GMI: +1; IBD 100 stocks smashed again; stay with the trend

The GMI remains at +1, with 75% of the 12 stocks that hit a new high ten days ago closing higher on Thursday than they closed ten days earlier.  Gmi0608 But my other five indicators remain firmly in negative territiory.  There were 18 new yearly highs and 202 new lows  in my universe of nearly 4,000 stocks on Thursday.  Only 29% of the Nasdaq 100 stocks advanced, compared with 50% of the S&P 500 and 57% of the Dow 30 stocks.  Thursday was the twentieth day of the current short term QQQQ down-trend (D-20). 

The weakness in the Nasdaq 100 tech stocks was mirrored in the IBD 100 stocks.  Ibd0608 While 41% of my universe of stocks rose on Thursday, only 25% of the IBD 100 stocks advanced.  Only 9% of the IBD 100 stocks closed above their 10 day averages, while 30% of my stock universe did.  Only 10% of the IBD 100 stocks closed above their 30 day averages, compared with 26% of my universe of stocks.  Perhaps the most telling statistic is that only 11% of the IBD 100 list published on 5/15 closed higher on Thursday than they did on 5/15….

I remain in cash or short in my IRA via put options. Rather than trying to guess a short term bottom, a true technician waits for the turn to occur as shown by his technical indicators.  I will need to see a rise in the GMI to at least +3 before I will wade into stocks on the long side.  Meanwhile, with a down trend in place, every rally offers a chance to increase my short positions.

Why are human beings so prone to the long side?  Expert traders seize upon movement, up or down. As the great trader, Jesse Livermore, said, there is no bull side or bear side, only the right side— of the trend.

Please send your comments to:  silentknight@wishingwealthblog.com.

GMI: +1; Shame on IBD and Jim Cramer!

The GMI rose on Wednesday to +1 because 50% of the 23 stocks that hit a new high ten days ago closed higher on Wednesday than they closed ten days earlier. However, with such a small number (14) of successful 10 day highs, this indicator is still weak and could turn negative on Thursday again.  There were 30 new highs and 72 new lows in my universe of 4,000 stocks.  Only 20% of the Nasdaq 100 stocks closed above their 30 day averages.  Gmi0607 Between 36-41% of the stocks in the Nasdaq 100, S&P 500 and Dow 30 indexes advanced on Wednesday.  The QQQQ has closed below its 10 week average for the fourth week.  The QQQQ has been in a short term down trend for nineteen (D-19) days………..

Shame on IBD!  On Wednesday, after weeks of claiming that the market was in a rally, IBD wrote that, "Today’s Market Pulse notes that the market is in a downtrend, which has been the case for nearly a month."  IBD is a great newspaper, but they should have the integrity to admit that they have been repeatedly wrong on the market’s recent trend.  However, the GMI and my indicators have been calling the down trend for 19 straight days……………

Perhaps IBD is smarting from the terrible performance of the IBD 100 stocks.  Ibd0607_1 While 38% of my universe of stocks advanced on Wednesday, only 30% of the IBD 100 rose.  More of my universe of stocks closed above their 10 day (32% vs. 16%) and their 30 day averages (26% vs. 18%).  Note that since this IBD 100 list was published on 5/15, only 14% of these stocks have risen.  Thus, 86% of the IBD 100 stocks have declined or gone nowhere, along with the market……

Note also that more of my universe of stocks are within 5% of their yearly lows than highs (14% vs. 11%).  What this adds up to is that the market has been in a significant decline where it has been relatively easy to make money, as long as one stayed with the short trend.  My puts have done nicely during this period (see my post on 5/24 for an example of one of my shorts).  People short change themselves (no pun intended) to only trade on the bull side of the market.  Buying puts in an IRA (or taxable account) is one way to take advantage of the market’s decline while limiting potential losses.  We have all been brainwashed into avoiding the short side of the market.  Shame on Jim Cramer, who used to short the market while running his hedge fund, but refuses to advocate that his CNBC audience short stocks.  He and the other media pundits instead encourage people to try to find those rare stocks that can rise against the trend.  Why not take the easy way and trade the 80%+ of stocks that go with the major market trend…………………….

Please send your comments to:  silentknight@wishingwealthblog.com.

GMI: 0; IBD 100 growth stocks decimated

Another losing day with the GMI firmly stuck at zero.  Gmi0606 There were only 17 new highs and 136 new lows in my universe of 4,000 stocks.  The longer term moving averages are now starting to weaken.  The GMI-L fell to 44 and the GMI-S is now at zero.  The extreme weakness in the short term indicators is now spreading to the longer term indicators.  If this weakness in the longer term indicators continues we may find the markets  in a significant  down trend……………..

The IBD 100 stocks have been decimated and are underperforming my larger universe of almost 4,000 stocks.  Ibd0606 34% of the stocks in my universe rose on Tuesday, compared with 19% of the IBD 100 stocks.  There were zero new highs in the IBD 100 stocks and <1% in my universe of stocks.  More stocks in my universe closed above their 10 day averages (35% vs. 32%) and their 30 day averages (25% vs. 20%).  Note that the wide majority of both groups of stocks have closed below their average closing prices of the last 10 and 30 days.  Only about one fifth of both groups of stocks are in a short term up-trend.  Furthermore, more stocks in my universe are within 5% of a new low (13%) than a new high (10%).  The IBD 100 stocks still have the edge in closing above their longer term 10 week and 30 week averages, but the gap has narrowed for the 10 week average (34% vs. 28%).  Of most significance, only 17% of the IBD 100 stocks published in the list on 5/15 closed higher on Tuesday than they closed on 5/15, compared with 32% of my universe of stocks…

When the premier IBD 100 growth stocks cannot hold up, the market is in a lot of trouble.  I hope that most of my readers went to cash or short when the GMI fell to +1 on 5/14.  Using the GMI indicators, I have avoided all significant market declines since 1995.  It is now time for me to wait on the sidelines, mainly in cash until the GMI strengthens.  I do own some put options in my IRA which have appreciated nicely during this decline.  I highly recommend O’Neil’s brief book on selling short……

Please send your comments to:  silentknight@wishingwealthblog.com.

GMI: 0; Staying in cash or short

The GMI is back to zero as few stocks rose on Monday.  Only 3-6% of the stocks in the Nasdaq 100, S&P 500 and Dow 30 groups advanced. Gmi0605_1 There were 49 new highs and 75 new lows in my universe of 4,000 stocks.  Only 18% of the Nasdaq 100 stocks closed above their 30 day averages.  Monday was the seventeenth day (D-17) in the current short term down trend in the QQQQ…….. 

The IBD 100 stocks seriously weakened on Monday, as did my universe of stocks.  Ibd0605 Only 10% of the stocks in my universe rose, along with 7% of the IBD 100 stocks.  1% of my universe of stocks hit a new high, and 4% of the IBD 100 stocks.  Only 28% of both stock groups closed above their critical 30 day averages.  28% of my universe of stocks closed above their 10 week averages, compared with 39% of the IBD 100 stocks.  Only 20% of the IBD 100 stocks closed higher than they did on 5/15 when they were published on the IBD 100 list. The growth stocks typified by the IBD 100 have become decimated by the current decline……

The GMI has been weak since May 14, when I  went to cash and/or short.  It took me 40 years to learn not to fight declining markets like this.  Only Cramer and mutual fund managers have to stay invested.  For me, it is time to be in cash or short.  I will wait for the GMI to rise to at least +4 before I risk my money on the long side.  It looks like the "go away in May" slogan has some merit again this year.

Please send your comments to:  silentknight@wishingwealthblog.com.

GMI: +2; Indicators still improving; New leaders?

The GMI rose to +2, as there were 115 new highs (20 new lows) in my universe of 4,000 stocks on Friday.  Gmi0602 There were also 6 successful 10 day new highs; 55% of the 11 stocks that hit a new high 10 days ago closed higher on Friday than they closed 10 days earlier.  While this is a small number, it does show that one had a 55% chance of making a profit by buying new highs 10 days ago and holding them until Friday.  In contrast, only 40% of new lows 10 days ago might have produced a profitable short trade.  The GMI long and short term indexes also improved on Friday.  63% of the GMI-L indicators are now positive as well as 44% of the GMI-S indicators.  Each index measures 4 trend indicators each for the DIA, IJR, SPY and QQQQ.  Friday was the sixteenth day of the current short term down-trend in the QQQQ, and the QQQQ remains below its 10 week average.  I am most likely to make money trading when the QQQQ is consistently above its 10 week moving average……

The IBD 100 stocks and my universe of 4,000 stocks have performed similarly recently.  In a strong market the IBD 100 growth stocks with great technicals and fundamentals typically outperform other stocks.  Ibd0602 On Friday, 58% of my universe advanced, as did 60% of the IBD 100 stocks.  But 43% of my universe closed higher than they opened on Friday, compared with 28% of the IBD 100 stocks.  Only 3% of my universe hit a new high, as did 4% of the IBD 100.  18% of my universe stocks are in a short term up-trend, compared with 16% of the IBD 100.  The IBD 100 stocks are still much more likely to have closed above their 10 and 30 week averages.  Furthermore the IBD 100 stocks were more likely to have found support at their 10 week averages (23% vs. 17%). 

What this all boils down to is that the IBD 100 stocks and my universe of stocks are all showing short term strength, as all stocks are recovering from their recent declines.  Note, however, that since this list of IBD 100 stocks was posted on 5/15, only 32% of the stocks closed higher on Friday than they did on 5/15.  Put another way, 68% of the IBD 100 stocks have declined since the list was published.  IBD has been repeatedly noting that one should not fight the market trend, and that  in a weak market most IBD 100 growth type stocks will decline in spite of their great fundamentals and technicals.   Even after this short decline, the IBD 100 growth stocks remain in much better longer term technical shape than the rest of the market, as measured by  their 10 and 30 week averages.  In addition, even after the current weakness in the general market, 18% of my universe of stocks are within 5% of a new high, and only 8% are within 5% of a new low.   The four IBD 100 stocks that hit a new high on Friday were HOC, OII, IFO, SPSS.  When most stocks are weak, it is easier to see the winners……………

Please send your comments to:  silentknight@wishingwealthblog.com.