Many of you have requested that I post a chart showing the recent performance of the GMI over the past year. The GMI, though not perfect, has successfully kept me on the right side of the market through the 2000-2002 and 2008 bear market declines. I simply go to cash in my university pension and trade the short side in my IRA once the GMI starts to remain consistently below 3. In order to show the GMI over time, I have plotted a weekly chart with the GMI changes for the last day of each week.
On May 10, I wrote: “So, stocks on the New America list often take off sometime after their story is published in IBD. One recent addition to the New America list that looks promising technically to me if it can break $18.60, is ASIA. ”
After I wrote that post, I placed a GTC (good til cancelled) trigger order with my broker to buy ASIA if the stock traded above $18.60. Sure enough, a week later, on Tuesday, ASIA broke out on huge volume. I was at an all day meeting on Tuesday, when ASIA broke 18.60 and I bought my shares automatically at around $18.66. One does not have to watch the market in order to buy break outs. Just use trigger or buy stop orders. ASIA closed Tuesday at 19.44. I will now place a GTC trigger order to sell ASIA if the stock falls below $17. These trigger orders take the emotion out of the trade. Note on the chart where “NA” indicates when ASIA appeared in the IBD New America column. It makes sense to monitor stocks that appear in the New America column.
The uptick rule is designed to prevent short sellers from jumping nonstop on a declining stock and driving it to oblivion. It was implemented in 1938 in the aftermath of the the depression and the huge market declines. Every bear market needs a scapegoat and the public loves to blame the villainous short-sellers for everything that goes wrong.
Short sellers borrow stock from their broker and sell it at the current price, hoping to buy it back at a lower price and returning the borrowed shares to the broker. Anyone with a margin account signs an agreement to allow the broker to lend out the shares in the account. In truth, you never know your shares are gone because the short seller has to pay you any dividends that are paid while he has borrowed your shares.