GMI: +5; Signs of weakness; on sidelines

Things turned weak on Tuesday, and the GMI declined one, to +5.  While there were 300 new yearly highs in my universe of 4,000 stocks, only 32% of the Nasdaq 100 stocks, 24% of the S&P 500 stocks and 17% of the Dow 30 stocks advanced. Gmi1004_1 Significantly, the DIA and SPY indexes closed below their 30 day averages.  The QQQQ held.  Even worse, the DIA closed below its 30 week average, a major sign of weakness.  The market is not exhibiting any sustained trend, with the indexes closing above, then below their key moving averages.  Housing stocks remain in a down-trend, with interest rates rising.  With earnings season approaching, selected stocks are rising, hinting at good earnings to come.  Nevertheless, this is probably a good time to be mainly in cash on the sidelines. 

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GMI: +6; Strongest/weakest sectors

The GMI remains at +6, as the market continues to strengthen.  There were 332 new highs on Monday, the most since September 9.  Gmi1003 There were 183 stocks that hit a new high 10 days ago and closed higher Monday than 10 days earlier. Buying stocks at new highs 10 days ago has therefore been likely (69%) to have been profitable. The IBD Mutual Fund Index is now well above its 50 day average, indicating that growth stocks are rising.  More than one half  (52%) of the 4,000 stocks in my universe of stocks closed above their 10 week averages, and 32% are now in a short term up-trend.  29% of these stocks are now within 5% of their yearly highs and only 8% are near new lows.  The Dow 30 stocks remain the weakest stocks, with only 33% rising on Monday, compared with 58% of the Nasdaq 100 stocks and 48% of the S&P 500 stocks.  Monday was day two (U-2) of the QQQQ up-trend………………..

While there were 332 new highs yesterday, there was also a relatively large number (129) of new lows.  This suggests considerable variability in performance.  What sectors are  strong vs. weak?  Between 9/21-10/3 (since the QQQQ bottomed out) the following sectors rose the most:  Semiconductor-memory chips (+8.9%), Internet software and services (+8.4%), Apparel stores (+8.1%), General contractors (+7.6%) and copper (+7.3%).  The weakest were: Aluminum (-3.5%), Mortgage Investment (-3.3%), Nonmetallic Mineral Mining (-2.1%), Electronic Equipment (-1.9%), and Beverages-Brewers (-1.9%).  The strongest stocks in the strongest sector, semiconductor-memory chips, in descending order were:  LEXR, FLSH, MU, RMBS, ALSC, which were up 10%-32% during this 8 day period when the QQQQ rose 2.8%……………..

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GMI: +6; Indexes showing strength; Stocks I am watching; I-bonds

Well, things came through on Friday and the GMI is back to +6.  There were 272 new yearly highs and only 40 new lows in my universe of 4,000 stocks.  Gmi930_1 Almost one half (48%) of the stocks are above their 10 week averages and 30% are in a short term up-trend, up from 24% at the beginning of last week.  On Friday, 78% of the Nasdaq 100 stocks rose, 65% of the S&P 500 and 57% of the Dow 30 stocks.  The growing strength in the Nasdaq 100 stocks is evident in  the fact that 57% are now above their 30 day averages, up from a low of 28% on 9/22.  The Nasdaq may lead this market up.   We are now in day one (U-1) of the new QQQQ up-trend.

The WPM shows the broad reversal in the five indexes.Wpm930 All indexes are above their 30 day and 30 week moving averages.  Their component stocks also showed strength with 50-57% of the stocks closing above their 30 day averages.  Between 57-60% of the component s of all of the indexes but the Dow 30 (DIA, 43%) closed above their 30 week averages. The weakest stocks in the Dow include:  DD, WMT, MRK, AA, MMM, JNJ, DIS, PFE and GM–all well below their 30 week averages,  a key negative according to Weinstein’s stage analysis (see his excellent book, listed at right).

I closed out my shorts last week.  I remain very cautious until I see whether there is any follow-through this week.  Was last week’s strength merely end of quarter buying by the funds? I rarely see so many reversals in my indicators, which are designed to detect meaningful changes in trends.  I will need to see a few more up days for me to become confident enough to take on new long positions.  October has always been a difficult month, but October declines often set the stage for a good end-of-year rally. Stocks I am watching, some of which I own, include:  ADSK, CX, NSC, HTN, VLO, AAPL , ISRG and NX……………..

By the way, if you do not know about I-bonds, check them out here.  I use these U.S. government bonds for savings that I will not touch for a long time, instead of keeping the money in a bank.  I-bonds are protected against inflation and have been a great place to put my kids’ savings……….

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GMI: +4; Reversal coming?; Next week shoud tell

The market internals reversed Thursday and showed unusual strength.  The GMI rose to +4 and could rise to +6 with another advance tomorrow.  There were 240 new yearly highs in my universe of 4,000 stocks and the percentage of stocks in a short term up-trend has gradually risen from a low of 24% on 9/26 to 29% on Thursday.  Gmi929_1 The percentage of stocks closing above their 10 week average has risen from 37% on 9/23 to 47% by Thursday.  Between 78-83% of the stocks in the Nasdaq 100, S&P 500 and Dow 30 indexes advanced on Thursday.  There were 105 successful 10 day new highs.

I am still cautious about this rally because it is occurring at the end of the quarter.  Mutual funds may be loading up on recent winners in order to look smart when they release their 3rd quarter portfolios.  (This tactic is called window dressing, because the unsuspecting investor cannot tell the exact date that these shares were acquired and the fund manager appears smart to have bought these winners.)  I am still inclined to wait until next week to determine the market’s probable direction.

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GMI: +2, little change Wednesday

I got back too late from the IBD Meetup to do a full post.  The GMI remains at +2 and there were no significant changes in my market indicators.  I think we will have to wait until next week when the end of the quarter "window dressing" by the mutual funds is finished.  Early October should reveal the market’s direction.