Google rockets on; Funds to time the market; BOOM-cup with handle; GMI–+5

@ 9:46 pm

Well, this market is really moving.  Did you see GOOG’s $13+ rise today?  Honest, I had no idea when I wrote Sunday’s post.  Cramer is shouting– BUY GOOGLE!!!  He obviously had this one right.

  Gmi523 The GMI is solid at +5.  This reading does not mean that we won’t have declines–only that the current trend is up.  These indicators have gotten me out of every major market decline since 98, and I will let you know when I begin to get defensive.  (Remember, past performance does not guarantee future results and blah, blah blah…)  Right now things could not look much better to me.  There were 171 new 52 week highs in my universe of 4,000 active stocks, and only 17 new lows.  Let’s say it again: there were ten times as many new highs than new lows today!  What a turn around in just a couple of weeks.  Today, 53% of the NASDAQ 100 stocks rose, 70% of the Dow 30 and 65% of the S&P 500 stocks.  These numbers are good, but not as strong as a few days ago when we saw 70% or more of the stocks in all of these indexes rising.  So, we are getting a little weakening, which is a good thing. We want a market with some backing and filling so this rise will last a while.

I moved my 401(k) funds from the money market fund to equities about a week ago.  Most mutual fund families allow a limited amount of transfers between funds.  Did you know, however, that there are at least 2 mutual fund families that are designed to allow you to time the market?  If you are good at trading the market indexes, you owe it to yourself to check out the Rydex Funds and the ProFunds.  These funds allow daily trading back and forth in a variety of index and sector funds.  In fact, you can buy funds that move with or opposite to an index, so you can profit from a decline in an index if you are bearish.  Better still, some of their funds are leveraged so that they move twice as much as the indices they  track.  So, if you have the minumum ($15,000 for ProFunds) to open an account and you want to take a bullish or bearish position on the market, these funds may be the way to go. You could also open an IRA in one of these funds.  Read the prospectus carefully and note each fund’s management fees.

I have been meaning to tell you that JNJ is looking sick.  The chart shows high volume selling last week and it only managed a small gain today.  Is the stock telling us something?

BOOM looks like a high volume breakout today–cup and handle?  (I own a few shares of BOOM).Boom The cup with handle pattern was made famous by William O’Neil and his newspaper, IBD. Note the huge rise in BOOM from under $10 to almost $39.  Then it entered a 3 month base.  It formed the top of the right side of the cup on May 10 at 35.18.  Note the huge gap up on high volume to build the right side of the cup.  Today BOOM burst through the top of the handle on volume that was far above its 50 day moving average (blue horizontal line) and closed at 37.64.  The IBD ratings for BOOM are:  Overall–94; RS-99, EPS-89.  Thus, according to the IBD criteria this company ranks in the top 4% of all stocks, with a relative (technical) strength rating in the top 1% and earnings per share rating in the top 11% of all companies.

I already own this stock.  How would I play it if I did not?  I might make a small pilot buy tomorrow and place an immediate sell stop below today’s low at around 31.75.  Alternatively, I might place a buy stop at 39 to purchase a small number of shares it if it breaks through to an all time new high. In that case I might then place a sell stop closer to the breakout point.  In a true breakout, the stock should not come back down below the prior peak.

Other strong stocks to watch include:  SNHY, CLHB, BEBE and of course, HANS.  There are so many more.

Send me your feedback at silentknight@wishingwealthblog.com

Please remember that the stock market is a risky place, especially now.  I am not providing recommendations for you to follow.  My goal is to share tools and methods that I have used over the past 40 years of trading, so that you may learn from them and adapt them to your trading style and needs.  While I do my best, I do not guarantee the accuracy of any statistics computed or any resources linked to my blog.  Please consult with your financial adviser and a mental health practitioner before you enter the stock market,  and please do not take unaffordable risks in the current market environment.  See the About section for more statements designed to protect you (and me) as you navigate this market. Past performance does not guarantee future results, but I would rather learn from a former winner than a loser.

GMI rises to +5, The Google Rocket, Lucky Bill Miller

@ 11:03 pm

The WW-GMI moved to a +5, indicating that the markets, especially the NASDAQ stocks, are in an uptrend.  Gmi522 The only component not yet positive is the Successful New High Index.  Nevertheless, that Index shows that 65 of the 104 stocks in my universe that hit a new high 10 days ago closed higher on Friday than they did 10 days earlier when they hit their highs.  Thus, a trader buying new highs 1o days ago had about a 65% chance of owning a stock that increased on the subsequent 10 days.  In contrast, only about one third (15/44) of the stocks that hit new lows 10 days ago were trading lower on Friday. (Even the majority of the new lows 10 days ago rose!) The market is telling us that buying new highs has been a better strategy than shorting new lows.

Remember a few days ago I said that my gut was telling me the market should go down but my instruments were telling me to buy.  One must always go with his/her instruments–the market action.  I do not waste a lot of time trying to divine the market’s direction by focusing on economic news or current events. Don’t get attached to a scenario.  Just watch the market and tune out all of the rest.

So, I am content to own stocks now and to stay with this rising trend.  That does not mean that I will plunge into the market.  Instead, I look for the stocks that are moving to new highs on good volume and I take a small initial position.  If I am right and the stock moves up, I make more small purchases, each one higher than the other. I do not want bargains.  Goog2 The same is true of real estate.  The beach front property that looked too expensive a few years ago today is much more expensive.    Thus, I began buying GOOG at around 221 after it gapped up, and have slowly added more each time it broke to a new high, after it had rested for a few days.  I have kept my sell stops in place and raised them as the stock rises and each time I make a new purchase.

Is GOOG too expensive?  I do not know.  One never knows the answer to such questions until after the fact.  I guess you could say that GOOG was too cheap at 221.  Since GOOG gapped up on 4/22 there have been 20 trading days, 15 up days and 5 down days,  so people are bidding the shares up 3 times more often than down.  So, I just ride the rocket up, knowing that my sell stops will get me out if the stock falters–I have limited my emotion and limited any pontificating about the stock’s likely future.

In a rising market, 70% of the stocks rise, and I am content to hold on with the odds in my favor. How many stocks have come through this year’s sloppy market and are trading at their all time highs? Isn’t that the type of strength we should be seeking in our purchases?  I suspect that many of the rockets to the moon have already been launched………………………………

I had hoped to write about some technical strategy matters this weekend but could not get to it. In the near future I want to cover  moving averages, my tragedy (911) watch list, and  stop orders.  Let me know whether you are interested in any of  these, or other, topics…………………………………….

As you may know, Bill Miller’s Value Trust Fund  receives a lot of accolades for beating the S&P 500 index for 14 consecutive years. I have a somewhat different opinion of the fund’s most recent record than is espoused by the article that I linked to above.  I thought I would share it with you, and welcome your comments.  This fund holds a limited number of stocks (one has to, in order to beat the averages–see my post on the limitations of diversification) and I happened to be examining the fund’s top holdings a few months ago.Amzn  What caught my attention was that AMZN, one of the fund’s largest holdings, had an unusual jump in price and volume in the last few days of 2004, and then immediately tanked in 2005. Between 12/23 and 12/31, AMZN rose 13.77%, while the S&P 500 rose just 0.15%.  Another big Value Fund holding, IACI, also had a huge December rise (+11.87%), followed by a New Year’s collapse. What an extraordinary piece of luck for B.M.—and for his record, that the two stocks making up so much of the fund’s portfolio enjoyed such a surge in year end buying. I wonder, would a big mutual fund family concentrate its buying in a few stocks to preserve the reputation of its star performer?

Send me your feedback at silentknight@wishingwealthblog.com

Please remember that the stock market is a risky place, especially now.  I am not providing recommendations for you to follow.  My goal is to share tools and methods that I have used over the past 40 years of trading, so that you may learn from them and adapt them to your trading style and needs.  While I do my best, I do not guarantee the accuracy of any statistics computed or any resources linked to my blog.  Please consult with your financial adviser and a mental health practitioner before you enter the stock market,  and please do not take unaffordable risks in the current market environment.  See the About section for more statements designed to protect you (and me) as you navigate this market. Past performance does not guarantee future results, but I would rather learn from a former winner than a loser.

GMI hits 4+

@ 10:49 pm

The WW-GMI hit 4+ today.  The IBD Mutual Fund Index finallyGmi519  closed above its 50 day moving average, indicating that growth mutual funds are climbing.  The Weekly QQQQ Index is borderline positive.   There were 86 successful 10 day new highs. (See 4/26 post for elements of the GMI)  In fact more than 80% of the 106 stocks that hit new highs 10 days ago closed higher today than 10 days ago.   There were also 157 new highs today and only 31 new lows. Seventy percent of the NASDAQ 100 stocks rose today, 62% of the S&P500 stocks and 60% of the Dow 30 stocks. This market rally is firing on all cylinders.

Last week I transferred all of my 401-k funds from money market funds to equity funds.  Over the past 7 years I have succeeded in avoiding all serious market declines by being in cash.  There is no necessity to take a buy and hold approach with company 401-k plans. Most fund families allow you to switch funds a limited number of times.  In October, 2000, I sold out my growth funds around 103 and watched them drop to below 40.  I hope my timing is correct this time.

Even though I think the trend is up, I religiously place sell stops below every purchase.  We can never take the market for granted.  This weekend I will return to strategy. Next Wednesday is the IBD meetup.

Send me your feedback at silentknight@wishingwealthblog.com

Please remember that the stock market is a risky place, especially now.  I am not providing recommendations for you to follow.  My goal is to share tools and methods that I have used over the past 40 years of trading, so that you may learn from them and adapt them to your trading style and needs.  While I do my best, I do not guarantee the accuracy of any statistics computed or any resources linked to my blog.  Please consult with your financial adviser and a mental health practitioner before you enter the stock market,  and please do not take unaffordable risks in the current market environment.  See the About section for more statements designed to protect you (and me) as you navigate this market. Past performance does not guarantee future results, but I would rather learn from a former winner than a loser.