Slammed leaders and rising rates increase market risk; GMI: +6; shorts as a hedge

To my visitors: I am only one trader, not a guru, and not a financial advisor.  I am presenting my own opinions and my own experiences and people are welcome to decide for themselves what, if anything, on this site is of value to them.  Please refer to the additional comments, highlighted in red, at the end of this post.

Well, now I am a little concerned.  When stocks like GOOG and MSFT get slammed after reporting earnings, it may be time to take some money off of the table.  Yes, I know the GMI is still at +6, but if I wait for it to give a definite sell I will lose most of my profits.  If good earnings cannot support GOOG, then what type of news is left to support it?  Too many of the leaders are finding themselves in multiple point declines.  When the leaders get into trouble, the rest of the market is not far behind. Irx721 In addition, my short term interest rate indicator has gapped up and keeps hitting new highs.  Look at this ugly monthly chart of the indicator.  Note it took much less of an increase in rates from 1998-2000 to burst the market bubble.  Bonds also seem to be weakening.  Perhaps we are seeing the end of Alan’s conundrum.   I know I am not supposed to predict the market, but I have the feeling we are in for a rough period……………………….

The GMI remains at +6, but the 10 day new high index was weak today.  Gmi721_1 Only 92 of the 174 stocks (53%) that hit a 52 week high 10 days ago closed higher today than 10 days ago.  Only 17% of the Nasdaq 100 stocks and 16% of the S&P 500 stocks advanced today.  20% of the Dow 30 stocks advanced.  These are some of the weakest readings I have seen during an up trend–this was day 10 (U-10) of the QQQQ rally. There were 267 new highs in my universe of 4,000 stocks………………………………….

Maybe it is time to start looking for stocks to short, at least as a hedge.  I will run some scans soon.

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.

The Cramer Circus; GMI: +6; GOOG and IVGN

Did you see the Cramer Circus tonight?   It was   a live show complete with a hand picked audience filled with shouting fans and extreme adulation for JC.   Elmer Gantry could not have done better.   I   attended a speech by Jim Glassman around 2000, soon after he had published his book, DOW 36,000, in which he made the “rational” case for the bull market to exceed that figure. I remember thinking that if there ever was a sign of a bull market top, this was it.   And so I felt today.   It may not come tomorrow or this month or next month, but the Cramer show today smacked of froth and irrational exuberance.

We now know why the short term interest rate indicator rose and the closed end bond funds I wrote about declined   earlier in the week.   Alan is committed to more interest rate hikes.   It is my experience that when the market stops worrying about the higher rates and believes the economy can tolerate them, the bottom falls out of the market.   I think we are getting near that point.   Alas, October is always a good month for the market to bottom.

But I wait for the GMI to detect the change in trend.   And right now things are fine at a steady +6.   Gmi720 There were 250 successful 10 day new highs today and a whopping 423 new highs in my universe of 4,000 stocks.   One in ten stocks hitting a 52 week high–hmmm.   There were 10 new lows.   69% of the Nasdaq 100 and S&P 500 stocks rose today, along with 60% of the DOW 30 stocks.   This is day nine (U-9) of the QQQQ rally.

With EBAY’s stellar earnings release tonight, GOOG appears ready to take off toward that well expected $350 level.   Heaven help us if its earnings disappoint tomorrow. Ivgn By the way, I added more IVGN today. As this monthly chart shows, IVGN topped out in 2000 at 99.50 after a rapid run-up, declined until early 2003 and rallied and peaked again around $82 in 2004.   It began a new rally in August, 2004 and has recently broken through the   $82 prior 2004 peak.   IVGN’s earnings have been up triple digit.   The company provides supplies to many biotech companies. I think IVGN provides a way to ride the biotech boom without depending on new drug discoveries to power the stock.

Enjoy the earnings rally; GMI: +6; posted stocks at new highs

To my visitors: I am only one trader, not a guru, and not a financial advisor.  I am presenting my own opinions and my own experiences and people are welcome to decide for themselves what, if anything, on this site is of value to them.  Please refer to the additional comments, highlighted in red, at the end of this post.

A lot of stocks are rising on earnings expectations and falling on the release.  It is not unusual to get an earnings rally in the general market and then to get a post-release decline. Gmi719  I would not be surprised to see a weak August through October period, but will let the GMI guide me.  The GMI remains at +6 and it was a strong day.  Many of my longs went to new highs today. In fact, there were 259 new highs in my universe of 4,000 stocks and only 11 new lows. The 10 day new high index bounced back with 243 successful 10 day highs.  59% of the 413 stocks that hit a new high 10 days ago closed higher today than they closed 10 days ago.  About 70% of the stocks in the Nasdaq 100, S&P 500 and Dow 30 indexes rose today. We are in day 8 (U-8) of the QQQQ rally…………………………..

Among the stocks I have mentioned before that hit new highs today are:  BTU, HANS, LUFK, NTRI, GOOG, PRGS, CME, GDW, BBY. (I own some of these.)  Other stocks I have started following (and may own) include DSL, KOMG and XWG. I have sell stops in on all of my holdings and am letting things ride for now.  Sell stops provide me the ability to focus on my job during the day and to sleep peacefully at night………………………..

Enjoy this rally!   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: +6; new high index weakening; selling in FTO’s sector

The GMI remains at +6.   Gmi718 However,   the 10 day new high index was weak.   Only 103 (56%) of the 183 stocks that hit a new high 10 days ago closed higher today than they closed 10 days ago.   Both Darvas and O’Neil have written that when breakouts to new highs begin to fail, the market may be topping.   Only 28% of the Nasdaq 100 stocks rose today, 30% of the S&P 500 stocks and 17% of the Dow 30 stocks.   On the other hand, there were 130 new highs and only 8 new lows today.   We are in the 7th day of this up trend in the QQQQ.   I am not worried yet, but I am watching my stocks more closely and not adding to positions.

Just for fun, I ran a scan of stocks that seemed to be breaking down today below their 30 day average.   I was surprised to find a lot of closed end funds that invest in bonds, especially municipal bonds.   Are long term interest rates finally going to rise, ending Alan’s conundrum? Irx718_1 Look at this chart of the short term interest rate indicator.   It just keep rising, suggesting that at least near term rates are headed higher.   Here are some examples of interest rate related stocks that appeared in my scan today:   MUA, MVF, MYD, MQT, NXZ, NPX, NPM, NPT, PMX, PMF.   Most of these are bond funds.   Why are they breaking down?   Maybe some of you have some ideas about this pattern of declines?

I would also watch out for the oil and gas refining stocks.   Note the recent high volume selling in FTO, one of the strongest stocks in the group. Fto Other stocks with high volume declines include IMO, GI, IOC, SU, MRO.   Is oil finally topping out or is this just a rest–   caveat emptor!

GMI since inception; introducing the WPM; on analyst earnings estimates; IBD 100 rockets

To my visitors: I am only one trader, not a guru, and not a financial advisor.  I am presenting my own opinions and my own experiences and people are welcome to decide for themselves what, if anything, on this site is of value to them.  Please refer to the additional comments, highlighted in red, at the end of this post.

I thought I would begin by looking over the changes in the GMI  the last few weeks. Gmichanges715_1 After falling to +3, the GMI has remained at +6 since July 8 when this rally began.  It took only one day for the GMI to go from +3 to +6.  This is an example of how bad it is to marry a scenario.  When the instruments tell me the market is reversing direction, I must act on it and not fight it.  I am comfortable now being long and having no shorts.  The rally has now completed its 6th day.  (Click on chart to enlarge.)……………………………

I am introducing a new chart, the WishingWealth Pulse of the Market (WPM), which I will update periodically.  I thought it was important to track how various types of stock indexes are performing.  Wpm715 The WPM looks at the Dow 30, S&P 500, Nasdaq 100, S&P 400 (mid-cap) and S&P 600 stock (small-cap) indexes and their component stocks.  The short term trend measures focus on whether the index closed above its 30 day average and the percentage of the component stocks that closed above that average.  The longer term trend measures focus on the 30 week averages.  Why 30 day and 30 week?  Over my 40+ years of trading, I have found that these are the best trend indicators for market movement.  I must admit it was Stan Weinstein’s classic book (see Weinstein’s book at right) that alerted me to the usefulness of the 30 week average.  The reversal in the QQQQ’s 30 week average in 2000, and 2003 alerted me to get out of the market in 2000 and to get back in, in 2003.  Check it out!  As for the 30 day average–I have found it to be the most reliable indicator of the short term trend.

The current WPM is quite bullish.  All indexes closed above their 30 week and 30 day averages.  The weakest indicator is the Dow 30 stocks, where only 63% closed above their 30 day averages and 53% above their 30 week averages.  Let me know what you think of the WPM and how often you think I should post it………………………

This is earnings season.  Have you ever noticed how the media report earnings in such a way as to maximize volatility and emotional reactions?  It all focuses on whether a company beats analysts’ expectations.  So, some group polls the analysts that follow a stock and then highlight the average of their estimates.  Now, consider the following hypothetical per share estimates from 5 analysts: (.25, .30, .20, .20, .30).  The average is .25 per share.  Now say the company reports .21 per share.  The media would report that the company missed earnings estimates by 4 cents (.21 instead of the predicted average of .25) even though the company actually beat the estimates of two analysts (who predicted .20 each).  So everyone sells and the stock dives, not because missing the estimate is so bad–the company made a profit–but because everyone fears that the other person will sell.  And so the hysteria continues.  If the media and financial community wanted to report earnings responsibly, they would report the range of the analyst estimates.  In this example, they would have said that analysts expected anywhere from (.20-.30 per share) and that the actual earnings were within the predicted range.  I think this would take a lot of the hype out of investing. (I suspect, however, that someone would report that the earnings fell at the bottom of the predicted range–and provide another excuse for selling.) Darvas was right when he said Wall St. was a big casino.  …………………………………….

Here is a list of stocks from the IBD 100 that had triple digit earnings increases last quarter and look to me to be rockets:  CNXS, BMHC, CPSI, LUFK, HANS, SNHY.  (Also, AFFX, PTC and CTO have year-over-year growth in earnings of 100% or more.) This is a list worth researching…………………………………….

Gary–I lost your email and could not reply to you.  I appreciate your inquiry into why I did not post Thursday’s report on time–just sleepy.  Thanks for your feedback.

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: +6; CME and GOOG end weak

Gmi714 To my visitors: I am only one trader, not a guru, and not a financial advisor.  I am presenting my own opinions and my own experiences and people are welcome to decide for themselves what, if anything, on this site is of value to them.  Please refer to the additional comments, highlighted in red, at the end of this post.

Indexes in up-trends but note that CME and GOOG could not hold their gains today.

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:+6; GDW; Shame on you, Cramer

To my visitors: I am only one trader, not a guru, and not a financial advisor.  I am presenting my own opinions and my own experiences and people are welcome to decide for themselves what, if anything, on this site is of value to them.  Please refer to the additional comments, highlighted in red, at the end of this post.

I was out late tonight and will not write extensively.  Suffice it to say that the GMI held steady at +6, but there were only 265 new highs.Gmi713_2 Only about one half of the Nasdaq 100 and S&P 500 stocks rose, compared to 80% of the Dow 30 stocks.  The rally ebbs and flows. Note that GDW, one of the consistent long time winners I have talked about hit a new high today……………… 

Tonight I heard Cramer make the distinction between the short term trader and the investor.  Traders should cut their losses at 8% but investors who know the "true value" of stocks can buy on the way down.  What a prescription for disaster!  No one should average down and no one should let their losses on a purchase exceed 8%.  One could have bought Enron all the way down by being a true believer in the accounting statistics and the repeated optimistic company announcements.  By the time we outsiders learn the facts, the insiders and people in the know have already sold at much higher prices.   No amount of "homework" or research can protect us. That is why one must react to the stock’s behavior as seen in its price chart, not to the corporate propaganda. Shame on you, Cramer.

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.