General Market Index (GMI) table

Market indexes hold; Many stocks bounce off of support; IBD50 stock, LULU; Cup-with handle–MSTR.

@ 7:00 am
GMI4/6
GMI-R6/10
T210866%

It looks like the short term trend of the QQQQ may turn up again. If the index holds on Monday, I will resume the short term up-trend count.   A lot of stocks appeared to bounce off of support last week.   NOG retraced to support and then broke again to a new high.   The following stocks in my watchlist found support last week:   ARMH, CAVM, HANS, PCLN, RVBD, COST, POT, BHP, AAPL, CMG, BIDU, IBM, CTXS, OPEN, PANL, PAY, APKT.   If I were looking for buy candidates, I might buy one of these companies and place my sell stop below the low of the recent bounce.

One of these stocks, which is on the IBD50 list, is LULU.   I like to buy stocks on the IBD 50 list because they meet IBD’s stringent fundamental and technical criteria. I wrote about LULU when it broke out a few weeks ago.   During last week’s weakness, the stock retraced back to its break-out point (horizontal line), and held (see daily chart below).   When a stock breaks out of a trading range, the level where it has been turned back and stops advancing, once broken, becomes a support level.   (This occurs because people who missed the break-out get a second chance to buy the stock near that level.) If I owned, or bought LULU, I would sell if it closed below support, now around $73.50.

Another stock that caught my attention is MSTR.   It has already broken out from a cup-with-handle pattern and is somewhat extended from the proper pivot point (horizontal line).   On the other hand, MSTR is nicely tracking its 4 week average (red dotted line) and would be a suitable buy only for the most aggressive traders, with a stop below the 4 week average, currently around $115. Note that the 4wk average > 10wk avg >30 wk avg, an important sign of a strong up-trend.

You can read about the cup-with-handle pattern here. The “NA” in this weekly chart shows when IBD wrote about MSTR in its New America column about visionary companies. Click on all charts and tables to enlarge.

The GMI is now back to 4, and the GMI-R is at 6.   There were 167 new 52 week highs in my universe of 4,000 stocks on Friday, a sign of strength. The QQQQ and SPY have now closed above their 10 week averages for 25 weeks, a critical sign of longer term strength.   The short term down-trend of the QQQQ reached its 3rd day (D-3) on Friday. A flat day or an advance on Monday would start a new short term up-trend count. The T2108 indicator is at 66%, in neutral territory.   However, only 18% of the Nasdaq 100 stocks closed with their MACD above its signal line, reflecting recent short term weakness.

Bottom line for me, it is okay to be long in my trading IRA account again, as long as we do not get weakness on Monday.   I am most certain of a short term trend once it reaches 5 days.   So, last week’s weakness may be just a short term hesitation in the longer term up-trend.   With AAPL set to release the second generation iPAD on Wednesday tech stocks may rally.

GMI declines to 5, GMI-R to 7; getting cautious

@ 11:32 am
GMI5/6
GMI-R7/10
T210860%

I did not post Friday’s stats because the market was closed on Monday.   So, today I publish the full General Market Index (GMI) table, that I usually post on Monday morning.   The one statistic I want to mention from Friday, was the the Worden T2108 Indicator, which reached 75% on Friday.   That means that 75% of the NYSE stocks closed above their 40 day moving average.   The T2108 indicator acts like a pendulum of the market.   Up-trends tend to end near 80% and down-trends below 20%.   With Tuesday’s decline, the T2108 moved down to 60%, in neutral territory.   One can get a chart of T2108 by signing onto the the free chart service, freestockcharts.com and entering the symbol, T2108. This service is a good free charting service that can be used for doing technical analysis of stocks, ETF‘s, and mutual funds.

Because many new readers may be coming from the UMD Stock Challenge, I have created the UMDSMC category for all posts that have additional educational content. You can get a description of the GMI components by going to the Favorites section to the right of this page.   Most people who have made a lot of money in the stock market talk about the importance of the general market’s trend to their success.   The idea is that most stocks follow the trend of the general market.   So, if one can figure out the trend, one can be sure to buy or sell consistent with it.   My GMI indicator counts a number of short and long term indicators of the trend of the market.   I focus largely on growth technology stocks, as reflected in the Nasdaq 100 Index.   This index can be bought or sold by using a number of ETF’s (exchange traded funds).   So, I follow the   QQQQ (Nasdaq 100) and SPY (S&P500) and DIA (Dow 30 Industrials) ETF’s. You can look at this post to see how the GMI kept me out of the market during the big decline in 2008. I teach my students that it is possible to time the market and they should not ride a significant down-trend.   Better to get out of a significant decline and to buy back in after it ends. (One can keep dollar cost averaging into diversified mutual funds all through the decline, though, because they tend to come back with the market.)

The GMI declined on Tuesday to 5, and the more sensitive GMI-R declined to 7.   The long and short term market trends I follow are still up, but the short term trend would turn down if the QQQQ does not advance on Wednesday.   Last Friday was the 64th day of the current short term QQQQ up-trend. Note that the SPY and QQQQ have closed above their 10 week averages for 24 weeks.   This has been a long advance.   I tend to become cautious when the market indexes close below their 10 week averages or when the GMI declines to 3 or less. I also become concerned when the market leaders, like GOOG, AAPL, NFLX, weaken, as is now the case.

Remember, one can always get out of a position and re-enter it if the stock shows your buy signal. In simulated trading and when trading in a tax deferred account, one does not have to worry about tax consequences or wash sales rules.

Bottom line is that I am watching the short term trend of the QQQQ.   If it turns down, I will not buy new stocks and will monitor my short term holdings for exits.   The key to success in the stock market is to have a lot of little losses and a few very large gains.

NOG: RWB rocket stock with possible cup-with-handle break-out

@ 7:00 am
GMI6/6
GMI-R10/10
T210869%

As my regular readers know, each Monday morning I post a table containing the components of my General Market Indicator (GMI) and my revised GMI-R.   These indicators track short and long trends in the market and keep me on the right side of the trend.   All of the major   traders I respect (Darvas, Livermore, O’Neil) talk about the importance of the trend in the general market indexes in determining their success.   Most stocks rise or fall consistent with the market trend.   So half the battle for profits can be achieved if we track the market averages.   This table shows that the GMI and GMI-R remain at their maximum levels.   The QQQQ and SPY have closed above their critical 10 week averages for 23 straight weeks. This has been a huge up-trend.   When will it end?   No one knows for sure.   It could end when we get to May (“sell in May and go away“) or it might be some major event like the inability of the president and congress to agree on a new federal budget, with a resulting shut down of the federal government.

I am a chicken when it comes to investing and often exit too early from the market. I did so a few weeks ago when I read all of the news about an impending municipal bond default.   This debacle might occur, but probably when we least expect it.   The GMI only tells me the current trend.   It will signal a down-trend only after it has begun.   So, the proper course for me is to remain on the long side, with one eye always on the exits.

The T2108 remains in neutral territory, at 69%.   57% of the Nasdaq 100 stocks closed with their MACD above its signal line, a sign of short term strength.   There were 542 new 52 week highs in my universe of 4,000 stocks on Friday, the most since   685 on January 3rd. The short term up-trend in the QQQQ has now lasted for 58 consecutive days. During that time, the QQQQ has gone up +11.4%, the DIA   +9.5%, and the SPY +11.2%.

If I had simply bought an ultra long index ETF I would have had spectacular returns without the need to buy individual stocks:   QLD +23.9%, TYH +39.9% and TQQQ +37.2%. Only 20% of the Nasdaq 100 stocks rose 20% or more during this period and only 7% rose 30% or more.   So why spend time trying to find the few stocks that can beat these ultra index ETF’s? I have come to this conclusion repeatedly over the past few years. The best strategy may be to slowly buy into one of these ultra long index ETFs when the short term trend turns up and to slowly wade into the inverse ultra ETF’s (QID, TYP, SQQQ) when the trend turns down…..

But I can’t resist looking for promising stocks!   I did a scan of Monday’s IBD 50 list and found 5 stocks that were bouncing off of support: NOG, MELI, COH, EZPW and LYB.   One of them, NOG, may have broken out of a cup-with-handle base on Friday. It closed above its pivot point in the handle (horizontal red line) on above average volume.   According to William O’Neil, if one buys a successful stock emerging from a good base at the perfect time, it rarely declines 8%.   Therefore, if one purchased this stock at the correct pivot point at about $28.15) one would place a protective sell stop (GTC, good-til-canceled) around $25.89. David Ryan, O’Neil’s successful protege, wrote that he would often set a   sell stop even closer to his purchase price.   NOG closed at $28.63 on Friday. If I bought it on Monday, I would probably place a stop at $27.49, just below Friday’s low price.

As the weekly GMMA chart below shows, NOG is also am RWB rocket stock at its all-time high, with all of its short term averages (red) well above their rising long term averages (blue lines).