Wishing Wealth Blog

I often show you the RWB rocket pattern as it applies to individual stocks.   It is the pattern of stocks in strong up-trends.   The Red, White and Blue pattern is evident in a weekly GMMA chart where all of the short term averages (red lines) are well above their rising longer term averages (blue lines) such that there is a white band between them.   It is noteworthy to me that the Nasdaq 100 index shows this powerful pattern. (Click on chart to enlarge.)

It may make sense to own some of this index by buying any of the bull ETF’s or ultra ETF’s that track it:   QQQQ, QLD, TQQQ. I usually wade into these in stages with each purchase having to be higher than the previous one.   I never add to a long position that is moving down–I always average up.

I have shown in prior posts that the ultra (2x or 3x) ETF’s often beat most individual stocks in an up-trend.   For example, since November 30, the QQQQ has advanced +9.5%, QLD +19.9% and TQQQQ +30.8%. In comparison, during the same time period only 3% of the Nasdaq 100 component stocks have advanced 30% or more and 17% advanced 20% or more.   We see, again, that   buying the ultra QQQQ ETF’s would have outperformed most individual stocks in that index.

It is even better than that, however. During this period only 5% of the S&P500 stocks rose 30% or more and only 20% rose 20% or more.   So the ultra QQQQ ETF’s outperformed most of the S&P500 stocks too.   Why search for the small minority of   individual stocks that will outperform the ultra ETF’s when one can just ride one of these ultra long ETF’s during a strong (RWB) up-trend.

The QQQQ short term up-trend reached its 50th day on Wednesday.   The prior up-trend lasted 51 days. Some short term up-trends in the past 5 years have gone on as long as 80 days, but 50 is quite old for a short term up-trend.   I am much more comfortable buying stocks when most people are bearish and there are few daily new highs and many new lows.   On Wednesday there were 427 new 52 week highs and 18 new lows in my universe of 4,000 stocks. With the municipal bond crisis and the associated state and local budget problems in the background, I remain with one foot out the door of this market.   These problems could take center stage once the euphoria surrounding earnings releases is over.   Plus we are not far from the, “sell in May and go away” period.

Read my response to the terrific comment I received at the bottom of Wednesday’s post.   It is true that with the municipal bond crisis as a context, I sold out my positions along with the market’s weakness last week (before Friday’s drop).   I have had a great period since September, with my margin account rising over 100% since September. To be successful in the market I have found that when I get whip-sawed by the market   I need to reverse quickly and buy back into the market   as long as my market indicators remain strong.   With the GMI at 6 and so many stocks in an up-trend   bouncing from support, it is easy to find things to buy.   But I remain very cautious and re-renter with small buys and buy only on the way up.

Therefore, I bought some March 38 (deep in the money) calls on   MCP on Wednesday after it found support at its 30 day average.   MCP is a prior “Judy’s pick.”   Judy liked the fact that MCP owns mines in the U.S. that contain rare earths, at a time when the largest producer of these minerals, China, is reducing exports.   Rare earths are required in many of the power components of green technology (like lithium batteries!).   Judy failed to buy (she tried) the stock during its recent IPO (initial public offering) at the end of July and instead bought MCP at around $13 in the open market   MCP caught on and traded as high as $62.78 in early January.   It retraced a little recently and showed renewed strength on Wednesday. If it weakens again I will sell out. You can see from the daily chart below (click on chart to enlarge) that MCP has found support at both its 30 day (red line) and 50 day (green) moving averages. MCP is different from most of the growth stocks I buy because it has yet to develop earnings.   But the future of rare earths is clearly motivating buyers. Kudos to Judy yet again for picking a winning well grounded (pun intended) concept stock (she also likes Lynas, another speculative (cheap) rare earth producer, which I own.)

With my General Market Indicators back to their maximum values, I am looking for rebounding stocks to buy.   One that came up in my scan last night was LULU.   As the weekly GMMA chart shows, LULU is a RWB rocket stock near all-time highs. LULU reports earning on March 21. The 2 NA’s on the chart indicates when IBD wrote about LULU in their New America column about visionary companies. (Click on chart to enlarge.) I am still short one India company and am closely watching the municipal bond related stocks and ETF’s for any signs of resumed weakness.