Covered Calls

GMI: 3++; IBD100 stocks at new highs

@ 12:01 am

The GMI is now at 3++ and could easily turn 5 on Tuesday, if the market rises. Note that I clarified in the table that the Gmi0831 10 Day Successful New High Index is positive if the number is greater than or equal to 100 or 50%.   The QQQQ is now in its second day of an up-trend (U-2) and has now closed above its 10 week average for the past two weeks. The SPY (and DIA) remains below its 10 week average. The Worden T2108 indicator is now at 39%, having marked the bottom in August with an extreme reading below 8%.  Note also that the Small Cap 600 Index ETF, IJR, is very strong, with 100% of its four short term indicators positive…..

I look forward to market declines when it is much easier to see emerging leaders.  Stocks that hit new highs quickly after a decline are often likely to lead if the market turns.  I scanned all of the 400+ stocks that appeared on various IBD100 stock lists from the past year and found that 20 hit new highs on Friday.  (This is impressive, given that only 66 stocks in my entire universe of 4,000 stocks hit a new high on Friday.)  The IBD100 stocks at new highs are, in no special order:  GME,ZUMZ,DKS,SII,PCLN,CAM,ATW,CHL,OTEX,RIMM,OVTI, ASEI,GRMN,SYNA,EXM,DRYS,NVDA,NOV,LAYN,VIP.  I will watch these stocks closely (some of which I wrote covered calls on) over the next few weeks.  So many people fear September as a weak month for the market, that I suspect the market may surprise us this year.

GMI: 2; Buying QLD and tech

@ 12:01 am

The GMI rose to 2, and I am nibbling at tech stocks and QLD. Gmichanges0830  The QQQQ is now above its 30 day (red), 10 day (dotted line) and 10 week averages, a very good sign.  The daily MACD (blue) is also above its signal line (red). The Daily and Weekly QQQQ indexes are now positive. The QQQQ is also stronger than the other indexes I follow:  SPY, DIA and IJR. I am beginning to write covered calls on strong IBD 100 stocks.  Still, there were only 37 new highs and 28 new lows in my universe of 4,000 stocks on Thursday.  Small bets are best for now, until the GMI rises to 4.

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GMI:1; Turn coming?

@ 12:01 am

The GMI is still at 1, but with 2 indicators very close to turning positive, signified by a "?."  One more day with the QQQQ or DIA closing higher than they closed on Friday will turn their respective daily indicators positive.  That would get the GMI to 3, and 100 or more new highs on Monday would get it to 4.  Even the IBD Growth Mutual Fund Index is within striking distance of turning positive.Gmi0824   

I know I have said that its is bad to anticipate market moves. But typically, when my gut says that a particular move is impossible, it is time to begin considering that that move may take place.  It seems impossible to think that the market will turn and move on to new highs right away.  And yet, that is what might occur.  First of all, too many pundits are skeptical of this rally.  Second, the investment newsletter sentiment is now 40% bullish and 37% bearish.  The bearish percentage has doubled from its recent lows and is usually a great contrary indicator.  Third, the Worden T2108 indicator (% of New York stocks above their 40 day averages) signaled a bottom around 8% and is now back to 30%. This market pendulum is moving back towards bullish and will top out typically around 80%.  Fourth, I have learned I should not fight the Fed–it always prevails.  And finally, the QQQQ and SPY  ETF’s are now above their 10 week averages. I have the greatest success being long when the QQQQ is above its 10 week average.

So, when I look over this landscape, it suggests to me that the worst may be over and that I should close out my short position and look for a opportunities to go long.  If Monday’s market moves up, I may begin to phase into QLD.  Also, a lot of growth stocks are rebounding, including GRMN, CMG and AAPL.  I may write some September covered calls if the GMI increases to 4. 

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