Darvas

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

@ 11:49 pm

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.

GMI: +6; new high index weakening; selling in FTO’s sector

@ 11:27 pm

The GMI remains at +6.   Gmi718 However,   the 10 day new high index was weak.   Only 103 (56%) of the 183 stocks that hit a new high 10 days ago closed higher today than they closed 10 days ago.   Both Darvas and O’Neil have written that when breakouts to new highs begin to fail, the market may be topping.   Only 28% of the Nasdaq 100 stocks rose today, 30% of the S&P 500 stocks and 17% of the Dow 30 stocks.   On the other hand, there were 130 new highs and only 8 new lows today.   We are in the 7th day of this up trend in the QQQQ.   I am not worried yet, but I am watching my stocks more closely and not adding to positions.

Just for fun, I ran a scan of stocks that seemed to be breaking down today below their 30 day average.   I was surprised to find a lot of closed end funds that invest in bonds, especially municipal bonds.   Are long term interest rates finally going to rise, ending Alan’s conundrum? Irx718_1 Look at this chart of the short term interest rate indicator.   It just keep rising, suggesting that at least near term rates are headed higher.   Here are some examples of interest rate related stocks that appeared in my scan today:   MUA, MVF, MYD, MQT, NXZ, NPX, NPM, NPT, PMX, PMF.   Most of these are bond funds.   Why are they breaking down?   Maybe some of you have some ideas about this pattern of declines?

I would also watch out for the oil and gas refining stocks.   Note the recent high volume selling in FTO, one of the strongest stocks in the group. Fto Other stocks with high volume declines include IMO, GI, IOC, SU, MRO.   Is oil finally topping out or is this just a rest–   caveat emptor!

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

@ 3:00 pm

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.