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.

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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…..

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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……

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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. 

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GMI: +6; Market too hot? Split the GMI; If rally stalls

The GMI returned to a maximum +6 on Friday.  But I am worried we are near a top.  There were a record 630 yearly highs in my universe of 4,000 stocks. This was the highest since 629 on July 11.  Gmi0127 90% of the stocks that doubled in the past year are above their 30 day averages and 37% of them hit a yearly high on Friday.  In fact, 37% of all stocks are within 5% of a new high.  How much stronger can things get?

I think I erred in including both short and long term indicators in the GMI because these trends often differ. And I typically keep my university pension funds invested in a mutual fund as long as these long term indicators are positive.  But my trading account goes in and out of the market with the trend of the  shorter term indicators.  So which indicator I follow depends upon my objectives.  I therefore have split the GMI into a short term (GMI-S )and a long term indicator (GMI-L).  I am also retaining the original GMI for consistency reasons.  The two new indicators each count 16 short or long term indicators, four each for the DIA, QQQQ, SPY and the IJR.  The GMI -L is now 100, meaning that 100% of the 16 longer term indicators are positive.  However, the GMI-S is 75, indicating that three quarters of the 16 short term indicators are positive (50% for the DIA, 75% for the SPY and QQQQ and 100% for the IJR small cap stocks).  I intend to update the GMI-L and the GMI-S  as they change.

The WPM also shows the strength in the small cap stocks.  Wpm0127 All five indexes are back above their 30 day and 30 week averages.  The majority of the stocks that make up these indexes also closed above their 30 day and 30 week averages, with the small caps being the strongest.

In addition to my caution stemming from the extreme strength in all of my indicators, I am concerned that the market leaders, AAPL and GOOG, are relatively weak.  The 100% first day increase in the Chipotle IPO (CMG) suggests to me that speculation is alive and well.  I will feel much more confident if the indexes can surpass their mid-January peaks.  If this rally stalls out before then, look out below.

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