IBD50 list from 1/10 out-performs Nasdaq100 and S&P500 stocks; Some IBD50 stocks at support

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GMI-25/9
T210873%

In January, IBD discontinued the IBD100 list of stocks published each Monday and started publishing a shorter, better list of 50 stocks—IBD50. I rely heavily on IBD’s list of stocks because I am convinced that the high momentum growth stocks that meet their selection criteria do out-perform other stocks in a rising market.   I have shown that in a declining market they do much worse.   Hence the “M” in William O’Neil’s (IBD’s publisher and owner) CAN SLIM approach to trading stocks.   The “M” signifies that one must trade consistent with the overall market’s trend.

I build watch lists in TC2000 periodically for the IBD100/IBD50 list published in Monday’s edition of IBD.   While I recommend that people get a subscription to IBD so they can use their excellent website, some people may benefit from getting at least the Monday edition at the local newsstand. The first IBD50 list I stored was the one published on Monday, January 10, 2011.   Over the weekend I computed performance statistics for the 50 stocks on the list since their close the Friday before publication through last Friday’s close.   I compared the IBD50 stock performance to the stocks in the Nasdaq100 and S&P500 indexes.

This table shows a few interesting things. During this time period, the Nasdaq100 index ETF (QQQ) advanced +2.5% and the S&P500 ETF (SPY) rose   +4.9%.   So this is a period when the nonfinancial tech stocks that make up the Nasdaq100 index and are most similar to the IBD50 type of stocks, underperformed the S&P500 type of large cap,   stocks. Thus, the results for the IBD50 are probably poorer in this period than in periods when tech stocks are outperforming.

Nevertheless, the table tells an interesting story.   Click on table to enlarge. A higher percentage of the Nasdaq100 and S&P500 component stocks rose (67% and 77%, respectively) than the IBD50 stocks (60%). However, more IBD50 stocks gained at least 10% or 20%.   In fact, the IBD50 stocks were much more likely to gain 20% in this period, 18% rose 20%+, compared to 11% of the Nasdaq100 stocks and 10% of the S&P500 stocks.   The IBD50 stock list also contained a stock that gained the most, SINA (+45%), while the largest gainer in the Nasdaq100 stocks was WFMI (+37%) and in the S&P500 stocks, COG (+44%).   The biggest loser in each of the 3 lists (FFIV and AIG) was down -34% to -39%.   The median change (one half of the stocks did better than this value) for the IBD50 was +8%, larger than the median change in the other two lists (+5.5% and +6%), showing that the IBD50 stocks did outperform the other two lists of stocks.

My conclusion from this analysis is that in a period when tech stocks underperformed the general market, the IBD50 stocks did somewhat better.   Most important the IBD50 list was a better place for finding large gainers. And to find the 20%+ gainers one only had to research 50 stocks instead of the 100 or 500 stocks in these other two indexes. Maybe IBD has a good idea here…..

Friday was the 3rd day (U-3) in the new QQQ short term up-trend. When it gets to 5 days, I will be more confident of its longevity.   But keep in mind that the QQQQ and other major stock market indexes remain in longer term up-trends.   Thus, I have not touched my long term university pension mutual funds.   I only transfer them to money market funds when the major trends turn down.   The GMI is at a very comfortable 6.   The GMI2 is at only 5, because the   pattern   4wk moving average > 10 wk > 30 wk is not present.   The 4wk average remains below the 10 wk average.   Both the QQQ and SPY are now above their 10 week averages, a promising sign.   And 90% of the Nasdaq 100 stocks closed with their daily MACD above its signal line, a sign of strength.   One note of caution is that the Worden T2108 indicator is at 73%, near the overbought levels where markets can top out. I will be concerned if the T2108 breaks 80%.

With the start of the short term up-trend I am starting to look for stocks to buy.   I used TC2000 to scan all of the IBD50 stocks that I entered into watch lists this year.   I looked for stocks bouncing up off of their 10 week moving average.   Many growth stocks, once launched, track their rising 10 week averages for months.   I often buy such stocks after they bounce off of this average and place a sell stop slightly below the low of the week in which they bounced.   All of the IBD50 stocks in this table showed up in my scan   as having bounced their 10 week average last week.   The second column shows the lowest price at which each stock traded last week and the point where I am looking to place a sell stop if I were to purchase one of these stocks.   This would be a good list of possible buy candidates for my students and others participating   in our simulated university stock challenge, UMDSMC, to research.

GMI back to 4, critical test coming this week; RWB Nasdaq 100 stocks shine

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GMI-24/9
T210861%

Well, the market has clawed itself back up   to critical technical resistance levels.   The SPY and DIA have closed back above their 10 week averages, but the QQQ closed just below that level.   A close of QQQ above 57.06 would give me a buy signal.   I have repeatedly found that I can trade growth stocks profitably only when the QQQ remains above its 10 week average.   The GMI has come back to 4, a level at which I start to feel comfortable going long. Of note, the IBD Growth Mutual Fund index is now above its 50 day average.   Nevertheless, IBD still considers this market to remain in a correction.   There have just been no large volume up-days in the major indexes.   My   SPY and QQQ daily indexes also are still negative.   (Click on table to enlarge.) The QQQ completed the 14th day of its short term down-trend on Friday. A little strength on Monday and Tuesday could bring that index into a new short term up-trend. It is noteworthy that 62% of the Nasdaq 100 stocks closed with their   daily MACD above its signal line, a sign of short term strength. And the Worden T2108 indicator is now at 61%, in neutral territory.

During the current QQQ short term down-trend, a few Nasdaq 100 stocks have shined.   Since March 8, the following stocks in this index rose the most: NFLX (+17.7%), BIDU (+12.3%), WFMI (+9.8%), SBUX (+8.5%) and DLTR (+6.8%). If the QQQ begins a new short term up-trend, these stocks may lead the rise.

As this weekly chart shows, NFLX has been in n RWB rocket stock pattern for over two years.

And BIDU:

And WFMI:

And SBUX:

Perhaps I should just buy RWB stocks and ride them until the short term averages (red) fall below the longer term averages (blue).

Like CAAS:

Get the picture? Just ride the RWB stocks up and exit and/or short the BWR stocks on the way down.

9th day of QQQQ short term down-trend;

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GMI-21/9
T210836%

The QQQQ short term decline completed its 9th day on Friday.   Both the S&P500 Index ETF (SPY) and the Nasdaq 100 Index ETF (QQQQ) have closed below their 10 week averages.   IBD continues to designate the market to be in a correction.

I am safely out of the market, in cash in my trading IRA.   I own a little of the ultra 2X short QQQQ ETF, QID, which is designed to rise 2X as much as the QQQQ falls.   I remain fully invested in mutual funds in my university pension account, which limits fund transfers.   I only transfer out of mutual funds and into money market funds in that account when my longer term indicators signal a major decline.   Right now, the long term trend remains up.

But in my trading IRA where I can go in and out of the market at will, with no tax consequences, I remain mostly in cash.   Why ride stocks down or try to find the few that will gain in a declining market?   Since the QQQQ short term down-trend began on March 8, that index ETF, QQQQ, has declined by -5.2%.   During the same period, 92% of the Nasdaq 100 stocks and 82% of the S&P 500 stocks have declined.   Why fight the tide? Years ago, I used to make money in an up market only to lose all of my profits and more in the subsequent decline.   Going to cash clears my mind and enables me to comfortably plan future strategy.

So, the GMI and GMI2 remain at 1 each.   (Click on table to enlarge.)   These indicators keep me on the right side of the market’s trend.   The Worden T2108 indicator is now at 36%, low but not yet at an oversold extreme. Only 12% of the Nasdaq 100 stocks closed Friday with their MACD above its signal line, a sign of short term weakness. I am monitoring stocks, looking for those that resist the down-trend.   These stocks may be the leaders when the up-trend resumes.