Back from vacation; GMI still +6; WPM shows below surface weakening; Many bearish cross-overs among leaders; Buying puts

I’m back from vacation—and suffering from jet lag.  But I think it is important to update the GMI and the WPM.  The GMI has not changed since my last post on 7/29 and remains at +6.  However, there are a number of critical signs of weakness in the markets.  Gmi812_1 While there were 159 successful 10 day new highs on Friday, only 35% of the 452 stocks that hit a new high 10 days earlier closed higher on Friday than 10 days earlier.  The 142 new yearly highs in my universe of 4,000 stocks was the least since there were 130 on July 18.  The SPY, QQQQ, and growth mutual fun indicators remain positive.  However, only 59% of stocks closed above their 10 week averages, down from 79% on 7/29 and the percentage of stocks in a short term up-trend declined from 61% to 34%.  Unfortunately, I did not track these indicators the past 2 weeks and cannot estimate the timing of these declines.  The QQQQ up trend is in its 26th day.  However, this index has closed below its 10 day average for the past 6 trading days.  Since this QQQQ rally began on July 8, the index never closed below its 10 day average–until beginning, August 5.  This is a sign that the QQQQ rally has weakened.

This table of the WPM shows what is going on beneath the indexes.  Wpm812_1 While the 5 indexes have remained above their critical 30 day and 30 week moving averages, there has been marked short term deterioration within each of the 5 indexes since I first posted the WPM on 7/22.  For example, only 48% of the S&P 500 stocks are now above their 30 day averages, down from 75%.  In fact, only 42%-50% of the stocks in these 5 indexes closed above their 30 day averages on Friday, compared with 60%-80% on 7/22.  There was little change in the percentage of the stocks in these indexes that remained above their longer term 30 week averages, with the exception of the lagging DIA, which strengthened (57% vs. 47%).

Putting it all together, while the longer term up trend seems to be intact, the short term trend has weakened considerably.  While it is not necessary that this short term weakness will lead to a change in the longer term trend of the market, remember that the short term moving averages, by definition, will always signal a change in trend before the longer term averages.  (The 30 day average changes faster because it measures the last 30 days of trading while the 30 week moving average spans 150 days.)

In my previous post, I showed you a "Naked Chart" of GOOG displaying the 10 and 30 day averages without the prices.  It was clear that the up trend in a stock (GOOG as an example) was clearly shown by the 10 day average’s being consistently above the 30 day average.  Well, over the past 2 weeks many of the leading stocks, including GOOG, have shown a negative cross-over with the 10 day average now being below the 30 day average. Goog812_1 Other stocks showing such bearish cross-overs include:  CME, SHLD, HD, GM, DSL, GDW, FRE, MW, SMTS, CKCM, LDG, HANS, XMSR, NKE.  These are just stocks that I have been watching or trading–there are many more.  When leaders of the market like GOOG, CME, SHLD and HANS all appear to be weakening, it is an omen for the general market worthy of our attention.  I have therefore been cutting back on my longs and am buying puts on some of the stocks listed above.  Time will tell if this is a temporary hiatus in the bull market, or a case of the bear waking from a completed hibernation.  Be careful out there.

It’s nice to be back.   Please send me your feedback at: silentknight@wishingwealthblog.com.

Going on vacation; GMI: +6; Concerns–froth and interest rates; short FRE; Cramer’s mutt–NLY

I started this blog in April and have been posting every market day.  The blog helps me to organize my thoughts and trading, and your many comments empower me.  I am taking a vacation for the next week and a half.  I will post again between August 12-14.  I wish all of you well during this period and hope you will join me when I return.  I will be monitoring my email while I am gone.  So feel free to send me your thoughts and questions.  I will not have my complete charting program with me, however.  By the way, anyone who does not want to purchase TC2005 yet can plot the moving averages I have been discussing by going to the free interactive charts at www.bigcharts.com and choosing the 2 moving average chart option.

The GMI remains strong, but I sense some cracks in individual stocks.  Gmi729 Yes, there were 452 new highs today, but only 74 successful 10 day new highs–60% of the 123 new highs 10 days ago closed higher today than 10 days ago.  This is the lowest number of successful 10 day highs since the QQQQ rally began 16 days ago.  Only 20%-25% of the stocks in the Nasdaq 100, S&P 500 and Dow 30 advanced today.  The QQQQ rally is in day 16 (U-16). 

Remember that the GMI will not catch the top.  It tells us when we can be fairly certain that the trend of the general market has already turned.  So the GMI can be +6 and the market could still be forming a top.  So what bothers me?  First, stocks are jumping up too quickly.  Look at WFMI, ISRG, NDAQ, NTRI.  Good news comes out and stocks immediately gap higher.  After a significant decline, people are cautious and take profits quickly.  Thus few stocks have sustained or large rises.  After a period  of recovery when the prior decline becomes a distant memory, people take bigger chances.  It looks to me like we are in a period when people will make sudden impulsive wagers in order to catch rising stocks.  When stocks start to rise that way I become more cautious. (Watch for a close of the QQQQ below its 10 day average, currently around 39.40.)

The other thing that bothers me is the rising interest rates and oil prices.  We often have a rally during earnings season in an economic recovery as people try to anticipate good reports or buy after good news.  Earnings release time is now almost over and we move into the post-earnings lull when the media and traders will focus on the Fed and the business news.  What particularly concerns me is the rise in longer term rates.  I have been showing you how the short term interest rate indicator has been hitting new highs almost daily.  But now the longer term bonds are beginning to crack.    Tlt729 Look at the Naked Chart (see yesterday’s post for an explanation of this type of chart) of TLT, that tracks the 20+ year treasury bonds.  The rise in the bonds appears to be over as the dotted line (10 day average) crosses below the red line (30 day average).  A falling index means higher interest rates are in store.

Remember I told you a few days ago that I thought FNM and FRE looked sick.  Their charts are mirror images of each other. Look at FRE, which I own puts on.  Fre729 The stock is declining and the 10 day average (dotted line) has now crossed below the 30 day average (red line).   By the way, check out Jim Cramer’s "Best of Breed" in this sector, NLY.  Sure hope you did not follow his recommendation on this mutt!Nly729  Now, what are these mortgage investment stocks telling us about interest rates and the housing market? I suggest to you that it is not good news…………..

So, while I still am mainly long stocks, I have taken short positions in some stocks (FRE, NKE, PNRA) that look particularly weak to me.  While I am away, I will move my sell stops on my longs up just in case we do go into a post earnings release decline.  I hope you all prosper during the coming days in our summer of ’05 as we approach  that fabulous month for bears–October………………………………

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

Another strong day; GMI: +6 and its track record; Benefits of naked charts; Some Darvas type stocks

Another strong day. There were 522 new highs and only 15 new lows.  61% of the Nasdaq 100 stocks, 76% of the S&P 500 and 83% of the Dow 30 stocks advanced today.  Yes, even the Dow stocks are finally moving up.  The GMI remains at +6 and has been so since this uptrend began on July 8.  Gmichanges728 The chart (click on it to enlarge) shows the changes that have occurred in the GMI since I began posting it in April.  Note that the GMI registered a maximum +6 on July 8 when the QQQQ closed at 37.77.  In this rise as in the prior May rally the QQQQ consistently closed above its rising 10 day moving average (the dotted line).  Since July 8 the QQQQ has closed above its 10 day every day.  Hint: When is the market weakening? Wait for a close below the dotted line.  To make $$$ in this rise one merely could have bought the QQQQ on July 8 or 9 and held on.  Aggressive traders could have bought call options on the QQQQ and made a killing.  Why mess around with individual stocks when one can merely trade this index? Until the 10 day average tops out, I see no reason not to be long Nasdaq 100 type stocks.  As I said weeks ago, if the train is moving in the direction I want to go, I don’t argue with it–hop on.  I can always jump off when it changes direction.  I ignore the economy and the machinations of the pundits and economists—I just follow the dotted line……………………..

Speaking of dotted lines.  I am now going to show you a most unorthodox "Naked Chart.Googunorthodox" This

chart contains 2 moving averages without the daily prices.  The dotted line is the 10 day average and the red line is the 30 day average.  Now it does not take a rocket scientist to see that one could have made a handsome profit by buying when the dotted blue line crossed above the red line. One might even say that the prices obscure the trend.  The trend is sure apparent here, isn’t it?  Fortunately, TC2005 allows me to make any indicator invisible while letting the data be used in the chart.  Do you think you might have been able to hang on to this stock and not be shaken out?  Can you guess what stock this is?  Take a look below.  It’s our friend, GOOG!  Note how the chart with the prices visible actually obscures the pattern of the moving averages.   Goog728 Maybe we could all trade more calmly if we just focused on the two moving averages in Naked Charts.  Even if we can’t avoid looking at the prices, one rule that could be taken from this exercise is to only go long stocks when their 10 day average is above their rising 30 day average.  In case you think this technique only works well for GOOG, take a look at this past winner.  TASR topped out in early 2005 around 33 after doubling in about 4 months.  Here is what the daily 2 average Naked Chart looks like.  Tasr728 Can you see the sell signal at the top?…………………………..

I told you before that the great Nicolas Darvas (see his books listed at right) looked for stocks hitting new highs that have doubled in the past year.  Here is a list of stocks that hit new highs today, doubled in the past year and had triple digit increases in earnings in the most recent quarter listed by TC2005:  NPSN,ATPG,CNXS,ISRG,TZIX,PLCC,TS,NTRI,HP,SWB,FORD,ATRO,USAK,LAN,

POT,JLG,LIFC,HOLX,BTJ,BTU.  This would be an excellent watchlist to research to find the next big market winner–as long as the GMI holds up.

I introduced some new ideas tonight.  I would greatly appreciate your comments.  Please send me your feedback at: silentknight@wishingwealthblog.com.

IBD Meetup Group Night; GMI: +6; QQQQ rally leaders; FNM and FRE look sick

Tonight was IBD Meetup night.  A large group of 14 persons came, indicating that interest in the market has returned.  The group could be characterized as being cautious about the market.  It seemed that people were making some money, but were still licking their wounds and their accounts were mainly down for the year.  One of the persons most skilled in IBD techniques was skeptical about the current rally because of its mediocre volume.  Maybe this bull has further to go………………………..

The GMI is still at +6.  The indexes were a little stronger todayGmi727  with 251 new highs among the 4,000 stocks in my universe.  There were 146 successful 10 day new highs–stocks that hit a new high 10 days ago and closed higher today than 10 days ago.  72% of the Nasdaq 100 stocks closed above their 30 day averages.  However, the percentage of stocks in a short term uptrend fell to 51%, suggesting that fewer stocks are following the leaders.  Still, between 59% and 63% of the stocks in the Nasdaq 100, S&P 500 and Dow 30 indexes rose today.  We are in the 14th day of the QQQQ uptrend (U-14)………………..

Since the beginning of this uptrend on July 8, the QQQQ has risen +5.16%.  During that time 70% of the Nasdaq 100 stocks rose–anywhere from 4% to 32%.  The median increase among the advancing stocks was +6%.  However, the top 10 performers rose from 14-32%.  The largest gainers were (percents are rounded):  SNDK (+32%), AMZN (+26%), SSCC (+22%), EBAY (+22%), APCC (+18%) and AMGN (+18%).  The largest decliners were: DISH (-5%), PETM (-5%), JNPR (-5%), VRSN (-13%) and SANM (-15%). The 70% of stocks gaining in this period demonstrates the wisdom of Livermore and O’Neil’s rule to always trade with the general market trend.  Why fight the trend– and the odds…………………………………..

A number of stocks I have been trading showed strength today–HANS, BBY, IVGN, KOMG, SHLD.  And a lot of other growth stocks bounced off of their moving averages.  However, two stocks that look particularly sick are FRE and FNM (I own puts on FRE).  My interest rate indicators continue to climb.  Maybe the higher rates are going to finally kill the mortgage market……………………………….

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

Market rebounds; Cramer and NKE and puts; GMI: +6

The market was strong today with many growth stocks finding support at their moving averages.  Gmi726 GMI is firmly at +6 and there were 224 new highs in my universe of 4,000 stocks.  65% of the Nasdaq 100 stocks advanced, 59% of the S&P 500 and 47% of the Dow 30.  We are in day 13  (U-13) of the up-trend.  However, the percentage of stocks in a short term up-trend declined to 53%, the lowest reading  in a long time……………………….

Tonight Cramer panned Nike.  He said that NKE would likely be hurt by the upward revaluation of the Chinese currency.  I did not have to wait for Cramer for a reason to sell NKE.  NKE had been weakening for several weeks.  Nke Note on June 27, NKE had a huge decline to its 30 day average (red line) on its largest volume in months.  During the following 3 weeks it tried to recover and failed.  When it closed below its 30 day average again for 2 days on increased volume I suspected the stock was sick and started investigating shorting it by buying puts in my IRA.  I bought an August 90 put for  4.80 (actually $480 for 100 shares) on 7/25. Each put gave me the right to sell 100 shares of NKE at $90/share through August 19.  If the stock fell to $80 I could buy the stock and execute the option to sell it at 90, thus making a profit of $520 per put (1000-480), excluding commissions.  For every dollar that NKE falls, each put increases in value $100.  One does not have to buy the stock, the put will rise in value and can just be sold at the higher price.  These puts closed at $5.80 today as NKE declined. ………………………..

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