Blog Post: Compared with the decline in 2022, the current decline is just getting started. All stocks are bad unless they are going up, and the psychology has turned and we have been buying tulips.

@ 8:58 pm
GMI0/6
GMI-22/9
T210824%

In May 1970 (I think), I read in the Wall Street Journal “Heard on the Street” column that the author was sure that the current steep market decline had further to go. That day was the bottom!  So many pundits are searching for the market’s  bottom. I think that when they all give up and surrender to the decline, it will be the bottom. In addition, T2108 is at 24%  and usually market bottoms occur when that indicator is below 10%. Why not be in cash and wait for the dust to settle? There will be plenty of time to get on board with a real future up-trend.

Remember the tulip mania in the 1600s when people started trading tulip bulbs and bidding them up to absurd levels? The famous book on popular financial delusions and the madness of crowds helped Bernard Baruch to exit the market in 1929. When we see our neighbors telling us at parties that they have made $$$ from buying stocks, our competitive psychology builds and we push stocks higher and higher to absurd levels. Stocks need positive psychology for people to have the courage to hold on to them, thus allowing them to rise. In a bad market the psychology turns negative and people take their profits quickly. It will take a while for the positive psychology to build again so that traders can make large gains from steadily rising stocks. As happened to the Nifty 50 in the 70s, the psychology of the Mag 7 has broken. People are beginning to realize that they have just been trading tulip bulbs.

No one knows how long this decline will last. But based on my more than 50 years of market experience, I think we may be just at the beginning of a major decline. This weekly modified Guppy chart shows how shallow the current decline has been compared with the one in 2022. And the decline in 2022 was small compared with the one in 2008. So time for me to buckle up my seat belt. Stay tuned. I will announce here if I am wrong.

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Bg Post: Day 9 of $QQQ short term down-trend; Since day 1, QQQ is down -4.2% and SQQQ is up +12.7%. SQQQ has advanced more than all but one of Nasdaq100 stocks (MSTR) and all of the S&P500 stocks! Trading TQQQ or SQQQ at Day 1 of a QQQ short term up-trend or down-trend beats most individual stocks. See also 2 charts.

@ 6:54 pm
GMI0/6
GMI-22/9
T210829%

I have shown repeatedly that buying the triple leveraged ETF, TQQQ,  in a QQQ short term up-trend beats almost all individual stocks. The same can be true for buying the inverse ETF, SQQQ, on Day 1 of a QQQ short term down-trend. The problem is that this is very difficult to do. Day 1, by definition, is a change in trend and most people do not believe it. For me the best strategy is to take a small position on Day 1 and add to it only if the trend continues. One must be nimble, however,  because the trend could end at anytime. A final comparison I made was to compare SQQQ to all stocks in my watchlist of growth stocks. I find that during this period since February 25, 11 of 559 stocks, or about 2%, advanced more than SQQQ.  Good luck to finding such rare stocks in advance on Day 1! If one misses buying SQQQ on Day 1, there is a greater risk that SQQQ may trade down.

The GMI is 0 and I remain largely on the sidelines. If we get a good bounce I will transfer more retirement funds out of mutual funds and into money market funds. However, my university contributions to my retirement account will continue to accumulate S&P500 mimicking mutual funds, which is dollar cost averaging. The S&P500 as a group, but not all individual stocks, will eventually recover. I still think we are at the beginning of a significant market decline. Watch to see if the 10 week average (blue dotted) declines below the 30 week average (red line). We are not there yet but QQQ has closed below the 30 week average, a very ominous sign. We are also in a daily BWR down-trend, see chart 2. But beware of the brief bear market rallies that can seduce one to go long. There is plenty of time to wade back in once the GMI turns Green.

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Blog Post: Day 8 of $QQQ short term down-trend; 28 US new highs, 81 lows and 5 at ATH; I will resist the inevitable sudden bear market bounces and remain safely in cash.

@ 11:33 pm
GMI0/6
GMI-22/9
T210826%

With the Wall Street Journal talking about a possible depression and the ominous technical picture I see, it is best for me to be on the sidelines in cash. I have gone to cash in my trading accounts and reduced my exposure to equities in my university retirement accounts and will sell the rest when we get a good bounce. I have lived through many weak markets the past 60 years and suspect that the current decline has just begun. As several great traders have opined, all stocks are bad unless they are going up. Stocks are only worth what someone will pay for them. Value is a myth. When the psychology turns and the masses become scared, they sell and all stocks decline. I prefer to sell early and not get caught up in the panic selling near the bottom. One indicator that has helped me to detect a bottom is when T2108, now at 26%, declines to below 10%. Too many people have made money the past two years and have no idea what a major decline can do to one’s portfolio. It took 25 yers for the market (the Dow) to exceed the 1929 top. So, yes, the market always comes back. No one knows what the market will do and I can change immediately if my indicators tell me to. The key to trading success is to control risk and step aside when the trend is down.  Stay tuned….