Darvas anticipated; GMI: +4; GMI-S: 31; Ominous market

“The best work I ever did in judging the market was when I devoted one hour a day in the   middle of each session.   I did not come to Wall Street.   I had no news ticker.   I seldom read the news items but judged solely from the action of the market itself; hence I was not influenced by any of the rumors, gossip, information or misinformation with which the Street is deluged day after day.   The out of town investor is not under as much of a handicap as he might suppose.   If he is trading and can get the result of the day’s operation in time to give his orders next morning, he is better off than the majority of people who come down here and hang over the ticker.   His opinions are formed from the facts.   He must know how to assemble these and draw the proper conclusions.   But all he needs is the highest, lowest and last prices of these stocks he is watching.   Without at all being egotistical, I believe I could go around the world and having arranged to have these few details of a stock like U.S. Steel or any other active issue cabled to me daily, I could cable my orders and come back with a profit.   It would not be necessary for me to be advised of the volume of trading in that stock or the general market, although in some instances this might help.   Certainly I would not care to have any news of any kind included in the cables.”

How I Trade in Stocks and Bonds, Richard D. Wyckoff, 1924

Richard Wyckoff, the famous trader and Wall Street editor, anticipated the very feats of Nicolas Darvas thirty years later, when Darvas made his fortune trading stocks as he danced around the world far from Wall Street.   Darvas literally received end of day price quotes cabled from his broker in New York.   When he received his weekly copy of Barron’s, he tore out all of the news and opinion pages and looked only at the stock prices.   During this period of intense insulation from outside opinion and the media, Darvas said he could clearly interpret price patterns.   When he began to make money trading and came to NYC to camp out in the Plaza Hotel to be close to the action, he lost his ability to trade.   Only when he left the country and focused again only on prices did his judgment and trading success return. (Darvas’ incredible story is told in his two books cited to the right.)

So what does all this mean for us today?   I am glad to be freed up from needing to talk to a broker to place my trades.   In my youth, selling a stock that I was losing money on was very embarassing because I had to relay my orders through my broker.   What would he think of all of my silly mistakes?   So online trading has freed me up from that huge impediment to successful trading.   However, the internet and the birth of CNBC and other business shows, have created huge new barriers to trading success.   Over the years I, too, have learned that the more I insulate myself from outside influences and concentrate just on the movement of stocks, the better I trade.   One must be a loner and confident in one’s own judgments to be a successful trader.   Wyckoff’s advice remains incredibly applicable today, some 80 years later.   The market and trading are deeply intertwined with human psychology, which has changed little over time……………

The GMI fell to +4 on Friday.   More importantly, the GMI-S, which is a measure of just the short term trend, fell to 31.   It had been 75 earlier in the week.   Gmi0203 The QQQQ and the DIA have readings of zero, and the SPY has a reading of 25.   The small cap index still reads 100.   So there is a tale of two markets, for now.   There were only 110 yearly highs in my universe of 4,000 stocks and only 7% of stocks that doubled the past year hit a new high.   20% of the Nasdaq 100 stocks rose on Friday, along with 28% of the S&P 500 stocks and 23% of the Dow 30 stocks.   The QQQQ is now below its 10 week average and Friday was day one (D-1) in the new short term decline in the QQQQ. The GMI-L is at 81 and the long term trend is still up, for now.

The WPM shows the considerable damage done to the large cap indexes last week.   All indexes but the IJR (small caps) closed below their 30 day averages; only 39% of the QQQQ component stocks closed above their 30 day averages, along with 41% of the SPY stocks.     Wpm0203 59% of the mid caps and 63% of the small caps closed above their 30 day averages.   All five indexes remain above their longer term 30 week averages, as do the majority of their components stocks…………….

I get out of the market in my trading account when my short term indicators point to a down trend.   I have therefore moved up all stops close to support levels and will be sold out if they weaken this week.   With the end of earnings season approaching there is little to prop stocks up.   I am also worried that the market has not been able to hold the rebound from the large decline on January 20.   And I fear that the declines in stocks like AAPL, GOOG, ISRG and AMZN are ominous signs for the future of this market.   By the way, doesn’t 4.7% unemployment mean that there are still about 15 million people looking for jobs?   That estimate also excludes the millions who have given up looking for employment.   How we play with economic statistics…………..

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GMI: +6 but GMI-S slips to 38; Market deteriorating

While the GMI stayed at +6, my more sensitive indicator of the short term trend declined from 75 to 38.  The QQQQ scored 0/4 while the SPY and DIA scored 1/4.  Only the small cap index, IJR, is strong with 4/4 indexes positive.  Gmi0202 Only 11% of the Nasdaq 100 stocks rose on Thursday, along with 21% of the S&P 500 stocks and 10% of the Dow 30 stocks.  Still there were 211 new highs in my universe of 4,000 stocks and 62% of the 341 stocks that hit a new high 10 days ago closed higher on Thursday than they did 10 days ago.  I consider Thursday to be the fifth day of the short term up trend in the QQQQ, but this trend is very vulnerable to a reversal……

The great traders, Darvas and O’Neil) have said that when the leaders cannot rise anymore, the rest of the market will soon decline.  AAPL and GOOG have broken their up trends.  For both stocks their 10 day averages are now below their 30 day averages.  Aapl Take a look at this chart of AAPL.  The stock has been declining on high volume and is now below its 10 day, 30 day and 50 day averages.  The chart for GOOG is much the same, except there was that huge gap down on Wednesday.  And Thursday night they shot another leader, ISRG, in extended trading.  These are signs of a deteriorating market.  I have moved my sell stops up and am not making new purchases.  The GMI-L is still strong at 81, so the longer term trend is still positive.  But remember, the short term indicators necessarily reverse before the longer term indicators.  With earnings season ending, there appears to be little ability to push stocks higher.

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


GMI: +6; Market steady; Perils of stop orders

The GMI held at +6 and the Dow 30 stocks were strong in the face of a weak tech sector, led by the GOOG decline.  77% of the Dow 30 stocks advanced on Wednesday, but only 60% of the Nasdaq 100 and 58% of the S&P 500 stocks advanced.  Gmi020106 The GMI-L remains at 100 and the GMI-S reclaimed the 75 level.  My remaining indicators were level or stronger.  Wednesday was the fourth day in the short term QQQQ up trend (U-4)……….

In spite of this strength in the internal market indicators I remain somewhat defensive in view of the weakness in some of the market leaders.  The abrupt fall in GOOG shows the potential weakness of a stop loss order in a sudden gap down.  Persons with a close stop loss order on GOOG would have been hurt by the fact that GOOG opened Wednesday at 389.03, way below Tuesday’s close of 432.66.  For example, a sell stop at 429 would have been executed somewhere around 389.  The problem is not with stop orders–they provide necessary, though imperfect protection against a large loss. The problem is in holding a stock when it is about to announce earnings–especially if it has already risen a lot and other stocks are getting slaughtered even after releasing decent earnings…..

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

GMI: +6; GMI-S lower; GOOG; Markets forming top?

The GMI remained at +6, but the market was weaker Tuesday.  Only 44% of the Nasdaq 100 stocks rose, along with 37% of the S&P 500 stocks and 30% of the Dow 30 stocks.  Gmi0131 There were 375 yearly highs in my universe of 4,000 stocks, down from 414 on Monday.  Tuesday was the third day in the QQQQ short term up trend (U-3). However, the GMI-S declined to 69 because of more weakening in the DIA indicators.  I mentioned yesterday that I wanted to see how the market reacted to GOOG’s earnings.  In extended trading the stock was down over 50.  The decline in AAPL and GOOG post earnings tells me more about the health of the market than the health of these two leading stocks.  If the strongest stocks weaken, the rest of the market will follow suit.  So, I am raising my stops and remain on the defensive.  The indicators are beginning to look toppy to me……

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

GMI: +6; Market steady; GOOG; Rising rates

The market held steady Monday, as did the GMI, at +6.  There were only 106 successful 10 day new highs–stocks that hit a new high 10 days ago and closed higher on Monday than they did 10 days ago. Gmi0130  The number of new highs declined to 414.  Only 40% of the Nasdaq 100 stocks rose, along with 42% of the S&P 500 stocks, 33% of the Dow 30 stocks and 44% of the S&P 600 small cap stocks. There were no changes in the GMI-L or GMI-S.  Monday was the second day in the QQQQ short term up trend (U-2)…..

The way the market reacts to GOOG’s earnings release Tuesday  will probably tell us a lot about the market’s near term health.  Irx0130 Also, the chart of the short term interest rate index shows that traders see no end in sight to the rise in rates.  The Fed will surely accommodate them on Tuesday.  I would be much more optimistic about this market if the QQQQ could take out its January 11 peak. 

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