I started teaching two classes on technical analysis last week and will explain more of my concepts and include informational links, as many students will be new readers. My General Market Index (GMI) keeps me trading with the general market’s trend. The GMI is a count of 6 short and long term indicators. Because I like to trade growth stocks, the GMI focuses largely on the NASDAQ 100 stocks, as measured by the ETF, QQQQ. The Successful New High Index measures whether stocks that hit a new high 10 days ago have risen since that time. Since I trade stocks at or near new highs, I also like there to be at least 100 new highs in my stock universe of roughly 4,000 actively traded stocks above $5. My daily QQQQ and SPY indicators measure these indexes’ short term trends. The weekly QQQQ indicator is my measure of the longer term trend. Weekly charts provide me with a more interpretable and reliable picture of the market’s trend. Finally, my IBD Mutual Fund Index indicator tells me how well growth funds tracked by IBD are doing. If funds that invest in growth stocks are doing well, I am also more likely to make money trading growth stocks. I subsequently added four more indicators to the GMI in the form of the GMI-R (revised). The added indicators count whether there are more daily new highs than lows, and how the QQQQ has performed in relation to three moving averages. I become very defensive in my trading portfolio when the GMI is less than 4 and consider going to cash. When the GMI goes to zero, I also start going to cash in my more conservative university pension account, which allows me to trade its contents only a few times each year. So, with the GMI currently at 1,
Channel violated; new short term down-trend; Defensive
The vicious high volume break in the tech stock short term up-trend is a major sign of weakness. The GMI is down to +2, for the first time since the decline last November. This is not the time to be brave; I must conserve my capital. I will lighten up this week, move up my sell stops, and wait to see if the decline deepens. Given that the longer term up-trend remains intact, I will not go into cash in my conservative university pension funds.
Tech Stocks Decline, Will Channel Hold?
Thus far, tech stocks, as measured by the ultra 3X ETF, TYH, are declining within the channel I have been watching for several weeks. The question, which my stock buddy, Judy, raised when I first posted the channel was, will the bottom of the channel hold as it has in the past? No one knows. The key for me is to wait for the reversal, and to then wade in slowly, with stops below the low of the bounce. Meanwhile, the Worden T2108 Indicator is now in neutral territory, at 58%. Only 19% of the NASDAQ 100 stocks have a MACD that is above its signal line, the lowest percentage since last November’s decline. The low in this indicator last November was 9%. The key for me is to remain defensive, and to cut losses before they grow too large.
