Stock Market Technical Indicators & Analysis
With my indicators at zero, I remain in cash and short in my trading IRA. The Worden T2108 Indicator is at 25%, still above oversold territory. The GMMA weekly chart of the Dow 30 Index (click on chart below to enlarge) shows that the short term weekly averages (black) are beginning to fall through the longer term weekly averages (red). Take a look at what happened in 2007-08 for a hint of what may come.
An interesting new op-ed on the bond vigilantes.
My short term indicators are signaling at least a short term decline. Wednesday was the 4th day of the new QQQQ short term down-trend. Once a decline begins one never knows how long it will last. A major clue I use is the Worden T2108 Indicator. Most of the time a decline ends with this indicator below 20%. The 2008 decline ended with a reading around 1.2%. It currently is at 26%.
With the entire world seemingly enamored of cutting government deficits, several pundits are asserting that this misguided strategy will bring on an economic depression. I tend to agree. Government spending = somebody’s income. When you cut spending you reduce income, throw people out of work and cut consumer demand, not exactly the outcomes that we desire. If government spending does not make up for the huge loss in wealth and consumer demand that resulted from the evaporation of real estate values, where is the money going to come from to foster demand for goods and services? So, in this context, the market may be telling us that really bad times are ahead.
It is therefore time for me to get defensive and to begin to pull money out of my university pension mutual funds. I will do so in stages as the trends mature. The weekly GMMA chart below shows that the longer term moving averages (red) of the QQQQ are beginning to level out. We are not in a full fledged decline yet, but once the longer term averages top out and curve down as they did at the end of 2007, we will be. Therefore, with the shorter term averages (black lines) in a decline and converging with the longer term averages (red) I believe we are more likely at the beginning, rather than at the end of a major decline.
The GMI kept me out of this market decline. Both the GMI and the GMI-R are at zero. I will wait for the GMI to get back to 3 before I will even consider going long again. Meanwhile, my account rose on Tuesday, as I held some TYP and some put options. I have been writing that GOOG looked weak, and it fell 3.77% (-17.82) on Tuesday. The pundits blame various news events on Tuesday for the decline. We know, however, that this down-trend was in existence before Tuesday. The market telegraphs its trend, if one is willing to listen to and follow it. Check out the daily GMMA chart below (click on to enlarge) and note that the short term averages (black lines) are declining well below the falling longer term averages (red). The time to be long is when the short term averages are back above the long term averages and both are rising, as was the case from February through April.
