GMI back to +6; A very strong day for techs; Pearls of Wishdom?

@ 6:25 am

The GMI regained the maximum level of +6 as there were 234 new highs on Thursday.  There were also 199 successful 10 day new highs–stocks that hit a new high 10 days ago and closed higher Thursday than 10 days earlier.  This is the largest number since September 16 and shows that buying new highs has been profitable.  58% of the 4,000 stocks in my universe closed above their 10 week averages, the highest percentage since September 13.  Gmi1117_2 By the way, September 13 also was a short term peak in the QQQQ, so high values on some of my indicators could also represent a minor top.  92% of the Nasdaq 100 stocks rose on Thursday, along with 88% of the S&P 500 stocks and 80% of the Dow 30 stocks.  There has not been a day when 90% of the Nasdaq 100 stocks advanced, since I began posting the GMI in late May.  So yesterday was an unusually strong day for the tech stocks.  79% of the stocks that have doubled in the past year closed above their 30 day averages and twice as many stocks are within 5% of their new highs than new lows (22%/10%).  Thursday was the thirteenth day of this QQQQ rally (U-13).  To sum it up, enjoy this strong rally, but we should watch for any signs of irrational exuberance and a minor top.

How have you used this site to inform your trading?  Can you send me some experiences I can post for others  (anonymously, with your prior permission)?  Please send your pearls of Wishdom to me at: silentknight@wishingwealthblog.com. 

GMI: +5; No surprise on GM

@ 12:01 am

The GMI declined to +5 Wednesday–there were only 68 new highs and 121 new lows.  Having more new lows than highs is sometimes ominous.  But the indexes are so far above their 30 day and 30 week averages that I am not worried.  Gmi1116 There were 134 successful 10 day new highs–stocks that hit a new high 10 days ago and closed higher Wednesday than they did 10 days earlier.  Three quarters (77%) of the stocks that have doubled in the past year closed above their 30 day averages. And 50% of the 4,000 stocks in my universe closed above their 10 week averages. However, 48% of stocks are in a short term up-trend, down from 57% on Monday.  So there has been some deterioration in the market internals, but not enough to seriously impact the major stock indexes.  Wednesday was the twelth day (U-12) of the QQQQ up-trend.

A lot of attention was focused on GM’s decline Wednesday (-5.8%).  Could we have foreseen this trouble?  The chart tells it all.  Look at this weekly chart of GM. Gm111605_1  The red line is the 30 week moving average that Stan Weinstein (see his book at right) wrote about as being central to defining a stock’s trend.  A declining 30 week average is evidence of a stock’s declining trend.  Note that since June 2004, with the exception of a few weeks in 2005, GM has traded consistently below its declining 30 week average.  No one should have been surprised at GM’s action, after it fell back below its 30 week average at the end of September.  I NEVER BUY OR HOLD A STOCK THAT IS TRADING BELOW ITS THIRTY WEEK AVERAGE.  This rule alone gets me out of bear markets and declining stocks early in the down-trend. Charts are worth a lot more than a thousand words.

Please send me your feedback and comments at: silentknight@wishingwealthblog.com. 

GMI: +6; Market internals weakening; A reader’s comment

@ 8:17 am

The GMI remains at +6.  However, Tuesday was a weak day with only 29-33% of the Nasdaq 100, S&P 500 and Dow 30 stocks advancing.  Gmi1115 There were only 114 new highs and almost as many new lows (95) in my universe of 4,000 stocks.  Tuesday was the eleventh day (U-11) in the current QQQQ rally.

I thought you would appreciate this response from a reader:

"I have to thank you again and again for recommending
Stan s Weinstein’s book!  It is better than O’Neil’s,
and it is more applicable than both the Darvas books,
although the Darvas principles are there.  The great
thing about Weinstein’s book is that he uses the
objective criterion of the 30-week MA, so now I can
buy into the hottest mutual funds, ride them up, and
get out when the 30-week starts declining.  I am now
doing over 20% in Vanguard because I put > half my
retirement into Energy. 

After reading Weinstein’s book, I have to respectfully
disagree with you that "trading decisions should not
be made solely according to a chart.  (Why not buy
stocks that look technically strong AND that have good
fundamentals?)."  Weinstein gave many examples of
stocks that increased dramatically when earnings were
decreasing.  After missing and watching IIJI almost
triple in 3 weeks this year despite a negative 57% EPS
Qtr to Qtr growth rate, I vowed never again to pay
attention to earnings.  As Darvas pointed out, if the
chart is going up, that’s the only valid reason for
buying.  Following the chart alone, I am up 30% in my
individual stock account since May 2005.  As Weinstein
says, "The tape tells all."  If earnings are important
for a certain stock, the chart will show it.  Cramer
is making people waste time doing "homework."  Spend
1/10 the time looking at charts and a person will do
much better."

I actually agree with this person’s point of view.  I just find that I can sometimes hold onto a stock better if I know there are some earnings or revenue growth behind its strong chart.

Please send me your feedback at: silentknight@wishingwealthblog.com.