GMI: +6; Market internals weakening; A reader’s comment

The GMI remains at +6.  However, Tuesday was a weak day with only 29-33% of the Nasdaq 100, S&P 500 and Dow 30 stocks advancing.  Gmi1115 There were only 114 new highs and almost as many new lows (95) in my universe of 4,000 stocks.  Tuesday was the eleventh day (U-11) in the current QQQQ rally.

I thought you would appreciate this response from a reader:

"I have to thank you again and again for recommending
Stan s Weinstein’s book!  It is better than O’Neil’s,
and it is more applicable than both the Darvas books,
although the Darvas principles are there.  The great
thing about Weinstein’s book is that he uses the
objective criterion of the 30-week MA, so now I can
buy into the hottest mutual funds, ride them up, and
get out when the 30-week starts declining.  I am now
doing over 20% in Vanguard because I put > half my
retirement into Energy. 

After reading Weinstein’s book, I have to respectfully
disagree with you 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?)."  Weinstein gave many examples of
stocks that increased dramatically when earnings were
decreasing.  After missing and watching IIJI almost
triple in 3 weeks this year despite a negative 57% EPS
Qtr to Qtr growth rate, I vowed never again to pay
attention to earnings.  As Darvas pointed out, if the
chart is going up, that’s the only valid reason for
buying.  Following the chart alone, I am up 30% in my
individual stock account since May 2005.  As Weinstein
says, "The tape tells all."  If earnings are important
for a certain stock, the chart will show it.  Cramer
is making people waste time doing "homework."  Spend
1/10 the time looking at charts and a person will do
much better."

I actually agree with this person’s point of view.  I just find that I can sometimes hold onto a stock better if I know there are some earnings or revenue growth behind its strong chart.

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

Yesterday’s post corrected; GMI: +6; More high earners at new highs

I corrected yesterday’s post so the GMI changes over time chart will now enlarge when clicked on. "My favorite posts" links at the bottom right now work but you will have to scroll to the correct date noted.  I am repeating yesterday’s note below.

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.

The GMI remains at +6.  Gmi1114 There were 126 successful 10 day new highs on Monday and there were 204 new highs and 62 new lows among the 4,000 stocks in my universe.  Only 43% of the Nasdaq 100 stocks advanced, along with 41% of the S&P 500 stocks and 53% of the Dow 30 stocks.  There were few changes in the market internals.  Monday was the tenth day (U-10) in the QQQQ up-trend.

Stocks with quarterly earnings up 100%+ and hitting a new high on Monday include: TIE, HSVLY, GOOG, LMIA, LMS, NWRE, CUTR, TRAD, HANS, ISRG, HUBG, SAFT, SUPX, and CX.  I own some of these.  Check them out.

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

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.