The only tip off to today’s financial meltdown that I noticed, was the extreme weakness in MER, LEH and BSC, that showed up beginning last Friday when persons in the know apparently started to sell the investment bankers. The GMI is now 1 and the GMI-S is 25. There were 52 new highs and 64 new lows in my universe of 4,000 stocks. Even the IBD growth mutual fund is now negative. When these mutual fund managers cannot make money, neither can I when trading growth stocks. 0-1% of the stocks in the Nasdaq 100, S&P 500 and Dow 30 indexes rose, the worst I have seen since I began blogging 2 years ago. Only 33% of the Nasdaq 100 stocks closed above their 30 day averages on Tuesday. This is no time to be brave, and it would be wise to stay in cash until things settle.
GMI: 6; GMI-S: 88; GMI-L: 100. Time to take stock. First of all, it is amazing how many people are wringing their hands expecting the markets to correct. I will return to this point later. Note that there were 223 new highs and only 16 new lows in my universe of 4,000 stocks on Friday. The SPY has closed above its 10 week average for 27 straight weeks; the DIA has done so for 30 weeks. While the QQQQ has not done as well as these indexes, it fell below its 10 week average in late December and for a few weeks this year, the QQQQ is now in its 4th consecutive week back above its 10 week average. Even though my short term indicators have revealed some bumps in the road, the GMI-L longer term indicators for four indexes have closed above 90 since last September. In my major pension account where I use a longer term trading strategy, I have stayed 100% invested in mutual funds since last fall.
Given the strength in the markets the past six months, I guess it is understandable that the media pundits think it is time for a correction. But when I looked at this monthly chart of the Dow 30 index, it appeared to me that we are closer to the beginning of a run than to the end. Note that the Dow peaked in 2000 and bottomed out in 2002. Since then it has taken five years to come back and break out to new highs. When a market declines and then builds a large multi-year base and has the buying strength to overcome the overhead supply (from persons who bought at higher levels and sell as soon as they break even) and pushes through to new highs, it often portends a considerable rise. The Dow spent many years bouncing down off of the 1,000 resistance level in the 60’s and 70’s before it finally burst through in 1982 at the start of a long bull move. I am not suggesting that we are at the beginning of such a big move. But the rise we have seen in the Dow the past few months pales in comparison to the length and magnitude of the Dow’s rise from 1995-2000. Then again, a bull market does need to climb a wall of worry…………………
So how have the IBD 100 stocks been doing lately? As this table shows, the seven IBD 100 lists that I have followed since 5/15 did about the same as the Nasdaq 100 stocks recently. While 35% of the Nasdaq 100 stocks rose on Friday, 28-52% of the stocks in the seven lists did so, with the oldest list stocks doing somewhat better. This may be because the oil stocks that made up more of these older lists started to outperform again last week as the price of oil rose. There were 7 new highs in the Nasdaq 100 stocks on Friday and 2-7 in each of the IBD 100 lists. With the exception of the list from 5/16, two thirds of the stocks in each list closed higher on Friday than they did when their respective lists were published. Also, about two thirds of the Nasdaq 100 and IBD 100 stocks closed above their 30 day averages. It looks to me like the Nasdaq 100 stocks and the IBD 100 type of growth stocks have been performing similarly of late. Is it time for these super growth stocks to out-perform?
As to the possible cup-with handle stocks I have recently written about, both ATHR and NUAN seem to be in established up-trends. CEPH has not yet broken out and is sitting on support. RVSN, on the IBD 100 stock list from 12/15, is another possible break-out from a cup with handle formation. It’s pivot point was around 21.75 and it may be an interesting buy if it holds that level. It closed Friday at 21.83. According to O’Neil, a stock bought at the proper pivot point should not decline 8% below that point. If it does, it should be sold. I like to buy IBD 100 stocks that break from a base on high volume because I am confident that the stock has also passed IBD’s stringent fundamental criteria. GLD, while not on the IBD 100 list, appears to be resuming its up-trend. What does the rising price of gold and the declining dollar portend for our future?
The GMI remains at 6. There were 485 new highs in my universe of 4,000 stocks on Tuesday, the most since December 5. All indexes I monitor are in up-trends. Tuesday was the 4th day in the current QQQQ up-trend, which appears to be breaking out of a multi-week consolidation. ATHR and NUAN, stocks with former cup with handle bases, appear to be moving up. Buying QLD again.
See my disclaimers at the bottom of yesterday’s post.