The market up-trend is in place and I am almost 100% invested on the long side in my trading IRA. I am also largely invested in mutual funds in my university pension. This is the time to ride the train and not to fight it. No one knows when the up-trend will end. The idea is to ride it and have sufficient stop losses in place to exit if the trend should convincingly reverse. The GMI is at 5 of 6, having been at 6 at Thursday’s close. There were less than 100 new highs (74) in my universe of 4,000 stocks on Friday, bringing it down to 5. I suspect we will be back to 6 this week. Meanwhile, 84% of the Nasdaq 100 stocks had their MACD close above its signal line, a nice show of strength. The Worden T2108 Indicator is at 88%, near the top of the range it typically reaches. But it can stay above 80% for months.
Many of you have requested that I post a chart showing the recent performance of the GMI over the past year. The GMI, though not perfect, has successfully kept me on the right side of the market through the 2000-2002 and 2008 bear market declines. I simply go to cash in my university pension and trade the short side in my IRA once the GMI starts to remain consistently below 3. In order to show the GMI over time, I have plotted a weekly chart with the GMI changes for the last day of each week.
The GMI is back to 5 (of 6) and the GMI-R to 9 (of 10). There were 30 new highs in my universe of 4,000 stocks on Wednesday. Stocks on my IBD 100 lists at new highs include: TSRA, LL, SYNA, STAR, VPRT, URS, HDB, ICUI, MTXX, NTES and NVEC. I am selling puts on strong stocks and ETF’s in the anticipation that they will expire worthless on June 20. I have begun to dollar cost average my university pension funds back into this market. The trend of the QQQQ, SPY and DIA remain up.
I always have to remember not to anticipate a change in trend, but to wait for the actual signal. On Monday, the QQQQ went to the edge of support and held. There were 19 new highs and 8 new lows in my universe of 4,000 stocks on Monday. Only 3 of the new highs were on my IBD100 lists: VPRT, QSII and NPK. I have been writing about QSII for weeks. It broke out of a three year base in April and is at an all-time high. I own QSII. I also have a position in QLD, the ultra long QQQQ ETF. I intend to sell cash-secured puts in my IRA in early June if this up-trend remains intact.
The QQQQ is resting right on support. A decline on Monday would signal to me the beginning of a new short term down-trend. There were only 7 new highs and 8 new lows in my universe of 4,000 stocks on Friday. GOLD broke to an all-time high last week and GLD, the gold ETF, closed back above its 10 week average. This is an ominous sign, with the dollar in a down-trend. Buying stocks at new highs may not be a good idea now. Friday was the 42nd day of the current QQQQ short term up-trend. The Worden T2108 is now down to 79%. And most troubling, only 24% of the Nasdaq 100 stocks have a MACD above their signal line.
A lot of my cash secured puts expired on Friday. I am going to wait to take on new positions in June options around June 1. Better to be defensive now and not give back all of the profits made since the March bounce. I am mainly in cash again.
The QQQQ completed the 37th day of its up-trend on Friday. However, there were only 16 new highs and 5 new lows in my universe of 4,000 stocks on Friday. Five of the 16 were on my IBD100 lists: VNUS, GMCR, HANS, LINC and INT. All of these 5 but VNUS were also on the IBD New America page at some time this year. I keep a watchlist of New America stocks to look for possible winners. New America stocks are companies that IBD staff think have innovative products and exciting businesses.
Both Nicolas Darvas and IBD’s William O’Neil have written that winning growth stocks tend to have great stories behind them. Most of the New America stocks eventually make it onto the IBD100 stocks lists. So it is worth watching these stocks. INT was on the New America list last February around $31 and closed on Friday at $41.90. And HANS was written about last January around $34 and closed Friday at $42.55. So, stocks on the New America list often take off sometime after their story is published in IBD. One recent addition to the New America list that looks promising technically to me if it can break $18.60, is ASIA.
The media pundits claim the market needs to rest. The market gets tired and needs to consolidate for a while–such utter nonsense! I wrote a few posts ago that the rebound in the indexes thus far is actually quite small, compared with the rebounds in the 30’s. The Dow is up only about 24% from the bottom, compared with about 100% snap backs from the bottoms in the 30’s. The QQQQ is only in the 22nd day of its up-trend. The up-trend that ended July 27, 2007, lasted 80 days! The current rally may have a lot longer to go.
Meanwhile, by following the market’s up-trend and the GMI , my account is now in the black for the year and I am now working off the 5% loss from the prior year. How am I doing it? Just by buying the types of stocks that I list to the right of my post each day. Long positions in stocks like AAPL, GMCR and NFLX have helped, along with some call options on QLD. Now that so many stocks are in up-trends I am also writing cash secured puts in my IRA on stocks I hope never to own. I will write more about this interesting technique in a later post.