General Market Index (GMI) table

Submarine scan worked–PWRD dives; Market treacherous

@ 7:00 am
GMI0/6
GMI-R0/10
T210812%

On May 3rd, I posted the results of my submarine scan, designed to detect stocks in a significant down-trend. The scan was run on the close of 4/29 and this table shows the performance of the nine stocks since then.   TC2007 lets me run a watchlist tracking report that shows the changes of each stock in a watchlist as of the date the stock was added to the list. One can see from this list that all 9 stocks have declined, not an unexpected result, given the market’s decline since then.   Since the close on 4/29, the QQQQ has declined almost 11% and the S&P500 index (SPY), almost 10%.   Note, however, that 5 of the 9 submarine stocks ( 56%) have declined by 15% or more.     In comparison, only 17%of the Nasdaq 100 stocks and 19% of the S&P500 component stocks have declined at least 15% during the same period.   Thus, my submarine scan detected stocks that were more likely to have taken big dives   than would be expected in the components of the Nasdaq100 and S&P500 Indexes.

Furthermore, I wrote in that post on May 2nd, that the charts of 2 Chinese online gaming stocks (NTES and PWRD) looked quite weak and posted a chart of PWRD (click and scroll to post from May 3). Here is the current daily chart of PWRD.   I noted with an arrow the bar on 4/30 which I was looking at when I wrote the post on 5/3.   Note the tremendous gap down that occurred in PWRD on 5/17.   Both NTES and PWRD are down more than 15% since I wrote about them, but PWRD is down more than 25%. It clearly is possible to scan the market for a set of stocks that are more   likely to decline, if the general market weakens……..

As to the general market, all of my indicators are negative.   So the GMI and GMI-R are each zero.   Friday was the 13th day of the current QQQQ short term down-trend (D-13).   The QQQQ and SPY closed below their 10 week averages for three weeks.   Only 2 of the Nasdaq 100 stocks closed with their MACD above its signal line, a sign of short term weakness.   The Worden T2108 Indicator, at 12%,   is still in an oversold area where bottoms or bounces typically occur.  The strength of the bounce that began on Friday will determine whether we are in a brief correction or at the beginning of a major new decline.   I am watching the indexes very carefully, and remain mainly in cash in my trading IRA.   If it looks like a major decline is likely, I will move to a money market fund in my university pension. This is a very treacherous market and not the time to be a hero.   The major markets   look very weak to me.

China in Free-fall, buying FXP; QQQQ completes 8th day of short term down-trend

@ 7:00 am
GMI1/6
GMI-R1/10
T210828%

Every once in a while the charts become so bad that they scare me.   I check a number of market indicators every night and was concerned by the current steep decline in the Shanghai Composite Index.   The weekly   chart (and monthly chart, not shown) are very ominous.   After a major decline (almost 70%) from 2007 to 2008, this index began a rebound in which it almost doubled from the bottom, until August of 2009. Since its August top, the Index declined and made another failed attempt to rise, topping out in November, 2009.   It then declined again and made one last feeble attempt to rise, topping out in April 2010.   When that rally failed, the Index broke down below prior support and now appears to be in a free-fall.   Where it will stop is any person’s guess, but we do know that China’s government is trying to cool the economy.   In the U.S., when the Fed tries to cool the economy from a boom, it usually ends with disastrous consequences for the market.   While I think a crashing China would have disastrous consequences for the rest of the world that has been banking (pun intended) on China to help the world recover from its recession, I can still look for a way to profit from   the decline in this Index, if it continues.   I have therefore purchased a little of FXP, the Ultra Short ETF that tracks the daily performance of the FTSE/Xinhua China 25 Index. FXP is designed to rise twice as much as this Index falls. I know these ultra ETF’s can be very volatile and I therefore bought a few shares with the idea of adding to my position if the decline continues.   What caught my attention was the largest weekly volume of trading in FXP the last few weeks as it started to rise. So, the big boys are apparently buying FXP.   The volume of shares traded in FXP the past 5 weeks is the highest that it has ever been since this ETF started trading in 2008.   My students should see immediately from this weekly chart that this ETF may be completing a Stage 1 base and beginning a new Stage 2 up-trend.   It is still too early to know if this is happening, but I thought it was worth taking a small position in FXP, given the recent up volume (green bars). The other ominous situation I am tracking is the relationship between the China and the U.S. markets.   Both the China and U.S. markets declined steeply in 2008 and rebounded, but China’s market bottomed 5 months before the U.S. market. Now that China’s rebound appears to be over, could the U.S. market’s rebound also end   soon?

To answer that question, I rely on my GMI and GMI-R, which are both registering one point. We are in the middle of a short term down-trend in the QQQQ and I am in cash, fully hedged, or short in my trading IRA.   The one remaining positive indicator is my longer term, Weekly QQQQ Index.   If that should turn negative, making the GMI and GMI-R register zero, I will consider moving my university pension funds from mutual funds to money market funds. I typically, however, like to see a Stage 4 down-trend begin before I do that. Meanwhile, we are in the 8th day of the current short term QQQQ decline (D-8).   Since the inception of this decline (D-1), the QQQQ has fallen -2.6%, and 90% of the Nasdaq100 component stocks and 81% of the S&P500 stocks have declined.   So much for trying to find the few winners to go long with.   My students know that to have an edge in trading one must trade with the market’s trend, not against it. The Worden T2108 Indicator is now at 28%, out of oversold territory, having rebounded from 15% last Friday.   With options expiring this Friday, things could get very volatile.   I am content to be mainly on the sidelines with a bias towards the short side…….

Great Washington Worden Seminar; Market in short term down-trend; Mainly in cash

@ 5:38 pm
GMI1/6
GMI-R1/10
T210815%

On Saturday,   I had the opportunity to present for 2.5 hours at the Worden software work-shop.   I showed the audience how I use TC2007 to manage my trading. It was gratifying to see the warm reception I received from a   local, primarily older adult group.   I just finished two courses at the university and have been accustomed to lecturing to college students.   It was a new experience for me to present to a class of people who were their parents’ ages.   A big surprise was that my star student from three years ago surprised me by attending the work shop and told me that when he graduates in a few weeks, he will move to California to open up his own mutual fund.   The year after he completed my course, he made a lot of money buying put options (betting on a decline)   on USO during its dramatic decline in 2008, from over $100 to around $22. So the afternoon presentation was an exciting time and most of the 120 attendees said they would take my course on the market if it were ever offered more widely………

The market action last week spooked a lot of people.   My account actually rose on bizarre Thursday, with my position in TYP. This is now a good time for me to be in cash on the sideline.   The GMI and GMI-R are both back to one.   The only indicator that is still positive is my weekly indicator of the QQQQ.   The QQQQ remains in a Stage 2 up-trend (see weekly chart of QQQQ), as defined by Stan Weinstein (see his book to right).   So, in my trading account I am short and mainly in cash.   In my university pension I remain fully invested in mutual funds.   I only transfer my pension funds to cash when the weekly trend enters a Stage 4.   By that time, the 30 week average will have curved down.   I have successfully avoided past major down-trends by getting out at the beginning of a Stage 4. Note that the QQQQ closed right on the 30 week average (red). As long as the 30 week average continues to rise, I will ride this up-trend in my pension account.

In spite of the short term down-trend in the QQQQ, I do not   think this is the time for me to begin to short stocks in my trading account.   This is because the Worden T2108 indicator, at 15%,   is already in an area where prior bottoms have occurred.   If this indicator, which declined from 64% last Friday, should hit single digits this week, I would be looking for a bottom.   I might even buy some QLD (ultra long QQQQ ETF), if that occurs. Every time I have said this, I get scared when the T2108 hits such a depressed level.   This time I will try to take advantage of a further drop into such an extreme level.   The T2108 touched 6% at the re-test of the bottom in   March, 2009, and 1% at the panic bottom in October, 2008.   These were extreme readings, however, not seen any other time in the past decade.   Friday was the third day of the new QQQQ short term down-trend.   I will be more certain of this new down-trend if it lasts for 5 days.   Once we pass that point, trends tend to last for a while.   Note that only 1% (1) of the Nasdaq 100 stocks closed with its MACD above its signal line, another sign of short term weakness. For the first time since February 4th, there were more new 52 week lows than highs (46 vs. 10) in my universe of 4,000 stocks.   This is not the time for me to be buying stocks at new highs.

I looked at the performance of the IBD 100 list published on Monday, 4/12/2010. Since these stocks closed on 4/9, only 17% have advanced through last Friday.   Put another way, during this period the QQQQ has declined 7.4%, while more than half of the IBD100 stocks declined 9.5% or more.   Growth stocks tend to go up more in up-trends and decline more in down-trends, as traders take profits. For example, since 4/9 to 4/26 when the QQQQ topped, 50% of this IBD100 list advanced 4.9% or more, while the QQQQ increased only 2.8%.   So I continue to concentrate my buying in IBD100 stocks, but only in QQQQ short term up-trends (within a longer term up-trend).

By the way, remember I ran my submarine scan on 4/29?   Well, since then, all nine of the stocks that came up have declined, as did all of the Nasdaq 100 stocks.   Three of the nine (33%), however,   are down 17% or more, during a time when the QQQQ declined by 9.6%, but only 5% of the Nasdaq 100 stocks declined 17% or more. So,at least that time, the submarine scan did select stocks with a greater likelihood of sinking more during this period.

Remember, one must trade with the trend in order to maximize the chances of success. Right now, the short term trend is down, and I will not go long.   (The longer term trend is still up (Stage 2), so I will keep my pension invested in mutual funds and continue to dollar coast average in with new contributions, until it looks like Stage 2 is over.)   I trade like a chicken, run from a down-trend, and conserve my capital to trade only when the odds are in my favor.