General Market Index (GMI) table

I have repeatedly shown that the way to beat most stocks during an up-trend is to simply buy the triple leveraged bullish QQQ ETF, TQQQ. As long as the QQQ is in an up-trend, TQQQ rises more than almost all individual stocks. Since my QQQ short term trend indicator turned up on April 7, TQQQ has advanced 33%. Of all stocks in the major indexes (DIA, QQQ, SPY) only TSLA advanced more (+38%). In my big watchlist of IBD and MarketSmith type growth stocks, only 2% (18/809) beat TQQQ. For my time and money, I would rather buy TQQQ in an up-trend than try to identify in advance the rare needle in the haystack stocks that will beat it. My strategy is to take a small position in TQQQ as soon as there is a new QQQ short term up-trend. If the up-trend continues, I add more at higher prices over time. However, because TQQQ also falls 3x faster than the underlying index, I must have a strategy to protect gains.

The GMI remains RED and at 3 (of 6). It could turn GREEN this week. The SPY and QQQ have now closed back above their 10 week averages.

On March 29, with CHWY at 36.11, I posted the following::

“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.”

Since then CHWY posted earnings and last Thursday had a GLB on above average volume.  Below is its weekly chart. Note the all-time high in relative strength vs. the SPY too. I took a position on Friday. As long as CHWY closes above the green line (41.18) I will hold it. A close below that price will signal a failed break-out and I will sell immediately. The one major concern I have is going long a stock when the longer term trends of the market indexes are still declining. Thursday was the third day (U-3) of the new QQQ short term up-trend, however. IBD considers the market to be in a confirmed up-trend.

The GMI=2 and is still Red.

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.