Stock Market Technical Indicators & Analysis
The market finally had a reason to go down, but the long term trends remain up (GMI table below). At 71 days, the QQQ short term up-trend is very old (see my previous post). We will have to wait to see whether the virus will trigger more selling. Meanwhile, I am very much hedged with GLD. Notice its recent green dot signal on this daily chart.
And GLD’s daily RWB up-trend pattern. I posted about this up-turn in December when I also bought call options on GLD.
So many media pundits are claiming that the market is too extended and overbought. Ignore the gossip. The truth is no one knows when an up-trend will end until after it has ended. That is what trend followers try to discern. We hop on, after a defined bottom, and off, after a defined top. I like to use my adapted GMMA weekly charts to tell me when a major trend has changed. My modified weekly GMMA has 12 exponential weekly moving averages plus a one period average which indicates each weekly close. The six shorter term averages are red and the the six longer averages are blue. The 13th one period average is a gray dotted line. All averages are drawn on a white background with the actual prices in white and therefore invisible. A strong up-trend is defined as one in which all of the red averages are rising above the rising blue averages such that there is a white space between them. This pattern I call a weekly RWB up-trend pattern. A down-trend is the reverse and is called a BWR pattern. A trend is in jeopardy when the white space between the red and blue lines disappears. Below are the weekly GMMA charts from the 2000 and 2007-8 market tops of the SPY. Look how easy it is to see the change in the market’s trend from up to down. Now compare these two market tops with the current weekly GMMA chart of the SPY. A BWR pattern began in 2018 but it quickly ended. Does it look like a top is imminent now? One of the best early warning signs of a down-trend occurs when the index’s dotted line closes below all of the red and blue lines. A possible sign of a new up-trend occurs when the dotted line closes back above all of the red and blue lines. I prefer to ignore the pundits and let the market show me its intent…….
The GMI remains Green and registers 6 (of 6). Friday was the 67th day (U-67) of the current QQQ short term up-trend. The longest QQQ short term up-trend since 2006 was 88 days.
I think this QQQ short term up-trend is getting tired. From 2006-2013, only 4% of the QQQ short term up-trends lasted more than 50 days–the longest was 88 days. We have now reached 62 days, U-62 in the table below. In addition, almost one half of the NASDAQ 100 stocks traded above their upper daily 15.2 Bollinger Bands on Friday (as did DIA, SPY and QQQ), a sign of an overbought condition. However, the possible end of the short term up-trend is not necessarily an ominous sign. About 40% of the QQQ short term down-trends lasted 5 days or less. So I am not suggesting a major decline, only a likely hiccup. I am content to hold some cash and to remain very defensive and vigilant as we get into this month. The longer term trend remains up, as evidenced by the GMI = 5 (of 6) and its being on a Green signal.
