GMI:+6; My favorite posts; GMI as a trend indicator; WPM shows all indexes strong; Jim Cramer on charts; Some big earners at new highs

NOTE:    A NEW SECTION TO THE BOTTOM RIGHT PROVIDES LINKS TO MY FAVORITE PRIOR POSTS.  THESE INCLUDE MY STRATEGY POSTS, DEFINITIONS OF THE GMI COMPONENTS, AND MY ANALYSIS OF WHY THE TRADING TECHNIQUES OF THE GREAT NICOLAS DARVAS WORK BEST DURING BULL MARKETS AT ALL-TIME HIGHS.

What a week!  The GMI remains firmly at a maximum +6.  Gmi1111 I will show you below how the GMI has kept me out of the market (or short) during declines and back in during rallies.  80% (57/71) of the stocks that hit new highs 10 days ago closed higher Friday than they closed 10 days earlier.  In contrast, only 24% of the stocks that hit new lows 10 days ago closed lower than they did 10 days earlier.  The moral?  In a strong market buying new highs is much more likely to prove profitable than shorting new lows. There were 234 new highs on Friday and only 44 new lows in my universe of 4,000 stocks.  56% of stocks are in a short term up-trend and 53% closed above their 10 week averages.  Almost three quarters (72%) of the 165 stocks that have doubled in the past year closed above their 30 day averages, along with 80% of all of the Nasdaq 100 stocks.  Friday was the ninth day (U-9) in the QQQQ (Nasdaq 100 ETF) up-trend.

Here is a chart of the changes in the GMI since its inception. Click on this to enlarge.  Note the periods Gmi1111_1 when the GMI is greater then 5 that it has been a good time to be long.  The GMI was +6 for all of July and 5 or greater since November 1. I leave you to judge whether it is a useful market timing indicator.  It is for me.

The WPM showed major strength in all five indexes.  Wpm111105 All of the indexes closed above their 30 day and 30 week averages.  83% of the Dow 30 stocks and 80% of the Nasdaq 100 stocks closed above their 30 day averages and the remaining three indexes were not far behind.  60% or more of the component stocks are now above their 30 week indexes.  This is a market where all types of stocks are participating and where both the short term and longer trends are up.  It is noteworthy that the Dow 30 stocks are now quite strong. 

We never know how long a trend will last.  But it is important to hitch a ride on a strong trend early and ride it until it flashes warning signals.  The reasons behind this up-trend will eventually come out.  But often times the good news comes out closer to the end of the up-trend than to the beginning.  It is important not to fall into the trap of waiting for a rationale for an up-trend before getting in.  When your train leaves the station, it does little good to stay on the platform and argue that the schedule is off or that it should not have departed.

Cramer had a nice interview on 60 Minutes tonight.  It was a love feast–I thought they were supposed to be investigative reporters!!??  Anyway, I though I would quote you what JC has to say about charts in his new book.  "Looking at the chart, the graphic demonstration of where a stock has gone, is not homework.  It can tell you nothing.  …………..In investing a picture is not worth a thousand words; in fact it is almost worth nothing.  A chart is never enough to buy a stock. Never. Don’t be conned into believing that looking at a chart can suffice for homework; it simply can’t." (Cramer, 2005, pp86-87.)

I agree with Cramer that trading decisions should not be made solely according to a chart.  (Why not buy stocks that look technically strong AND that have good fundamentals?)  A few pages later Cramer writes: "Because stocks anticipate the fortunes of their companies, the collapse of Maytag the stock occurs ahead of Maytag the company." (p. 110).  Cramer proves the value of charts.  If a stock tanks before the bad business news underlying the decline comes out, the only way we outsiders can discern the weakness early enough to get out is by studying the stock’s price and volume trends via its chart.  Studying the Nasdaq’s chart got me out of the market in 2000, and had me buying put options (selling short) on Enron long before the bad company news came out.  I rest my case.

Here are a few stocks with good fundamentals and charts.  Among the stocks that hit new highs on Friday, who are up at least 60% this year  and who have recent quarterly earnings  increases of  100% or more are:  TIE, LMIA, NWRE, TRAD, IRIS, HANS, ISRG, HUBG, MRVL, VTAL, HOLX, GHL, JLG, SUPX.  I own some of these and think they are good stocks to research.  I make a small pilot buy and slowly average up in the ones that work out.  I also always place a stop loss for insurance, to limit my losses.  Have a great week.

Please send me your feedback at: silentknight@wishingwealthblog.com.

GMI: +6; Indicators strong

The GMI remains at +6 and market internals are strong.  Gmi1110 There were 216 new highs and only 77 new lows on Thursday in my universe of 4,000 stocks.  81% of the Nasdaq 100 stocks, 80% of the S&P 500 stocks and 90% of the Dow 30 stocks rose.  More than one half of stocks are in a short term up trend and 54% are above their 10 week averages (compared with 20% on October 18).  One in five stocks (21%) are now within 5% of their 52 week highs.  Thursday was the eighth day (U-8) of the QQQQ up-trend.

Please send me your feedback at: silentknight@wishingwealthblog.com.

GMI back to +6; Market continues to strengthen; Some more strong stocks

There were 144 new highs on Wednesday (in my universe of 4,000 stocks) and the GMI returned to +6.  Gmi1109 82% (83/101) of the stocks that hit a new high 10 days ago closed higher on Wednesday than 10 days earlier.  Buying new highs has been profitable.  50% of stocks are now above their 10 week averages, and 46% are in a short term up-trend.  72% of the Nasdaq 100 stocks closed above their 30 day averages.  75% (127/169) of the stocks that have doubled in the past year closed above their 30 day averages.  On Wednesday, 55% of the Nasdaq 100 stocks rose, along with 60% of the S&P 500 stocks and 63% of the Dow 30 stocks.  Wednesday was the seventh day (U-7) in the QQQQ up-trend.

The market is in a firm up-trend and the growth stocks continue to do well.  Among the stocks that hit new highs Wednesday, that had good recent earnings and that are up at least 60% this year are:  HANS, LMIA, TFR, HSVLY, EPAX, CIB, GHL, ITG, GOL, RES, SUPX.  Check them out for future winners.

Please send me your feedback at: silentknight@wishingwealthblog.com.

GMI: +5; For whom the bell TOLs–my August post on housing; The rally continues

                                                  MY POST ON AUGUST 26

"I can’t count the number of times I have bought puts on the housing stocks only to find them turn up again. Res But I think they may really be topping out now.  Look at this chart of the residential construction sector.  Note that the index is now below the 10 day, 30 day and 50 day averages.  The 10 day (dotted line) is now consistently below the 30 (red) and 50 (green).  This chart pattern is similar to a host of housing stocks such as:  BZH, PHM, LEN, RYL, KBH, MDC, DHI, TOL, CTX, MPH, HOV, to name only a few.  All of them have shown volume spikes recently on down days.  Even TOL, a Cramer favorite, could not retain its gain on good news and reversed to close down near its daily low on Thursday on unusually large volume.  This may only be a correction in housing, but it is consistent weakness among all of the leaders.  Is the roof finally about to cave in?"

In this field of market analysis one must take credit for those few times one gets it right. Last August, it became clear to me that the housing stocks were all acting badly.  And on Tuesday, the roof finally caved in with TOL’s almost 14% decline  when it announced a slowdown in business.  The beauty of technical analysis, and the weakness of relying on public business information, is that the chart shows the selling behavior of those in the know long before the bad news comes out.  Shame on anyone who was holding TOL since August.  Remember I showed you "naked charts," where the price is invisible, so the 10 and 30 day moving averages can be clearly seen?  Look at this chart of TOL. Tol1108 Last August the 10 day average (dotted line) declined below the 30 day average (red line) and a few days later the 30 day average curved down.  Look how easy it was to see the change in trend.  No one should have been caught in Tuesday’s huge decline.  Perhaps we should have a rule only to buy/hold stocks when the 1o day average is above the 30 day average and both averages are rising……………………….

The GMI declined 1, to +5.  This decline occurred because there were only 93 new highs on Tuesday.  Gmi1108 All other indicators remained stable.    Only 41% of the Nasdaq 100 stocks rose, 41% of the S&P 500 stocks, and 37% of the Dow 30 stocks.  Tuesday was the sixth day in the QQQQ up-trend.

Please send me your feedback at: silentknight@wishingwealthblog.com.

GMI: +6: Rally continues amid strong Dow stocks; Some promising new highs

It is truly amazing to see how the Dow stocks are recovering.  Dow stocks showing signs of strength include:  DD, AIG, WMT, JPM, MMM, HD, AA, MRK, IBM, MSFT, DIS, C, MCD, INTC, HPQ, MO, UTX, AXP.  Yes, even MSFT and INTC are now above their 30 day averages!  55% of the Nasdaq 100 stocks, 60% of the S&P 500 stocks and 77% of the Dow 30 stocks advanced on Monday.  Gmi1107 There were 78 successful 10 day new highs, stocks that hit a new high 10 days ago and closed higher Monday than 10 days earlier.  There were only 13 successful 10 day new lows.  There were 165 new highs and only 49 new lows in my universe of 4,000 stocks.  20% of stocks are now within 5% of hitting a new high.  Monday was the fifth day of the current QQQQ up-trend (U-5). 

Among stocks hitting new highs Monday that have good recent quarterly earnings (+50% or more) and have advanced 60% or more over the past year are:  IRIS, CPSI, HITK, HSVLY, CUTR, LII, DBRN, GHL, CX, GOOG, CPL, RHAT, ESRX, VTAL.  Check them out.   

Please send me your feedback at: silentknight@wishingwealthblog.com.