GMI rises to 3; Market may be turning, some promising growth stocks at new highs

GMI3/6
GMI-23/9
T210843%

To understand human beings, one must concentrate on their behavior rather than their words. The same goes for the markets.   Ignore all of the verbal noise of the media pundits and concentrate on the markets’ actions.   And this market appears to be turning around, at least for now.   The T2108 is well out of oversold territory and the indexes are crossing above both their long and short term moving averages.   All but two   of the market leaders I follow are showing signs of strength, including AZO, AMZN, AAPL, GOOG, FFIV, CMG and BIDU. NFLX has been in a down-trend since July and PCLN is flat. The fact that a leader like AAPL can come through the volatility of the past few months within 1% of its all-time high bodes well for tech and growth stocks.   I am wading into this market and have a position in   AAPL.

The other indicator that is encouraging me to go long is the fact that the Investors Intelligence poll of investment advisers shows about 5% more bears than bulls.   This rarely happens and the market often goes up when so many professionals have given up on the market. Yes, we still have to get through that dreaded month of October, but remember that the “sell in May and go away” mantra says to go back into the market around Halloween. I have seen many markets bottom out in October.

When there are only a few stocks hitting 52 week highs, it is easy to go through the list of new highs   to look for stocks that may surge higher when the market strengthens. On September 7, I wrote about the technical strength in AZO at $313.83. AZO closed on Friday at $331.25 up 5.5%, but more importantly a rise of   over $17.   I buy expensive stocks and trade on the point move, not the percentage move, and a   17 point move on one call option = $1700.

The following stocks showed up on the new high list on Friday, have strong recent quarterly earnings   and look technically promising to me: JAZZ, ATHN, DLLR, EVEP, HITK. I will place these on my watch list for potential buys if the market trend continues up. As this monthly chart shows, HITK has just broken through a major resistance level over the past 8 years. Institutions may have stepped up buying of HITK.   HITK has a 98 (out of 100) composite rating in IBD and is at or near the top in each IBD group comparison.

 

The GMI and GMI-2 are each at 3 (of 6).   The last time the GMI was at 3 was August 1. All of my indicators that reflect the indexes’ place in relation to their moving averages are positive.   The remaining negative indicators   in the GMI will depend on their being a longer up-trend that will show more new highs that continue to move up, and on the performance of the IBD Mutual Fund Index.

If you have a subscription to IBD, take a look at the insightful interview with William O’Neil, the founder of IBD and creator of the   CAN SLIM method, posted on Monday’s homepage of the IBD site.   He discusses a number of the stocks I have highlighted recently, including AAPL, ALXN and ATHN.

Note that the QQQ is now above its 10 week average and leading the market up, while the SPY, which includes financial stocks, is still bearly (pun intended) below its 10 week average, for the 8th week. I generally can make money trading tech stocks when the QQQ remains above its 10 week average. I am still concerned that its 30 week average (red solid line) is declining, but at least the index is now above that critical average.

So, I am   buying some growth stocks in my speculative accounts.   I am considering slowly wading back into the growth mutual fund in stages in my university pension this week, but I prefer the 10 week average (blue dotted line) to be rising. See the pattern at the rise that began in September, 2010. Click on chart to enlarge.

Note that the registration for the Fall 2010 Stock Challenge begins today and is open to honors alumni and all students faculty and staff in the University of Maryland System.

100% cash; S&P 500 in Weinstein Stage 4 decline

GMI1/6
GMI-21/9
T210822%

I was tempted to buy some longs recently and paid the price.   I am now back to 100% cash.   With the GMI at 1, it makes no sense for me to be buying or holding stocks.   When the market turns up, there is plenty of time to go long and profit.   The QQQ short term up-trend is in its 2nd day but another weak day on Monday would begin a new short term down-trend. It is very difficult to have the discipline to stay out of the market, but a few losses quickly gets me back on track.   If I wanted to trade actively, I would be shorting or buying inverse ETF’s that go up as their underlying basket of stocks declines. Note that the QQQ has closed below its 10 week average for six weeks.     The SPY, which is weaker because it contains financial stocks,   has done so for seven weeks. The Worden T2108 Indicator is at 22%, in a neutral range, but close to the level where bottoms have occurred. On August 8, T2108 bottomed at 7%. It will be interesting to see if the market reaches that extreme weak level again.

This weekly chart of the S&P500 Index (click on chart to enlarge)   shows that index to be in a Weinstein Stage 4 decline.   Note that the 4wk average (red dotted line) is below the 10 wk average (blue dotted line) which is below the 30 wk average (red line).   This pattern is a sign to me of a major down-trend. We will know a new up-trend has begun when we get back to a pattern with the 4wk>10wk>30wk, as occurred last October at the beginning of that multi-month rally. The current decline looks more severe than the consolidation that occurred last year, because the 30 week average (red line)   is now declining. A declining 30 week average was one of the patterns that alerted me to get out of the market in 2000, and again in 2008. No one knows when this decline (or any decline) will end.   Better to be safely in cash than to try to guess the bottom. The GMI-2 will increase as the moving averages I monitor turn up and will alert me to a probable change in the primary trend of the market.

 

Futures portend down open; new QQQ short term up-trend in jeopardy; still in cash

GMI0/6
GMI-22/9
T210824%

I have been saying for quite some time that we needed to wait until the counter-trend rally was complete in order to see if the recent bottom will hold.   If the bottom holds, we could see the rally resume.   Still, the market remains in a longer term down-trend for now and it makes the most sense to me to stay in cash until the trend turns up.   The new QQQ short term up-trend could end with a decline on Tuesday. With the GMI at zero, it makes no sense to have any long positions.

I love to watch the new high list for clues to the next leaders when the market recovers.   Most stocks hitting new highs are gold-related. However, several other strong stocks that I am watching are:   MAKO, JAZZ, COG, CF and ALXN.   I will watch them patiently until the market trend turns up and the GMI approaches 4.