General Market Index (GMI) table

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.

I am still waiting for to see whether this base will hold.   Friday was the 18th day of the QQQ short term down-trend.   The longer term trend remains   down.   It is very tempting to nibble at stocks that are rebounding.   The problem is that the decline could resume quickly for such stocks.   It is much safer to own stocks when the GMI is at least 4.   With the GMI still at zero, I will let the bottom feeders get in before me.   When my indicators signal a true up-trend, I will get back in.   A trend follower always waits for a trend to develop and therefore identifies     bottoms and tops after they have been established. The GMI2 contains several more sensitive short term indicators which can turn up in a counter-trend rally   during a down-trend. Friday was the 18th day (D-18) of the current QQQ short term down-trend. Only 2 of the 9 leaders I follow have closed above their critical 10 week averages: AAPL and AZO.

I had the opportunity the past few weeks to listen to CNBC and other financial reporters more than usual.   I am tired of listening to them pontificate about how long the decline will last and whether gold can climb higher.   No one knows the answers to such questions.   The market is a collection of people and machines voting with their money millions of time each day.   Trying to predict their actions is a foolish endeavor.

One of the most stupid ideas I have heard   is to suggest that the current market decline is unique and caused by   high frequency traders or program traders.   Human psychology has not changed and market behaviors continually repeat themselves. I decided to look at the long multi-week declines of the Dow 30 Index since 1916.   I computed the duration and depth of every multi-week decline that has occurred.   I defined a   multi-week decline as one when the Dow declined at least 15% in a few weeks without a consolidation along the way, in other words, a steep, unceasing   decline.   My calculations were quick and dirty so do not hold me to them exactly.   They still paint a valid picture. I found that the current decline is not unusual.   The Dow has now declined about 15% in 4 weeks.   Since 1916, there were 4 other declines (in red) that lasted just 4 weeks and lost at least 15%.   They occurred in 1916, 1931, 1987, 2001.   This does not include the other declines in this table that lasted longer than 4 weeks and probably fell as much in the first 4 weeks of decline.   My point is that the current decline is nothing new.   How many of these   declines that occurred before the PC can we blame on program trading or high frequency trading!   Note that   30 of these 33 declines were greater than the current 15%.   So this decline may have a lot further to go…….

With bullish sentiment about twice bearish sentiment, I think this decline may have a lot further to go.   But, as I said before, nobody knows.   So the best strategy for me is to remain out of the market until the new bottom is in.   I could go short by buying puts or inverse ETF’s.   But sometimes it is just relaxing to be away from the market.   In declines I continue to monitor the new high list for potential leaders in the next up-trend.

The GMI and GMI-2 remain at zero.