GMI declines to +3; Going to cash or short

The GMI declined to +3 on Tuesday. While there were 213 new highs in my universe of 4,000 stocks, there were only 55 successful 10 day new highs. There were 81 new lows, the most since I began posting them last May.  Gmi920 Only 40% of stocks are in a short term up-trend and only 46% are above their 10 week averages.  While 29% of the Nasdaq 100 stocks advanced, only 19% of the S&P 500 and 13% of the Dow 30 stocks rose.  The QQQQ and SPY daily indexes have turned negative.  The market is in the beginning of a short term decline (D-1), or worse.  Oil and gas related stocks dominated the new high list and housing stocks continued to break down………………. With the GMI weakening, the odds are against taking new profitable long positions, especially in growth stocks at new highs. Going to cash or short………………..

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GMI: +6; Teetering on support

The market weakened on Monday and is sitting on support.  The GMI is at +6 and there is no change in my outlook since my prior post.  Only 10-17% of the stocks in the Dow, Nasdaq 100 and S&P 500 advanced Monday.  We had the highest number of new lows (62) since July 29.  But there were still 267 new highs, suggesting that there is strength in a concentrated minority of sectors (mostly energy related or metals).  Gmi919 The percentage of stocks in my universe of 4,000 that are in a short term up-trend is now at 46%.  This is the 10th day of the QQQQ up-trend (U-10) and this trend is vulnerable to a reversal if there is a meaningful close today below the short term moving averages.  It should be an interesting day.

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Critical week ahead; GMI: +6; little change in WPM; Longs and shorts

This could be the most important week technically for the market since the QQQQ bottomed on August 29.  The primary indexes as measured by the DIA, QQQQ and SPY all tell me the same technical story.  But first I will review the GMI and WPM indicators.  Gmi916

The GMI has registered+6 since September 6, and Friday marks the ninth day in this QQQQ up-trend. There were 218 new yearly highs on Friday in my universe of 4,000 stocks. 61% (215/352) of the stocks that hit a new high 10 days ago closed higher Friday than they closed 10 days earlier.  Thus, traders buying new highs 10 days ago and holding on, had a better than even chance of having a profit by Friday’s close.  This is a bulllish sign because when stocks at new highs begin to falter, the market tends to weaken.  Another sign of strength in the leaders is that about three quarters (76%) of the stocks that doubled in the past year closed above their 30 day averages.   This strength in the leaders does not extend to most stocks. Only slightly more than one half (55%) of the 4,000 stocks in my universe closed above their 10 week averages, and  about one half (49%) remain in a short term up-trend.  Nevertheless, more stocks are within 5% of their yearly highs (29%) than their yearly lows (6%).

The WPM reveals no meaningful changes in the market internals since last weekend. Wpm916 All 5 indexes remain above their short term (30 day) and longer term (30 week) moving averages. Similarly, 50% or more of all of their component stocks remain above these averages.  The largest changes (declines) occurred within the midcap stock ETF (MDY).

So what is going in here?  As I read it, the up-trend is still intact in all of these markets.  However, the indexes came very close to violating their short term averages this week.  This QQQQ chart is almost identical to that of the SPY and DIA.  (The numbers in black show the changes in the GMI over time, click on to enlarge.)  Qqqq916 Note that the QQQQ bottomed in late August (point A) and then started a rise that topped out on Tuesday (B). On Thursday and Friday the QQQQ bounced off of the flat 30 day (red line) and rising 50 day (green line) moving averages (C), which have converegd.  The fact that these two averages are almost identical means that the market has basically not changed over these 2 periods (the average of the closes over the past 30 days is the same as the average over the past 50 days).  This is especially important because, similar to the behavior of Bollinger Bands, when the averages converge on each other, it often means that a significant move will occur once a direction is taken.  It is almost like a compressed spring, which expands quickly when released.  The fact that the 10 day average (dotted line) is above the other 2 averages is bullish.  The critical signal for me is whether the QQQQ closes and remains above or below its 30 day average this week. A close above point B on increased volume would be very bullish.  Remember, the technical pattern I have described is identical for the DIA and SPY. The direction of the entire market may be at stake………………………….

The safest strategy for now is for me to hold a watchlist of stocks to buy or sell after a definitive signal is given for the general market trend.  Remember, most stocks go with the market trend and it is therefore safer to trade with the trend. I have run scans for weak and strong stocks. Among the short candidates I am watching are:  WYNN, TECD, CCL, WON, NEW , DECK, YHOO.   (Yes, even Yahoo looks sick to me now.)  Long candidates include:  AAPL, SMTS, KEYW and UPL.  Of course, I will only make these transactions after researching them more and I always place a suitable stop loss. 

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GMI: +6; market trendless; still short SBUX

The market barely held Thursday.  The GMI remains at +6 and there were 141 new highs Thursday. Gmi915  About one half of the Dow 30 and S&P 500 stocks advanced along with 39% of the Nasdaq 100 stocks.  Market internals weakened slightly.  We may have to wait until after the Fed meeting next week for the market to reveal its true trend.  Right now, I have reduced my long positions and retain my puts on SBUX.  This is not the type of market on which to place a huge bet either way. 

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GMI: +6, internals weakening; Fed surprise?

While the GMI remains at +6, a lot of my internal market indicators are weakening.  Gmi914 There were only 114 new highs in my universe of 4,000 stocks and the percentage of Nasdaq 100 stocks closing above their 30 day averages fell from 62% to 46%.  A close below the 30 day average is frequently a sign of impending weakness for momentum stocks. Only 15% of Nasdaq 100 stocks advanced on Wednesday, along with 30-31% of the stocks in the S&P 500 and Dow 30 indexes. The percentage of stocks closing above their 10 week average has declined from 64% on Monday to 53% on Wednesday.  The DIA has closed just below its 30 day average and the SPY and QQQQ are very close to their 30 day averages.  Sustained closes of these indexes below their 30 days will trigger reductions in the GMI very soon.  Bottom line–I am becoming more defensive and will go short or in cash if the indexes do not bounce soon.

Irx914 The best news I have to offer is that the short term interest rate indicator is showing unusual weakness–suggesting that traders think the Fed may have some good news next week.

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