Stock Market Technical Indicators & Analysis
This modified GMMA daily chart shows 6 shorter term exponential moving averages (red lines) and 6 longer term averages (blue lines). I have added a dotted line that shows each daily close. After a large decline, a close back above all of the averages (shown by arrows) can signal a new up-trend. Right now we would need a close of the QQQ above 391.68.
Here is end of 2020 COVID induced decline.
The GMI-2 actually climbed from 2 to 4 on Friday. That is because two of my daily stochastic indicators (10.1 and 10.4) reached very oversold levels. In addition, the put/call ratio on Friday registered 1.00. A ratio above 1 usually leads to a bounce in the market. It means that traders are buying as many or more puts as calls. Put options are used to bet on a decline or as insurance to hedge against a decline and calls are used to bet on an advance. The ratio is a contrarian indicator such that when there are more bearish bets than calls, the market tends to bounce up (in the other direction).
T2108 is at 25%, which is low, but not as low as is typical at a market bottom. The GMI is 1, of 6. The last GMI component to turn negative will be for the weekly QQQ to close below its 30 week average. When that happens I will begin to go to cash in my primary pension accounts. What is troubling me is that the DIA is already below its 30 week average. The SPY remains above it and the QQQ remains far above its 30 week average. There are too many more 52 week lows than highs. So, for now, I remain very cautious and largely in cash in my trading IRA.
If we get a good year-end rally I will likely sell some of my mutual funds in my university pension accounts. With the Fed ready to tighten, this market’s next big move next year will likely be down. NEVER trade against the Fed. Higher rates will suck the money out of equities. Here are the weekly charts of the DIA, SPY and QQQ. The 30wk average is the red solid line. Once these indexes close below their 30 week averages and the averages begin to curve down, it is usually the BEGINNING of a major decline. Stay tuned……..
Note how terrible small stocks have been doing all year, reflected in the Russell 2000 index ETF, IWM. Entering Stage IV decline?
Friday was Day 2 (D-2) of the new QQQ short term down-trend. The SPY has now closed below its 10 week average. I am very worried about the near term trend of the market. Plenty of time to be long when the GMI is Green again. That will require 2 consecutive days with the GMI above 3.
When I get a new QQQ short term down-trend I buy a little SQQQ. It is a low risk trade because if the down-trend ends quickly I will have a very small loss. In the past, 40% of new QQQ short term down-trends ended within 5 days. If this one reaches day 5, I will add more SQQQ. If a new up-trend begins I will exit SQQQ and buy TQQQ. Note that on a day when the Dow rose 600+ points, there were only 17 US stocks reaching new yearly highs. I like to watch the new high list during market declines because that is where the new leaders will first show up. It is much easier to spot them when there are very few new highs.
Note that the GMI=1. If the final component turns negative and GMI=0, I will start to transfer my university pension money out of mutual funds. My trading IRA is still almost all cash. We are a long way from QQQ closing below its 30 week average (red line in this weekly chart) which is the final positive GMI component. QQQ is at 389.91 and its 30 week average is at 366.04. For now, QQQ remains in a longer term Stage II up-trend. Note how many times QQQ has found support at its 30 week average. The only exception is the brief 2020 decline. The put/call ratio and T2018 are not in major bottom territory yet, so this decline likely has further to go.
