General Market Index (GMI) table

I wrote on Friday morning that the QQQ short term up-trend may falter. More important, after 13 weeks, the QQQ has now closed the week below its critical 10 week average.   In contrast, the SPY completed its 14th week above its 10 week average. I have found it difficult to make money on the long side with tech stocks when the QQQ closes below its 10 week average. In fact, this weekly chart of the QQQ shows that the QQQ may be completing the right side of a head and shoulders top pattern.   A few weeks ago it looked like the index was moving above this region, signified by the blue horizontal line, but it has come back down.   We can see that the QQQ is now below the 10 week average (blue dotted line) and the critical 30 week average (red line) may be starting to curve down–a very ominous sign.   The QQQ is about where it was at the formation of the left shoulder last March, for a yearly gain of zero! A close below its 30 week   average (currently 66.81) would lead me to get very defensive on QQQ and IBD type stocks.   But it is best for me to wait for a definitive breakdown and not to anticipate one that may never materialize. Even if this is not a classic head and shoulders top, a failure of the rebound that began last November will likely lead to considerable short term weakness.

Meanwhile, IBD still sees the general market up-trend under pressure, and the GMI-2 is now at 3, reflecting short term weakness. The   GMI remains on the buy signal issued on February 28 and is at 5, but the QQQ short term trend could turn down with another weak day on Monday. The QQQ short term up-trend reached its 24th day on Friday. The Worden T2108 is at 48%, in neutral territory. Only 32% of the Nasdaq 100 stocks closed with their MACD above its signal line, also reflecting short term weakness. However, with the SPY and DIA still showing strength, this is a split market and very difficult   to trade. I remain 100% invested long in mutual funds in my university pension where I cannot trade often.   I am largely in cash in my trading accounts. If the QQQ continues to weaken I may buy some QID or SQQQ in my trading accounts and bet on weakness in the QQQ. We are getting close to the ominous Sell in May period.

The GMI and GMI-2 are both at 6 (of 6).   If one had purchased QQQ just   before   the close of day one (U-1) of the current QQQ short term   up-trend on 3/4, one would have a +1.9% gain, with QLD +4.0% and with TQQQ +6.3%.   During the same period SPY advanced +2.5% and DIA +3.0%, outperforming the QQQ. It remains to be seen whether the tech stocks reflected in the QQQ will continue to underperform the large stocks in the DIA and SPY. With T2108 at 62%, the market does not appear to be extended in either direction.

The eleven stocks coming up this weekend in my TC2000 scan for technically strong stocks bouncing up off of support appear in the table below.   TREX, SWI and WHR are near green line tops. The stocks with blue flags appear in one of my watch-lists reflecting promising stocks discussed by IBD. This list is a good place for me to begin researching promising stocks for possible purchase–no guarantees!

One of my most important discoveries is the green line chart.   If you go to the side of my blog and select the video I did last December you can see how I build green line charts.   That segment is about 78 minutes into the video. Green line stocks are those that have been advanced to an all-time high, consolidated, and then broken out to a new high. These are the winners I seek to own.   Any stock that has this pattern is showing unusual technical strength.   Furthermore, a stock at an all-time high has no persons who bought at higher prices and are now trying to get out.   Said in another way, a green line break-out stock has no overhead supply of stock from people who bought at higher levels and are holding losses.   Once I find a green line stock I look to see if the break-out occurred recently and whether it has the type of technical and fundamental characteristics I like.   Recent green line break out stocks I own are TRIP, Z, IBM, AXP and CVX.

Back in March 2009, after the devastating market decline, I wrote about GMCR   approaching an all-time high.   I opined that any stock that could come through that market decline near an all-time high was showing amazing technical strength.   I had not discovered the green line approach, but it is interesting to go back to that period and draw it in.   Look at this weekly chart of GMCR in 2009, which has been adjusted for stock splits. GMCR went on from that break-out to advance almost 900% before peaking in late 2011.   Stocks breaking out of a green line top after a large market decline can become huge winners.

I have a green line break-out scan I wrote for TC2000.   Among the green line stocks to show up over the weekend are:   WAT, DFS, CAB, NEE, BCE, BOKF, ATR, WSO.   I draw the green line on each monthly chart and then examine how it looks on the weekly chart to see how recent the break-out was.   DFS is a pretty chart of a stock that had a green line break-out last week.

Another example is CAB.

The way I invest in a green line break-out is to buy a little and wait to see if the green line holds.   If it does, and the stock gathers strength I add to my position.   A lot of stocks will fall back to the green line before they advance.   Green line patterns are longer term in nature and meant to find stocks that will rise for months.   Of course, no one knows whether a green line break-out will succeed.   That is why I make a small pilot buy and give the stock a chance to prove its strength.   I then get out of those that weaken and add to my stronger positions.

Green line patterns work best in up-trending markets, with the GMI on a buy signal–like now. The current GMI buy signal has been in place since February 28. The GMI is at 6 (of 6) and the GMI-2 is at 5 (of 6).   Friday was the 10th day   (U-10) of the current QQQ short term up-trend. It remains to be seen whether the QQQ will catch up to the SPY and DIA.

By the way, note the recent   green line break-out in the Dow 20 Transportation Average.   All of those pundits who are suggesting that this market may be too high, may be missing the impressive new up-trend in this critical component of the Dow Theory. The DIA has also had a recent green line break-out, completing a classic Dow Theory buy signal.