General Market Index (GMI) table

The GMI=0 and on a Red signal

@ 8:22 am
GMI0/6
GMI-22/9
T21085%

When I began trading in the 60s and knew nothing about technical analysis, I would make money when the market moved up and then lose the profits and more when the market receded. It wasn’t until I read Nicolas Darvas’ first book and later William O’Neil’s book (the books are listed below) and his newspaper,  IBD, that I learned that to make money, one must trade consistent with the market’s  trend. Both of these successful traders realized that most stocks follow the general trend of the market, as measured by the market indexes. Unlike the WSJ, IBD would actually advise readers to exit the market, and still does.

My General Market Index (GMI) has helped me to stay on the correct side of the market for years. It was so easy to make $$ until recently when the GMI was on a Green signal and consistently  5 or 6 (out of 6). When it is 0, like now, it means that my short and long term indicators are negative and I should go short or be in cash. This chart shows the QQQ when the GMI was Red or Green, from January 2017 through November 2019. Note that the GMI turned Red in October 2018 at the beginning of that decline. The GMI turned Red on February 26, 2020, not shown here, and currently registers 0 (see table below). The GMI got me out of the market once again. And no, it is not perfect and is late in detecting bottoms, but I interpret the GMI in the context of other indicators which I often write about.

13 Needles in a haystack; $TNK, $ZM, $CHWY, $QDEL, $TDOC, $CTXS, $LMNX, $NET + 5 more………

@ 7:55 pm
GMI0/6
GMI-23/9
T21084%

When the market is in a down-trend it is much easier to identify the few gems that are resisting the downward pull of the  general market, or even flourishing. Such stocks (like  GMCR in 2009) may become the new leaders when the market turns. Stocks in a nice short term up-trend have a daily Red White and Blue (RWB) pattern with the six shorter term averages (red lines) rising well above the longer term averages (blue lines) so there is white space between them.  I prefer to buy stocks in a daily RWB up-trend.

I created a set of column filters in TC2000 to find stocks in daily RWB up-trends that closed over $20 on Friday. In my IBD/MarketSmith watchlist of stocks that have been mentioned by these great services (plus a few others I identified), I found just 13 stocks out of more than 800 that met my criteria for being in an RWB up-trend. They are, in random order, TNK, ZM, CHWY, QDEL, TDOC, CTXS, LMNX, NET, SHEN, GSX, ZTO, SAFE, and EHTH (see table below).

These companies, of course,  need to be assessed for other technical and fundamental criteria before considering their purchase. I usually do not buy such needles in the haystack in a declining market–the odds are against my profiting. It is obvious to me, however, why some of these stocks are rising during this market decline. ZM, CTXS, TDOC, EHTH and GSX likely benefit from the multitudes now going online to communicate and purchase goods.

Also, I love CHWY, based on my own wonderful experience ordering food and toys for my newly inherited dog. CHWY has been said to  be the Amazon of pet supplies. And owners pamper their pets in hard times. I set an alert in TC2000 to tell me when CHWY makes a GLB, at $41.18,  but may buy a smidge now (just before earnings) in case it pops with earnings.

As Jesse Livermore and I, much later, have observed, a recent IPO that forms a peak (green line top), consolidates, and then closes at an all-time high on above average trading volume (GLB), can be a screaming buy as long as it keeps closing above its prior peak (green line). Here is CHWY’s daily RWB chart.

And its monthly chart showing its green line top.

ZM is another example of a GLB for a recent IPO.—Note ZM’s daily RWB pattern before its GLB at 107.34.

 

Only 27 of 4,000+ US stocks met my criteria for a daily RWB up-trend, including the 13 already mentioned above. Several of these others are biotechs: MRNA, BNTX, IOVA.  WDFC, not a biotech, has a nice chart pattern. Here are the 13, along with their projected next earnings release dates. CHWY reports this week. One day I will post the column filter formulas for a daily RWB in my TC2000 Club. Remember, buying strong stocks in a down-trend is especially risky and requires a strategy  to cut losses quickly.

 

The GMI remains at 0 (of 6) and on a Red signal.

My Successful New High and New Low indicators flagged the market top

@ 9:32 pm
GMI0/6
GMI-20/9
T21082%

Below is a segment of the spreadsheet I update every day after the market closes. One of the GMI indicators (table below) uses the Successful New High indicator, which measures the percentage of stocks that hit a new high 10 days ago that closed higher now than they did 10  days ago. Nicolas Darvas had said that when the stocks that he was buying at new 52 week highs started to falter it told him to exit the market. That is why I calculate the Successful New High indicator each market day. I also calculate a Successful New Low indicator which measures the percentage of stocks that hit a new low 10 days ago that closed lower today. These two indicators are the first two in the spreadsheet below. Note that on February 21, the two indicators were equal at 55%. Almost all of the prior days (not shown) there were more successful new highs than new lows. Since February 21, every day there have been more successful new lows than new highs. in fact, since February 27,  80% or more of new lows were successful. I use the word successful because it tells me that if I had shorted stocks at new lows, I would have made money 80% or more of the time. Just as one can make money in an up-trend by buying stocks at new highs, one can profit in a down-trend by shorting stocks at new lows.

Note  also the NH and NL columns which show the preponderance of stocks hitting new lows versus new highs since February 24. Next to those columns is my QQQ short term trend count, now at D-19. The change in the QQQ short term trend occurred on February 25, after a record up-trend (since 2006) that lasted U-91 days!

 

The GMI remains at 0 (of 6) and on a Red signal. The GMI turned Red on February 26.