General Market Index (GMI) table

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.

I began this blog in 2006 after watching the media pundits and financial advisors lead the trusting public into the 2000 abyss after the internet bubble burst, while I was safely in cash. The same thing happened in 2008 and then again now. I do not advise people but merely report my actions. This site is free and I tell all that my musings are worth exactly what they paid for them. Nevertheless, I hope some of my readers have benefitted from my writings about exiting the market in February.

If it is impossible to time the market, then why have I been out of the market in bad times and back in during the good times?  Just luck? As someone once replied, the harder I work, the luckier I get. The key for me is to ignore all of the talk about the market and to just watch what it is doing. I have simple criteria that have been summarized in the GMI table below, that keep me on the right side of the market’s trend. This  is the strategy I teach my undergraduate students. With the GMI=0 (see Table below) why would I be invested long?

All persons with tax deferred IRAs and 401 (K) accounts can exit the market anytime, transfer into money market funds,  and go back into mutual funds or equities later, without tax consequences. I know some employer plans limit market timing, but they usually let one exit and enter as long as it does not occur too often I(check your plan’s rules). So when things begin to look bad, I begin taking money off the table. I have been in 100% cash for weeks. After the GMI flashed a  Red signal on February 26, why would I ever be invested long?

The other nonsense the pundits promote is, no one rings the bell at the bottom. Don’t get out because you will mss the bottom. I do not care if I miss the bottom or the top. There is plenty of room to make money in between. I do not care if the market rises 5-10% now without me. I am trying to avoid much larger losses. I will get back in after my indicators suggest that a new up-trend has begun and I will do so gradually, in stages, at ever higher prices. I will post here when I begin to re-enter.

This decline and the resulting low interest rates on savings vehicles will decimate my fellow boomers’ wealth. I hope those who did not escape this storm have the years necessary to recoup their money and a comfortable retirement. When will this decline end? No one knows.

Jesse Liver more once said:

“There came the awful day of reckoning for the bulls and the optimists and the wishful thinkers and those vast hordes that, dreading the pain of a small loss at the beginning, were now about to suffer total amputation – without anaesthetics. A day I shall never forget, October 24 1907.”

The technology changes but trading is human behavior and human psychology never changes–greed and fear, euphoria and panic. People must learn a set of rules that help them to take small losses so as to avoid the large ones.

While I do not predict bottoms, this weekly chart of the SPY suggests to me the beginning, not the end of a Weinstein Stage IV decline. Note the huge weekly selling volume in two of the last three weeks. The SPY has only closed below its critical 30 week average (solid red line) for three weeks. Bear markets often last 10 months or more and we should not be misled by the speed of this decline.  We could see much  more… (then again, T2108=3%)

The GMI=0 and on a Red signal.