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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GMI: +6 No change in trend; GOOG, XWG, GLW, SWN

Even though the markets declined Tuesday, I find no change in trend.  Only 32% of the Nasdaq 100 stocks rose, compared to 21% of the S&P 500 stocks and 17% of the Dow 30 stocks.  There were 155 new yearly highs and and only 34 new lows. Gmi913  78% of the stocks that hit new highs 10 days ago closed higher Tuesday than 10 days earlier.  And stocks in a short term up-trend rose to 56%.  Tuesday was day 6 (U-6) in the QQQQ up-trend…….

Even on this weak day, GOOG managed to rise and came close to its all-time high.  XWG and GLW and SWN also rose.  XWG is showing some high volume up days–worth watching, especially if it breaks 14.75. (I own GOOG, GLW and XWG.)

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GMI: +6; GOOG moves up

GMI stays at +6.  58% of the Nasdaq 100 stocks rose Monday, compared with 50% of S&P 500 stocks and 47% of Dow 30 stocks.  Gmi912 There were 306 new yearly highs in my universe of 4,000 stocks.  84% of the 70 stocks that hit a yearly high 10 days ago closed higher on Monday than 10 days earlier.  Buying stocks at new highs has therefore likely to have been profitable the past 2 weeks.  More than one half of stocks (53%) are now in a short term up-trend and 78% of stocks that doubled in the past year closed above their 30 day averages.  64% of all stocks closed above their 10 week averages.  One third of all stocks closed within 5% of their 52 week highs.  This is day 5 (U-5) of the up-trend in the QQQQ.  To sum it all up, the market remains strong and buying strong stocks near new highs appears to be a winning strategy…………….

I have been writing about the strength in GOOG during the past few weeks.  Monday, the stock broke above $300 again. Goog912_1  Now that the hype about GOOG has died down, the stock is showing signs of new strength.  Its 10 day average (dotted line) has now crossed above its 30 day average (red line).  Can $400 per share be far away?

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