General Market Index (GMI) table

With the GMI and GMI-R now at one, the technical signs are just too weak to own stocks.   The QQQQ has just started a new short term down-trend (D-1) by my criteria. The 30 week average of the QQQQ is flat, which leads to many whipsaws of the indexes above and below the shorter term moving averages.   For example, the last short term down-trend lasted just 4 days, then we had a brief 15 day up-trend, which just ended.   The SPY and QQQQ are now below their 10 week averages.   My long trades are most likely to be profitable when these indexes remain above their 10 week averages.   Only 27% of the Nasdaq 100 stocks now have their MACD above its signal line, a sign of short term weakness.   Finally, the Worden T2108 indicator is at 53%, in neutral territory.   So, we are in a declining market, but not yet in an oversold state.   Most market declines end with the T2108 below 20%.   And soon we enter the typically weakest month of the year for the market–September.

In a market like this there are many submarines–stock in likely longer term down-trends.   Some of them picked up by my submarine scan are: BBBB, SNX, RTN, WDC, JCG, MR, VPRT, MD, TEVA, ASIS, LIFE, MHS, SLAB, ATHR. During market down-trends, I sometimes buy deep in the money puts on submarine stocks in my IRA. There is one caveat keeping me from   entering new   short positions right now.   The daily stochastics for the DIA, SPY and QQQQ are in oversold territory–we may get a bounce during the coming week of options expiration.

I know many people doubt the ability of this rally to continue.   But the QQQQ short term up-trend is only 11 days old!   I decided to apply the stochastics   indicator to the Worden T2108 Indicator.   The T2108 acts as a pendulum of the market, going from overbought to oversold, as does the stochastic.   The weekly chart below (click on to enlarge) shows the stochastic of the T2108 compared with the performance of the Dow 30.   What is clear to me is that the stochastic, while high,   is still climbing and shows no sign of an impending decline.   So this rally may have a ways to go.

The GMI is 6 (of 6) and the more sensitive GMI-R is 10 (of 10).   The SPY and QQQQ have closed above their critical 10 week averages for three straight weeks.   The T2108 is at 79%, which is in overbought territory, but it can stay there for weeks. I ran a new scan that finds stocks with a relative strength rank of 95 or higher for three time periods.   Among these stocks were 4 that are also on my IBD100 or New America watch lists: IDSA, CRUS, APKT, NFLX.   I own one of these. I think it is worth researching these stocks for possible buy points.

On Saturday, I had the honor of speaking before the Virginia AAII Computerized Investing SIG.   I spoke about my technical analysis course at the University of Maryland and my trading strategy.   I presented a lot of material which I included in my Worden webinar.   For those who missed Saturday’s session or would like to review my material, please go to www.worden.com and scroll down to the webinar, “A word from the professor.”   I think that Saturday’s   session went well and I was pleased to see that most attendees said they would enroll in a future workshop, if I should arrange one. If anyone who was there would like my oversold stochastic followed by a buy signal PCF, please email me at:   silenknight@wishingwealthblog.com

Meanwhile, the GMI is still at 5 (of 6), with only my Weekly QQQQ trend indicator remaining negative. The short term trend of the QQQQ remains up and has just passed its 6th day.   The QQQQ and SPY   ETF’s have closed above their critical 10 week averages for two weeks.   I tend to make money trading on the long side only when these indexes close above their 10 week averages.   The Worden T2108 Indicator is at 79%, near overbought territory, where it can often remain for months. Finally, 73% of the Nasdaq 100 stocks have a MACD above its signal line, a sign of near term strength.

With the Weekly QQQQ Index still negative, I am reticent to commit to the long side of the market.   I therefore remain heavily in cash.   However, as I wrote on Friday, I think that UNG may be bottoming   and I have a long position in this natural gas ETF.   I usually only buy stocks at all-time highs.   Commodities are different, however, because they have a true value.   Natural gas is not likely to go to zero.   I therefore think that commodities go back and forth between oversold and overbought. Since UNG seems to me to be forming a bottom after a tremendous decline, I am willing to place a small bullish bet on it.   It recently gave me a buy signal after hitting extreme lows on its stochastic indicator. If I am right and UNG continues to strengthen, I will add to my position.   Below is a monthly chart of UNG. (click on chart to enlarge.)   UNG has closed above its 5 month moving average (dotted line) for the first time since the decline began in July, 2008.