GMI since inception; introducing the WPM; on analyst earnings estimates; IBD 100 rockets

To my visitors: I am only one trader, not a guru, and not a financial advisor.  I am presenting my own opinions and my own experiences and people are welcome to decide for themselves what, if anything, on this site is of value to them.  Please refer to the additional comments, highlighted in red, at the end of this post.

I thought I would begin by looking over the changes in the GMI  the last few weeks. Gmichanges715_1 After falling to +3, the GMI has remained at +6 since July 8 when this rally began.  It took only one day for the GMI to go from +3 to +6.  This is an example of how bad it is to marry a scenario.  When the instruments tell me the market is reversing direction, I must act on it and not fight it.  I am comfortable now being long and having no shorts.  The rally has now completed its 6th day.  (Click on chart to enlarge.)……………………………

I am introducing a new chart, the WishingWealth Pulse of the Market (WPM), which I will update periodically.  I thought it was important to track how various types of stock indexes are performing.  Wpm715 The WPM looks at the Dow 30, S&P 500, Nasdaq 100, S&P 400 (mid-cap) and S&P 600 stock (small-cap) indexes and their component stocks.  The short term trend measures focus on whether the index closed above its 30 day average and the percentage of the component stocks that closed above that average.  The longer term trend measures focus on the 30 week averages.  Why 30 day and 30 week?  Over my 40+ years of trading, I have found that these are the best trend indicators for market movement.  I must admit it was Stan Weinstein’s classic book (see Weinstein’s book at right) that alerted me to the usefulness of the 30 week average.  The reversal in the QQQQ’s 30 week average in 2000, and 2003 alerted me to get out of the market in 2000 and to get back in, in 2003.  Check it out!  As for the 30 day average–I have found it to be the most reliable indicator of the short term trend.

The current WPM is quite bullish.  All indexes closed above their 30 week and 30 day averages.  The weakest indicator is the Dow 30 stocks, where only 63% closed above their 30 day averages and 53% above their 30 week averages.  Let me know what you think of the WPM and how often you think I should post it………………………

This is earnings season.  Have you ever noticed how the media report earnings in such a way as to maximize volatility and emotional reactions?  It all focuses on whether a company beats analysts’ expectations.  So, some group polls the analysts that follow a stock and then highlight the average of their estimates.  Now, consider the following hypothetical per share estimates from 5 analysts: (.25, .30, .20, .20, .30).  The average is .25 per share.  Now say the company reports .21 per share.  The media would report that the company missed earnings estimates by 4 cents (.21 instead of the predicted average of .25) even though the company actually beat the estimates of two analysts (who predicted .20 each).  So everyone sells and the stock dives, not because missing the estimate is so bad–the company made a profit–but because everyone fears that the other person will sell.  And so the hysteria continues.  If the media and financial community wanted to report earnings responsibly, they would report the range of the analyst estimates.  In this example, they would have said that analysts expected anywhere from (.20-.30 per share) and that the actual earnings were within the predicted range.  I think this would take a lot of the hype out of investing. (I suspect, however, that someone would report that the earnings fell at the bottom of the predicted range–and provide another excuse for selling.) Darvas was right when he said Wall St. was a big casino.  …………………………………….

Here is a list of stocks from the IBD 100 that had triple digit earnings increases last quarter and look to me to be rockets:  CNXS, BMHC, CPSI, LUFK, HANS, SNHY.  (Also, AFFX, PTC and CTO have year-over-year growth in earnings of 100% or more.) This is a list worth researching…………………………………….

Gary–I lost your email and could not reply to you.  I appreciate your inquiry into why I did not post Thursday’s report on time–just sleepy.  Thanks for your feedback.

Send me your feedback at: silentknight@wishingwealthblog.com.

Please remember that the stock market is a risky place, especially now.  I am not providing recommendations for you to follow.  My goal is to share tools and methods that I have used over the past 40 years of trading, so that you may learn from them and adapt them to your trading style and needs.  While I do my best, I do not guarantee the accuracy of any statistics computed or any resources linked to my blog.  Please consult with your financial adviser and a mental health practitioner before you enter the stock market,  and please do not take unaffordable risks in the current market environment.  See the About section for more statements designed to protect you (and me) as you navigate this market. Past performance does not guarantee future results, but I would rather learn from a former winner than a loser.

GMI: +6; CME and GOOG end weak

Gmi714 To my visitors: I am only one trader, not a guru, and not a financial advisor.  I am presenting my own opinions and my own experiences and people are welcome to decide for themselves what, if anything, on this site is of value to them.  Please refer to the additional comments, highlighted in red, at the end of this post.

Indexes in up-trends but note that CME and GOOG could not hold their gains today.

Send me your feedback at: silentknight@wishingwealthblog.com.

Please remember that the stock market is a risky place, especially now.  I am not providing recommendations for you to follow.  My goal is to share tools and methods that I have used over the past 40 years of trading, so that you may learn from them and adapt them to your trading style and needs.  While I do my best, I do not guarantee the accuracy of any statistics computed or any resources linked to my blog.  Please consult with your financial adviser and a mental health practitioner before you enter the stock market,  and please do not take unaffordable risks in the current market environment.  See the About section for more statements designed to protect you (and me) as you navigate this market. Past performance does not guarantee future results, but I would rather learn from a former winner than a loser.

GMI:+6; GDW; Shame on you, Cramer

To my visitors: I am only one trader, not a guru, and not a financial advisor.  I am presenting my own opinions and my own experiences and people are welcome to decide for themselves what, if anything, on this site is of value to them.  Please refer to the additional comments, highlighted in red, at the end of this post.

I was out late tonight and will not write extensively.  Suffice it to say that the GMI held steady at +6, but there were only 265 new highs.Gmi713_2 Only about one half of the Nasdaq 100 and S&P 500 stocks rose, compared to 80% of the Dow 30 stocks.  The rally ebbs and flows. Note that GDW, one of the consistent long time winners I have talked about hit a new high today……………… 

Tonight I heard Cramer make the distinction between the short term trader and the investor.  Traders should cut their losses at 8% but investors who know the "true value" of stocks can buy on the way down.  What a prescription for disaster!  No one should average down and no one should let their losses on a purchase exceed 8%.  One could have bought Enron all the way down by being a true believer in the accounting statistics and the repeated optimistic company announcements.  By the time we outsiders learn the facts, the insiders and people in the know have already sold at much higher prices.   No amount of "homework" or research can protect us. That is why one must react to the stock’s behavior as seen in its price chart, not to the corporate propaganda. Shame on you, Cramer.

Send me your feedback at: silentknight@wishingwealthblog.com.

Please remember that the stock market is a risky place, especially now.  I am not providing recommendations for you to follow.  My goal is to share tools and methods that I have used over the past 40 years of trading, so that you may learn from them and adapt them to your trading style and needs.  While I do my best, I do not guarantee the accuracy of any statistics computed or any resources linked to my blog.  Please consult with your financial adviser and a mental health practitioner before you enter the stock market,  and please do not take unaffordable risks in the current market environment.  See the About section for more statements designed to protect you (and me) as you navigate this market. Past performance does not guarantee future results, but I would rather learn from a former winner than a loser.

Another good day; GMI: +6; Stocks to watch

To my visitors: I am only one trader, not a guru, and not a financial advisor.  I am presenting my own opinions and my own experiences and people are welcome to decide for themselves what, if anything, on this site is of value to them.  Please refer to the additional comments, highlighted in red, at the end of this post.

Another good day, but weaker than yesterday.  There were 495 new highs, down from 629.  Only 60% of the Nasdaq 100 stocks advanced, compared to 52% of the S&P 500 and 47% of the Dow 30 stocks.  Gmi712 The GMI remains at +6.  If you look at the chart of the Growth Mutual Fund Index in IBD, you will see that growth mutual funds are doing well now.  The Index is well above its 50 day average, and rising.  84% of the stocks in my universe of 4,000 stocks closed above their 10 week averages and 65% of all of the stocks are in a short term up trend, up from 42% just 6 days ago.  If we can’t generate profits in this market something is wrong with our trading technique…………………………..

Still, there were a few warning signs today.  BOOM could not hold its gains today and NTRI and SHLD also retreated from their highs today.  On the other hand, there was renewed life in CME and NDAQ and LDG today. SWN, BBY, MW and HANS are still consistent climbers.  (I own some of these.) ………………………………..

Send me your feedback at: silentknight@wishingwealthblog.com.

Please remember that the stock market is a risky place, especially now.  I am not providing recommendations for you to follow.  My goal is to share tools and methods that I have used over the past 40 years of trading, so that you may learn from them and adapt them to your trading style and needs.  While I do my best, I do not guarantee the accuracy of any statistics computed or any resources linked to my blog.  Please consult with your financial adviser and a mental health practitioner before you enter the stock market,  and please do not take unaffordable risks in the current market environment.  See the About section for more statements designed to protect you (and me) as you navigate this market. Past performance does not guarantee future results, but I would rather learn from a former winner than a loser.

A hot market; GMI: +6; more rockets; covered calls on GOOG

To my visitors: I am only one trader, not a guru, and not a financial advisor.  I am presenting my own opinions and my own experiences and people are welcome to decide for themselves what, if anything, on this site is of value to them.  Please refer to the additional comments, highlighted in red, at the end of this post.

This is one hot market!  There were 629 new highs (16%) in my universe of 4,000 stocks today.  Gmi711 The GMI remains at +6 and 83% of the stocks closed above their 10 week averages.  I changed the criterion for the 10 day new high index to be positive if there were 100 successful stocks or at least 50% of the stocks that hit a new high 10 days ago closed higher today than 10 days ago.  There were only 95 new highs 10 days ago, so the indicator would have had to be negative (less than 100) the way I originally defined the index.  So today, 76/95 stocks or 80% qualified as successful 10 day new highs.  60% of the Nasdaq 100 stocks are in a short term up trend and 73% to 78% of the Nasdaq 100, S&P 500 and Dow 30 stocks rose today.   These advancing percentages are lower than yesterday’s, but still very respectable……………………………………………

I received a lot of nice reader feedback today–thank you!!  I will address many of the issues you raised, in coming weeks………………………………………

I found a really neat description of a market scan used by a successful newsletter, Coolcat.  Many of the stocks listed are those I have spotted.  Note this scan for finding great microcaps uses some of the types of technical criteria I (and Nicolas Darvas)  use to define rockets–new highs and huge price appreciation.  As I wrote in my strategy posts on 4/23 and 4/30 (check the archive), to find a stock that will double, find one that has already doubled.

My rocket scan found loads of promising stocks today.  All of these had triple digit earnings increases last quarter and are at new price peaks:  CNXS, LUB, BOOM, NDAQ, TS, NTRI, BMHC,  CPSI, LUFK, HANS, RIV, KOSP, SPTN, RTI, TU, PTRY, SNHY, HOLX, SE, WCG, TUG, PCO, VDSI, BEBE, SMTS.  Check them out.  When I buy strong momentum stocks like this, I make a small pilot buy and put a stop loss order in below support or below a moving average where it has found support.  I then wait to see if it moves up and I slowly add more on the way up, as long as the GMI is strong……………………………..

Ever write a covered call in your IRA account?  Today, I bought 100 shares of GOOG at 295.74.  I then immediately sold a call for someone to buy my 100 shares from me at 300 per share, good through expiration on August 19.  In return for the right to buy my GOOG from me at 300 during this period I was paid 15.80 per share, or $1580.  What this means is that by option expiration in August, if GOOG is selling above $300, the option will be exercised and the stock will be called away from me for $300 per share.  My profit (excluding commissions would be 30,000-29,574= +426 + 1580= $2006 or 7% in about 6 weeks.  I am giving up the right to make anymore than this no matter how much above 300 that GOOG may climb during this period.  On the other hand, if GOOG should decline during this period I would not have a loss until it fell to 279.94 (295.74-15.80).  The option premium of 15.84 per share is mine to keep and protects me from a loss on my purchase down to 279.94.  As long as GOOG closes above 279.94 by the August expiration I will have a profit.  If GOOG closes below $300 in August, the option expires worthless and I can write a new call on the same shares for September or later. If the stock falls a lot more than 15.80, I could have a large loss.

Covered call writing is really a very conservative strategy.  I only sell calls on stocks that I think will rise and which are so volatile that the option premium (amount someone will pay me for the option) is considerable.  I do not want to buy GOOG without the protection of the covered call, so I do not care if the stock goes way above 300 by August.  Check out covered call writing in the CBOE learning center.  Many people of the "buy and hold" mentality could have limited their losses in 2000-2002 if they simply had written calls on their stocks as they declined. If you use a full service broker and s/he did not tell you about covered calls as your portfolio shrunk, you should liquidate your broker instead of your account.

Send me your feedback at: silentknight@wishingwealthblog.com.

Please remember that the stock market is a risky place, especially now.  I am not providing recommendations for you to follow.  My goal is to share tools and methods that I have used over the past 40 years of trading, so that you may learn from them and adapt them to your trading style and needs.  While I do my best, I do not guarantee the accuracy of any statistics computed or any resources linked to my blog.  Please consult with your financial adviser and a mental health practitioner before you enter the stock market,  and please do not take unaffordable risks in the current market environment.  See the About section for more statements designed to protect you (and me) as you navigate this market. Past performance does not guarantee future results, but I would rather learn from a former winner than a loser.