocks in a general market down-trend.   I find it to be very useful, however, to watch the new high list during declines because stocks appearing on it are exhibiting unusual strength. Any stock that can come through a correction and trade at a new high is demonstrating a lot of technical support. It is also much easier to find winners when there are only a handful of new highs. On Friday, only 14 stocks (out of 6,000) came up in my new 52 week high and good fundamentals TC2000 scan.   All had recent quarterly earnings up at least 25% and   increases in revenues.   I think these stocks are worth researching for possible purchase in case a new up-trend begins. They appear to the left, sorted by recent EPS change, with the biggest earners at the top.   Thus, the top six stocks each had quarterly earnings up more than 100%.   Funny how stocks with big earnings increases appear on the new daily high list even during a market correction. It is noteworthy that all of these stocks are at or very close (GMCR) to trading at their all-time highs.   Now that is a show of strength…….

I prefer to buy strong stocks when the GMI is on a Buy signal.   The GMI closed Friday at 2 (of 6) but the more sensitive and short term GMI-2 rose to 7 (of 8). The GMI flashed a Sell signal at the close of trading on   1/27 and remains so. I am therefore mainly in cash in my trading accounts but I do have a small position in SQQQ and GLD.   My position in GLD is based solely on the technical pattern.   It just looks like it is in a Stage 1 base. Note from this table that the QQQ has now closed   back above its 10 week average, a very promising sign of strength. We will learn this week if the short term decline is likely over. Do not forget, however, that the QQQ remains in a longer term Stage 2 up-trend, as defined by Stan Weinstein.

Since 2006, 76% of the QQQ short term down-trends that lasted 5 days, eventually lasted for 11 days or more. I am therefore content to remain mainly in cash with a small position in SQQQ.   SQQQ is an inverse ETF which is designed to rise 3X as much as QQQ falls. The Dow 30 stocks are much weaker than the Nasdaq 100 or S&P500 stocks. One half of the Dow stocks are below their critical 30 week averages, compared with about one third of the stocks in these other indexes.

The GMI flashed a Sell signal as of the close on 1/27 and registers 2 (of 6).

I have been writing for some time about the fact that the current QQQ short term up-trend, was approaching the longest duration of any short term up-trend since 2006.   Since 2006, there have been 52 short term up-trends in the QQQ.   This table shows the length of the ten longest.   The current up-trend is now in its 72nd day and is   the fourth longest up-trend since 2006,   the way I define them.   Another down or flat day in the QQQ will begin a new short term down-trend. If that happens, the   GMI might also approach a Sell signal. (IBD now sees the “Uptrend under pressure.”) I also wrote last week, however,   that the end of a short term up-trend has not necessarily implied the beginning of an extended short term down-trend.   The new down-trend could become only   a short pause in this long term up-trend.   The fact that the Worden T2108 indicator , the put/call ratio and my other favorite technical indicators are not at extremely oversold levels leads me to conclude that we have more of a decline to come.   But no one, including me, knows for sure what will happen.   I am therefore 90%+ in cash in my margin and trading accounts.   I remain fully invested in mutual funds in my university pension accounts, which limit my ability to go in and out.   As long as the market remains in a Weinstein Stage 2 up-trend, I will stay invested there.

The weekly chart below shows the QQQ to be in a firm Stage 2 up-trend, well above its rising 30 week average (red line). It is also resting on its 10 week average (blue dotted lone) and I have found in the past that I could not make money trading growth stocks when the QQQ is below this important moving average. Also note that the QQQ could fall quite a distance to its red line support without breaking the longer term up-trend, as it did in June, 2013. Everyone must determine his/her own tolerance for risk.

The GMI has now fallen to 3.   If it remains below 3 for two days it would flash a Sell signal.

AAPL reports earnings after the close on Monday.   This daily chart shows AAPL to be   in a declining price channel.   It will be interesting to see if an earnings surprise can enable the stock to break out of this formation. We will know Monday night after the close when we will see extended hours trading in AAPL.