GMI: +6, ETF winners and losers; Interest rates

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.

The GMI remains at +6 and the tech stocks continue to lead this rally.Gmi616 There were 291 new highs today in my universe of 4,000 stocks and only 12 new lows.  This is the greatest ratio of new highs to new lows since I posted the GMI on April 26.  By the way, a number of you have asked me how I compute the GMI–just check out my post in the archive on 4/26.  68% of the Nasdaq 100 stocks rose today, 69% of the S&P 500 stocks and 57% of the Dow 30.  This is turning into a respectable rally, having lasted for 29 days (U-29).

I thought you might like to see what ETF’s (exchange traded funds)have performed best in this period.  So, I used TC2005 to run a scan of ETF’s when the QQQQ advanced 5.2%.  The winners are OIH (+10.5%, oil service); EWW (+9.5%, Mexico stocks); IGW (+9%, semiconductors); IYE (+8.8%, energy); PWT and XLE (+8.6%, energy) and IIH (+8.5%, internet).  Clearly the oil and energy sectors were the place to be.  Will they continue to lead this rally? 

The biggest losers include EZA (-5%, South Africa); BHH (-4.5%, B2B internet); EWK (-2.8% Belgium) and EWJ (-1.6%, Japan). Other more traditional sector ETF’s that were weak include PPH, IXP, XLP and XLV. PPH (-1%) includes all of those wonderful pharmaceutical stocks (LLY, BMY, JNJ, WYE, SGP, MRK, VRX—these stocks declined 2.3-13.6% in this period) that the pundits have been recommending  to conservative investors in difficult times (like these??) I told you weeks ago that JNJ looked sick.

By the way, the short term interest rate index I have been monitoringIrx616 cracked today. Speculators are betting less on interest rate hikes, at least today they did. (Click on chart to enlarge.)

Send your feedback and questions to: 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.

QQQQ bounced; GMI: +6; Some gappers; Favorite books

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.

The QQQQ successfully tested its up trend today, bouncing right at support. Gmi615 The coast looks clear to me–I added to my position of QQQQ shares today.  The GMI remains at +6; there were 277 new highs, the largest number in weeks, and only 13 new lows in my universe of 4,000 stocks.  Between 53% and 59% of stocks in the Nasdaq 100, S&P 500, and Dow 30 indexes closed higher today.  Today marks the 28th day in the QQQQ up trend (U-28).  We may be setting up for the end of month/quarter rally I have been anticipating.

Among the stocks that gapped up out of bases on high volume today are:  PGIC, SKX, ARB, FLIR, EBF, PSYS, WCI, and IIIN.  Check them out and, especially, see if news was released that could affect the continuation of the rise.  Good luck!

I added to the side bar (at the right) a list of my favorite stock trading books.  Hope you enjoy them too.

Send your feedback and questions to: 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 at the max: +6; Buying Gaps; GM, HANS

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.

The GMI is back at +6 with the QQQQ weekly index turning positive.  Gmi614_1 There were 256 new 52 week highs in my universe of 4,000 stocks, highest in more than 2 weeks.  There were only 15 new lows.  The Nasdaq 100 stocks were less strong than the other indexes; 48% of those stocks rose, compared to 63% of the S&P 500 stocks and 67% of the Dow 30.   Today is the 27th day of the up trend (U-27).

Since the beginning of the up trend on May 6, the QQQQ has risen 4.8% and 75% of the Nasdaq 100 stocks have increased.  (This is an example of the wishdom of the saying that about 70% of stocks follow the general market averages, and is another reminder of why it is most profitable to follow the market trend.) Among the Nasdaq 100 stocks that rose, the median increase was about 8.5%, meaning that half of the gainers rose more than this amount.  The largest gainers were LVLT (+37%), SANM (+27%), CECO (+27%), FLEX (15%), NXTL (+16%), MRVL (+16%) and KLAC (+15%). The largest decliners were ATYT (-15%), SSCC (-15%), SEBL (-10%) and BIIB (-9%).  I hope you were long some of the winners and none of the losers…………………………….

Several stocks gapped up today (the low today was greater than the high yesterday).  Some that may present interesting possibilities include POT, SMTS, DIOD and CNS.  All have interesting technical pictures and fundamentals.  Check them out.  A gap up means that the demand for the stock temporarily overcame the supply of the stock.  It often times portends a strong up trend as long as the stock stays above the gap. The volume on the day of the gap should be way above its average volume, demonstrating unusual demand.Gm  Here is a timely example of what I mean. On May 4, GM gapped up and closed at 32.80 up 5.03.  Look at the extreme volume of shares traded that day.  The low for the day was 30.11.  My strategy is to buy the stock that day or the next and place my sell stop below the low of the day it gapped, here about 30.  Note that the volume died down as GM consolidated, but the stock never traded near 30.  Its low point was 30.40 during the next three weeks, comfortably above the stop loss point.  Then, like clockwork, GM finished consolidating and broke up on increased volume again.  I noticed this formation in GM but did not buy it.  I prefer stocks near new highs, not at new lows.  Still, there are many, often antithetical ways, to profit from the market.

Here is another example of a gap up, this time in a powerful stock, HANS.  Hans On March 15, HANS gapped up to close at 54.57, up 11.31 for the day.  The volume was many times its 50 day average of daily volume.  The stock never traded back to that day’s low of 46.13, and closed today at 81.17.  The strategy of buying the stock on the gap and placing a sell stop below the low of the day would have worked beautifully here.

These are just 2 examples of how a high volume gap up day can signal the potential for future gains.  By pursuing a conservative strategy of making a small pilot buy into such strength, coupled with a stop loss at the gap day’s low it may be possible to hitch a ride on a  rocket for a long, profitable ride up, while risking a small manageable loss.  Of course, as I have been saying all along, this strategy and other purchase strategies have the best chance of working in a market that is trending up–like now. (How do I find high volume gaps?  I use TC2005.)

Send your feedback to 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 back to +5; Chart of GMI performance; BTU

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.

The GMI bounced back today to +5 with the QQQQ weekly index turning positive again.Gmi613 There were 189 new 52 week highs in my universe of 4,000 stocks and only 24 new lows.  All three market indexes were in harmony with 60-67% of the stocks in the Nasdaq 100, the S&P 500 and the Dow 30 rising today. Today is day 26 in the up trend (U-26).

I thought it might be informative to show you how the GMI has performed since I began posting it in April (click on graph to enlarge). Gmiperformance2 During the last part of April, as the QQQQ was bottoming, the GMI was steady at zero.  On May 4, the GMI turned 1 and varied between 1 and 3 over the next few days as the QQQQ strengthened.  Since May 18, the GMI has consistently registered 3 or above. …………………………..

I bought some BTU today.  It came up in a market scan I did over the weekend that focused on stocks hitting new highs that day.  Btu On Friday, BTU gapped up and closed at a new high of 52.71.  I placed a stop order Sunday night to buy the stock if it traded above Friday’s intraday high price of 52.91.  After the buy stop was executed around 53.10 on Monday, I placed a sell stop in just below Friday’s low around 49.90.  I reasoned that if the stock was weak enough to close Friday’s gap, I wanted to be sold out.  BTU closed at 54.77 today up $2.06.

Why did I buy BTU?  The metals and mining industry is strong and has had a number of stocks hitting highs.  The stock had formed a long base since topping out in March.  The stock seems to follow its 10 day average (dotted line).  Look at how the stock consistently remained above its 10 day average last February and March during its big rise, and recently.  The rise on Friday occurred in above average volume (above the horizontal blue line indicating the 50 day moving average of volume).  The MoneyStream line (red line) was rising strongly.  The IBD check up gave BTU a grade of "A." And my TC2005 program showed the annual earnings up 162% with a PE of only 34. Yahoo finance shows that earnings estimates over the next few quarters are for triple digit increases.  So, putting this all together I was willing to place a bet, limit my potential loss and take my chances.  Of course, the only reason I am willing to make purchases is the fact that the GMI indicates a market in a confirmed up trend.

Send your feedback to 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 back to +4; Performance of my picks

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.

The GMI lost another point today, to +4.Gmi610 The Weekly QQQQ Index dropped below positive and is too close to call.  If I strictly follow my rules, then it is a negative.  This does not mean that the up trend is over, as long as the QQQQ Daily Index remains positive. We are in the 25th day of the up trend and some prior up trends have gone into triple digits before the index turns negative.  The 10 day successful new high index is barely negative, at 90, and given that we had well over 100 daily new highs every day in the past 2 weeks, this index has a good chance of turning positive again. (It measures the number of stocks hitting new highs 10 days ago that closed today higher than their close on that day, see archive post–4/26).  New highs in my universe of 4,000 stocks totaled 150, with only 25 new lows.  In spite of this strength, only 17% of the Nasdaq 100 stocks advanced on Friday (the least since June 5), 39% of the S&P 500 stocks and 43% of the Dow 30.  The QQQQ remains below its 10 day average, and I will start becoming defensive with a CLOSE below 37.  On the other hand, a bounce at 37 would cause me to get bullish.

A lot of my stocks are consolidating or are still advancing.  I just relax and let my sell stop orders and put options (see yesterday’s post about using puts for insurance) watch the market for me.  If I can hang on until the last week of June and the calendar quarter, I think they will close strong. I do expect some volatility through option expiration this week.

I have been writing this blog since mid April. I thought it would be informative for me to examine the performance of the stocks that I have been highlighting during this rally. Performance610_1   I computed two analyses.  The first (Part A in the table–click on it to enlarge.) contains all stocks that I wrote about positively, with an accompanying chart. The second shows the performance of all of the stocks I published in a table containing the results of a scan of the market for potential rockets I did on May 18.  (While, I checked my list and the computations, please let me know if you detect any errors or omissions.)

I was surprised by the results.  All of the 8 stocks that I had posted as being bullish and for which I posted a chart (Part A) rose in the period since the original post and  Friday’s close. GOOG and NDAQ did the best, climbing more than 20%.  PROP and PTRY rose the least, 2-3%.  Since the time  (5/6-5/10) when I posted NDAQ, NSI and GOOG, the QQQQ rose between 4-5%, so these 3 stocks rose about 5  times more than the general Nasdaq tech stocks. The last 3 stocks listed (ORCT, MW, CME) actually rose during a period when the Nasdaq index-QQQQ, declined.

Part B shows the performance of the 15 stocks that survived a scan for rockets that I posted on 5/18.  During this period, the QQQQ rose just 1%, but 13 of these stocks rose, 6 by more than 10%.  If you want to know more about how I find rockets, check out my strategy posts in the archive on 4/23 and 4/30, and the scan on 5/18.

I am not showing you these results to receive your accolades or to recommend these stocks.  I am trying to show you that someone with no accounting background and with limited understanding of the intricacies of the economy can use technical analysis along with tools like IBD, TC2005 and free internet research tools to select possible winners.  Most important, one can do this while working full-time and without the need to be glued to a monitor all day.  But you must do your homework first.  In addition to reading this blog, you should check out www.thekirkreport.com daily to keep up on important business news and market topics.  You  should also read the writings of the successful stock market traders; most of the gurus who have really educated me are described in John Boik’s new book.  In addition, you should read Stan Weinstein’s book to learn some simple technical charting techniques. (All I use is the very simplest tools.)………………………………………..

I am becoming accustomed to writing this blog–my first post was on 4/17.  I try to post by midnight during trading days.  During the weekend I have more time to reflect on the market and to write.  I read all of your emails and greatly appreciate them, but I often must wait until the weekend to reply. (If I ever fail to respond, please remind me.) Writing this blog has actually helped my trading performance.  It has helped me to systematize my rules and to have the discipline to follow them–thank you.  My largest losses have occurred when I have deviated from my rules.  Keep sending me your questions and comments.   Send your feedback to 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: +5; Stay the course and watch the 10-day for the QQQQ

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, things held today with the GMI remaining at +5.  Gmi609r_1 There were only 116 new highs in my universe of 4.000 stocks, the lowest number in 11 days.  However, 70% of the Nasdaq 100 stocks rose, along with 63% of the S&P 500 stocks and 50% of the Dow 30 stocks.  The QQQQ uptrend is in its 24th trading day (U-24).  However, the QQQQ has completed its 3rd day below its 10 day moving average–an ominous sign (see dotted line on chart).  Qqqq609 A close tomorrow below 37.67 would begin to worry me.

I am therefore glad that I am holding "put insurance" (see yesterday’s post) on my most volatile positions (CME and GOOG).  Both stocks went up today.  I would not take on new positions until the QQQQ closes above its 10 day average, now at 38.12.  The QQQQ closed today at 37.95.  Sharply rising stocks, including the QQQQ index, tend to remain above their rising 10 day average.  A close below the average may not be a sell signal, but it serves as a yellow light to me.  One look at the chart above should convince you. 

I am sometimes struck by how focused my comments are exclusively on price and volume trends.  I think discussions about the Fed, world events, and other economic factors merely obfuscate the true nature of the market.  As I have written before, if a truck is bearing down on me as I cross the street, I do not care why it is coming or whether it should be happening–I must react to the action immediately to survive.

Send me your questions and 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.

Using put options to limit losses on CME and GOOG; GMI back to +5

Well, I noted yesterday that we may have made a short term top.Gmi608 The GMI went back to +5 when the number of successful 10 day new highs fell below 100, to 76. There were only 136 new highs, the lowest in eight days, and 37 new lows.   Only 46% of the Nasdaq 100 stocks rose, 39% of the S&P 500 stocks, and 33% of the Dow 30 stocks.

I told you yesterday that I had raised my stops, and I got stopped out of BOOM today.   I did not want to get stopped out of GOOG and CME, and I knew that if we had a sudden decline I might get shaken out only to see the stock rebound by the end of the month. So, I bought insurance instead.

Do you call your agent and complain about the home insurance premium you paid last year, because your house did not burn down? Worse still, do you complain that you didn’t need to use your life insurance this year?   No, the insurance is there to protect you from the worst case scenario, and you do not regret buying the insurance if you did not have to use it.   Well, what if you could buy insurance against a decline in your stock.   Would you mind paying the insurance premium even if your stock did not decline?   If not, then pay attention while I tell you how you can buy insurance to protect yourself from a decline in a stock you want to hold on to.

This technique is a very conservative method for using put options to insure yourself against a loss.   A put option gives you the right to sell 100 shares of a stock at a set price (the strike price) for a set period of time. You buy and sell put options through your broker just like you trade stocks.   The only thing you need to do is complete an application for trading options in your account. My broker (Brown) even allows me to trade options in my IRA account.

So, here I am with some shares of CME, which closed today at 243.49.   I think the stock will eventually go up after this short bout of market weakness.   I could simply place a stop order in to sell the stock at a place I am comfortable with, say $230 per share.   Now, if CME trades as low as $230, I will be sold out at the market (next best price available).   Then, if CME goes back above $230 in the following days, I will kick myself for having been shaken out of the stock.

Instead of placing the stop, I go to www.finance.yahoo.com and enter the symbol CME.   I then click on options in the left column.   Up comes the June options page for CME.   But I am not interested in June options, which expire on the 3rd Friday of the month, June 17. This is because I want my option to go through the end of June.   So, I could click on the July tab to get all options that expire in July.   But since I know I am interested in a put option with a strike price of 230, I just click on the number 230 and I get a display of all options with a strike price of 230 that expire over the next few months.

Scroll down to the put options.   The July 230 put option closed at $5.30 per share with a bid of $5.10 and an offer of $5.60.   That means I can buy a July 230 put on 100 shares of CME for somewhere between $510 and $560.   Usually, when I buy an option I put in a limit order in the middle of the bid/offer prices, here about $5.35 per share.   Now, this option gives me the right to tell my broker to sell my 100 shares of CME at $230/share to the person who sold me the option, anytime through the 3rd Friday in July.   (Don’t worry, you just tell the broker to execute the option and your stock is automatically sold at $230 per share.)

Now here is the good part.   From the time I bought my put (insurance) I do not have to worry about whether CME falls to zero.   I always have the right to get $230 per share.   IF CME falls to $200 and then climbs to $260 before the July expiration, I just sell my   shares at $260 and let the put option expire worthless (No one wants to execute the option to sell the stock at $230 when they can sell it in the open market for more.)   So I sell my stock at $260, but I have given up the option premium of $5.35 per share.   So my profit is reduced by the cost of the put insurance.   (Profit= sale price – purchase price-cost of option.) Now, am I going to complain that I did not need to execute the option (insurance) to sell the stock at $230 per share–I think not.

There are many variations on this theme.   I can buy more puts than I own shares and profit more if the stock declines.   I can also sell my put back if I think the stock has bottomed out and then make more profit on a subsequent rise in the stock.

So today I canceled my stop losses on GOOG and CME and bought puts as insurance.   I can now sleep easy knowing that if the stocks decline I have limited my potential losses.   And if the rally resumes, I can participate in it without having been shaken out prematurely.   Why don’t financial advisors tell more people about this important way to protect their stock investments?   Everyone is brainwashed into thinking that all uses of options are too risky for the public.   Not true.   Perhaps you should check out your options.   To read up on this and other uses of options go to the CBOE learning center.

So now I can sleep easy as the market toys with CME and GOOG.