GMI rises to +4; QQQQ at critical point

The GMI rose to +4 while the underlying market indicators strengthened.  Gmi0103 There were 251 new highs in my universe of 4,000 stocks and 56% of the 172 stocks that hit a new high 10 days ago closed higher Tuesday than they closed 10 days earlier.  31% of stocks are now in a short term up trend, up from 28%, and 71% of the yearly doublers closed above their 30 day averages.  The leading stocks were strong yesterday.  65% of stocks closed above their 10 week averages. The QQQQ is sitting just below its 30 day average.  We will need a few more days to determine whether a new up trend has begun.  Tuesday was the ninth day (D-9) of the current QQQQ down trend.

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

Happy New Year–What if?; GMI: +2; Trade with the trend

                                                                  What If?

What if……………

…no one can predict the stock market;

…high paid pundits only predict the past;

…Cramer is a modern day Elmer Gantry;

…the stock market is a big casino,  a la Nicolas Darvas;

…to survive, analysts and brokers promote an illusion of order and complexity;

…psychology matters more than fundamentals and facts.

Then we might isolate ourselves from outside opinions, use our charts to maximize the chances of a gain, place our bets, and quickly and ruthlessly cut our losses.  In harmony with the trend and with thoughtful trial and error, each small loss brings us closer to the next big gain………….

The GMI closed out the year with a +2.  A short term down trend is in effect, while the longer term up trend remains intact.  However, as we shall see below, the WPM shows some signs of weakening in the longer term trend of the component stocks of the five indexes I follow. One of the things that worries me is that the percentage of investment newsletters that are bullish is at 60.4%, with only 20.8% bearish.  This is a contrary indicator–market peaks tend to be formed when most advisers are bullish. 

There were only 56 new highs on Friday, and 45 new lows, in my universe of 4,000 stocks.  Gmi1230 Only 39% of the 125 stocks that hit a new high ten days earlier closed higher on Friday than they did ten days before.  21% of the Nasdaq 100 stocks advanced, along with only 17% of the S&P 500 stocks and 7% (2) of the Dow 30 stocks.  The QQQQ has now closed below its 10 week average for the first time in nine weeks.  Only 56% of the stocks in my universe closed above their 10 week averages and a mere 28% are in a short term up trend. Just 3% of the 176 stocks that have doubled in the past 250 days hit a new high on Friday; the leaders have stalled.  20% of stocks remain within 5% of a new high.  Friday was the eighth day (D-8) in the QQQQ down trend. Since this down trend was identified on 12/20, the QQQQ has fallen 1.3% and only 40% of its component stocks closed higher on Friday since 12/20.  With 60% of the Nasdaq 100 stocks declining during this period, why not be short or in cash, and go with the trend.  So many of us lose money by staying long when the trend is down.  The pundits scare us into believing the myth that we will miss the train when the turn suddenly comes.  However, when a meaningful turn comes, there are many weeks and sometimes months during which we can hitch a ride.

The WPM showed marked deterioration in all five indexes.  Wpm1230 All indexes closed below their 30 day averages and are in short term down trends.  Only 24% of the Nasdaq 100 stocks closed above their 30 day averages, along with 33-41% of the components of the other indexes.  While all five indexes closed above their 30 week averages, only a reduced 52-64% of their component stocks did.  Time will tell whether this longer term weakening will develop into a longer term down trend.

So we begin the new year in the midst of a confirmed short term down trend.  For me, this is a time to be short or in cash.  Can this trend reverse quickly?  Of course.    If the market turns up, I can turn on a dime, or dollar, along with the GMI.  The key to conservation of capital is not to fight the current market down trend, especially in view of the strong bullish sentiment found among advisers.  As always, the new year will bring tremendous opportunities for profiting on the bull and/or bear side, as long as I trade in harmony with the market trend and cut my losses quickly.

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

GMI: +2; The decline deepens; Gold mining and income stocks dominate new highs

The decline deepened on Thursday.  Gmi1229 Only 29% of the Nasdaq 100 stocks remain in a short term up trend, down from over 60% at the beginning of December.  32% of the Nasdaq 100 stocks advanced, along with 34% of the S&P 500 stocks and 40% of the Dow 30 stocks.  Thursday was the 7th day of the QQQQ down trend (D-7).  Fewer than one half of the Nasdaq 100 stocks closed higher on Thursday than they did seven days ago when I first detected this down trend. Only 31% of the stocks that hit a new high 10 days earlier closed higher on Thursday than on the day they hit their high.  Only 3% of the stocks that have doubled in the past year hit a high on Thursday, although there were 90 new highs and only 35 lows in my universe of 4,000 stocks.  So, if it is not the year’s leaders that are climbing, what stocks hit new highs today?  The largest sectors were gold mining stocks (KGC, GG, GLG, AEM, GFI, AU, WTZ, NEM, IAG) and closed end funds specializing in bonds and dividend income (PMF, EVT, MUC, EIM, EIV, BLE, BFK, PMX).  These accounted for about 20% of all new highs on Thursday. If 2006 brings a substantial decline, gold and dividend producing stocks may be the place to seek gains. Only 22% of stocks are within 5% of a new high.  I have close sell stops on my few long positions and am also short the QQQQ’s. The QQQQ is only .02 above its 10 week average.  A small decline on Friday would end the 8 weeks of consecutive closes above this important moving average. I find that most of my gains from longs have come during periods when the QQQQ remains above its rising 10 week average………..

Happy New Year to you all, and thank you for being such attentive readers.  Please send your comments to:  silentknight@wishingwealthblog.com.

My apology; GMI: +2; Short term down trend defined; Why fight the odds?

I apologize to my readers for missing yesterday’s post.  I was out of town and fully expected my hotel to have internet access.  So much for rural seaside tourist traps….

Tuesday’s decline pushed the GMI down to a +2 reading.  And on Wednesday there were only 71 new yearly highs in my universe of 4,000 stocks.  Only 37% of the stocks that hit a new high ten days earlier closed higher on Wednesday than they closed 10 days earlier.  The QQQQ and SPY (and DIA) have both closed below their 30 day averages, and only 32% of the QQQQ stocks are in a short term up trend.  Gmi1228 Only 6% of the stocks that have doubled in the past year hit a new high on Wednesday, further evidence that the leaders are weak.  The longer term up trend is still intact with 61% of stocks above their 10 week averages and 23% within 5% of a new high.  However, when the indexes close below their 30 day averages, I tend to get in cash or go short.  Qqqq1228 Another sign of a weak market is that the QQQQ’s 10 day average (dotted line) is now below the 30 day average (red line) for the first time since this up trend began. While this may only be a sign of short term weakness, this is how all major declines begin.  About 70-80% of stocks follow the trend of the averages–and with this pattern–I am bucking the odds if I go long………..

Send your comments to:  silentknight@wishingwealthblog.com.

GMI: +4; Mixed signals; GMI: contrary indicator? New Year Nicolas Darvas type stocks

The GMI remains at +4, and the market should reveal its short term trend this week.   The QQQQ closed Friday just below its 30 day average, and its declining 10 day average is just above the 30 day average (41.52/41.49).   The last time the QQQQ’s 10 day average was below its 30 day was on October 31 at the beginning of the rally. Tomorrow’s close should be very important for defining the short term trend. Gmi1223Only 47% of the 160 stocks that hit a yearly high ten days ago closed higher on Friday than ten days earlier.   In addition, only 10% of stocks that have doubled in the past year hit a new high.   Thus, there is some pressure on the leaders and stocks hitting new highs.   On the other hand, there were 168 new highs in my universe of 4,000 stocks.   But only 50-53%   of the stocks in the Nasdaq 100, S&P 500 and the Dow 30 indexes advanced on Friday.   The percentage of stocks in a short term up trend has risen from 33% early last week to 39%, and 67% of stocks remain above their 10 week averages.   Three times as many stocks are within 5% of a new high than a new low (25%/8%).   This was the eighth week that the QQQQ has closed above its 10 week average, but Friday was the fourth day in this QQQQ down trend (D-4). We therefore have a weak short term trend within a stronger long term up trend.

The WPM also shows this lesser short term strength in the QQQQ (Nasdaq 100) index.   The QQQQ is the only index that closed below its 30 day Wpm1223average, and only 55% of its components stocks closed above their 30 day averages. The S&P 500 stocks show the greatest short term strength, with 67% of its stocks above their 30 day averages.   The S&P Small Cap Index components are also relatively week, with only 52% above their 30 day and 59% above their 30 week averages…..

A reader wrote me that he thinks the GMI is a contrary indicator.   I don’t see it. Gmi1223changes As this chart (click on to enlarge) of the changes in the GMI shows, the GMI registered a +5 or 6 during the major rallies in July and November.   And when it was below 4, it was generally a declining market……………..

I hesitate to list any stocks that I find promising when the QQQQ is weak, but my scan did find some stocks to watch in the new year, if the market up trend resumes:

INGR,TIE,HSVLY,GOOG,LMS,CRM,GMXR,

AAPL,LDSH,AIRM,UBB, ARD, MDR, DBRN,GHL.

All of these stocks (I own a few) are near their all-time highs and have recent quarterly earnings increases of 100%+.   With the exception of CRM, their PE’s are all less than 100.   They all gained in price at least 80% in the past year.   Nicolas Darvas (see links below and to the right) used to concentrate on leading stocks at all-time highs that have already doubled.   To find a stock that will double, I find it best to find one that has already doubled.   Of course, when buying such high momentum stocks, I must immediately limit risk by placing a stop loss order……………..