GMI: 0; Tech and growth stocks decimated

@ 12:01 am

The GMI remains at zero, as the market down-trend continued.  Only 9-11%of the stocks in the Nasdaq 100, S&P 500 and Dow 30 indexes rose on Monday.  Gmi0612 Only 9% of the Nasdaq 100 stocks closed above their 30 day averages, the lowest number ever, since I began counting this indicator last June.  There were 16 new highs and 157 new lows in my universe of nearly 4,000 stocks.  Monday was the 22nd day of the QQQQ down-trend.  This is the type of market that traders dream of shorting…..

Meanwhile, the IBD 100 growth stocks continue to be slaughtered.  Not a single one of the IBD 100 stocks posted to the list on 5/15 advanced on Monday.  Ibd0612 Almost all of these stocks closed below their 10 day, 30 day and 10 week averages.  Only 6 of these 100 stocks posted on the list on 5/15 closed higher on Monday than they closed on 5/15.  This means that the best and brightest growth stocks with great fundamentals are being sold off to persons looking for "bargains."  The great trader, Jesse Livermore, used to say that it was amazing how much stock could be distributed to the public on the way down.  Severe down-trends typically end when the public loses its appetite for low priced bargain stocks, way down from their highs.  When I go long, I want to buy stocks heading to the moon, not fizzling rockets falling back towards the earth.  Even the great HANS and AAPL are starting to show signs of a down-trend.  According to the TC2005 scan of my stock universe, there are only 5 possible Rockets and 205 Submarines.  It will take more than a sharp rebound to convince me to abandon my shorts and to buy stocks again.

Please send your comments to:  silentknight@wishingwealthblog.com.

GMI: 0; 185 Submarines, 8 Rockets; Brainwashed against shorting

@ 12:01 am

The GMI is back at zero.  All six indicators in the GMI are negative.  In fact, I have found that I cannot profitably trade growth stocks when the IBD Mutual Fund Index is below its 50 day average.  But now the index is below its 200 day average, a clear sign that the best growth mutual fund managers cannot  trade this market profitably.  Gmi0609 The QQQQ has closed below its 10 week average for five weeks.  On Friday, only 27-37% of the stocks in the Nasdaq 100, S&P 500 and the Dow 30 indexes advanced.  There were 32 new highs and 38 new lows in my universe of almost 4,000 stocks.  Only 15% of the Nasdaq 100 stocks closed above their 30 day averages, and only 24% of the stocks in my universe closed above their 10 week averages.  Friday was the 21st day in the QQQQ down-trend (D-21).  The GMI-S is zero, and the GMI-L is now at 19.  The low readings in the longer term moving averages tracked by the GMI-L imply significant market weakness that could persist for quite a while.

The IBD 100 stocks continue to weaken and underperform the general market, as measured by my universe of stocks.  Only Ibd0609 32% of the IBD 100 stocks as of 5/15 advanced on Friday, compared with 37% of my universe.  Stocks in my universe were much more likely to have closed above their 10 day (27% vs 5%), 30 day (24% vs. 9%) and 10 week averages (26% vs. 19%).  The IBD 100 stocks were still stronger with regard to the 30 week averages (68% vs. 40%), indicating that the greater short term weakness in the IBD 100 stocks has not yet nullified their superior strength in the longer term trend.  This relationship is clearly shown in the new statistic in the table, Bullish Stage 2 trend (see Weinstein book at right for a discussion of Stage analysis).  68% of the IBD 100 stocks remain in a bullish Stage 2 up-trend, compared with 38% of my universe of stocks.  It remains to be seen whether the IBD 100 long term up-trend will be overcome by their weak short term trends. Only 12% of the IBD 100 stocks posted on the list on 5/15, closed higher on Friday than they closed on 5/15.  Anyone who thought that the IBD 100 stocks were good "buy and hold" candidates have been taught a costly lesson.

I have been 100% cash in my pension for several weeks now.  I have told you before that I am a chicken and that I go to cash at the first sign of market weakness.  In this way, I have avoided all significant market declines since 1995, but have not missed out on the subsequent rises.  In a market like the current one, it makes no sense to be invested on the long side or to try to find the few stocks that might resist the down-trend.  I go to cash and/or try to short some of the many stocks that are declining.  In spite of the myths spread by the market pundits, there is plenty of time to jump back on board once the market has confirmed a new up-trend.

My current scan of my universe of 4,000 stocks using TC2005 yields 185 Submarines and just 8 Rocket stocks.  There are clearly plenty of stocks in a down-trend that offer good odds of being profitable shorts.  Too bad that we have all been brainwashed into thinking that shorting stocks is too risky.  It is much more risky to buy stocks in a market down-trend.

Please send your comments to:  silentknight@wishingwealthblog.com.

GMI: +1; IBD 100 stocks smashed again; stay with the trend

@ 9:12 pm

The GMI remains at +1, with 75% of the 12 stocks that hit a new high ten days ago closing higher on Thursday than they closed ten days earlier.  Gmi0608 But my other five indicators remain firmly in negative territiory.  There were 18 new yearly highs and 202 new lows  in my universe of nearly 4,000 stocks on Thursday.  Only 29% of the Nasdaq 100 stocks advanced, compared with 50% of the S&P 500 and 57% of the Dow 30 stocks.  Thursday was the twentieth day of the current short term QQQQ down-trend (D-20). 

The weakness in the Nasdaq 100 tech stocks was mirrored in the IBD 100 stocks.  Ibd0608 While 41% of my universe of stocks rose on Thursday, only 25% of the IBD 100 stocks advanced.  Only 9% of the IBD 100 stocks closed above their 10 day averages, while 30% of my stock universe did.  Only 10% of the IBD 100 stocks closed above their 30 day averages, compared with 26% of my universe of stocks.  Perhaps the most telling statistic is that only 11% of the IBD 100 list published on 5/15 closed higher on Thursday than they did on 5/15….

I remain in cash or short in my IRA via put options. Rather than trying to guess a short term bottom, a true technician waits for the turn to occur as shown by his technical indicators.  I will need to see a rise in the GMI to at least +3 before I will wade into stocks on the long side.  Meanwhile, with a down trend in place, every rally offers a chance to increase my short positions.

Why are human beings so prone to the long side?  Expert traders seize upon movement, up or down. As the great trader, Jesse Livermore, said, there is no bull side or bear side, only the right side— of the trend.

Please send your comments to:  silentknight@wishingwealthblog.com.