Darvas

My General Market Indicators (GMI, GMI-R)  remain at zero.  The Worden T2108 Indicator is at 3%, still in extreme low territory where bottoms typically occur.  Thursday was the 38th day of the current QQQQ short term down-trend.  There were 4 new highs and 1,139 new lows in my universe of 4,000 stocks on Thursday.  October 10 is the last day we had more new lows (2,832).  So, many stocks were quite weak on Thursday, at least at the day's low. I have a  "Rocket" scan  in TC2007 that I run each day.  I have used it in bull markets to find promising stocks to purchase. At Thursday's close, only 5 stocks out of 4,000 met my stringent criteria for possible rockets.  Similarly, my "Darvas" scan based on that great trader's stock picking criteria yielded no stocks.  This clearly is a market with few winning stocks on the long side.  I therefore remain mainly in cash, while holding a few puts on stocks in down-trends.

My two GMI indicators remain at zero.   Friday was the 19th day of the current QQQQ down-trend.   There were only 5 new highs and 189 new lows in my universe of 4,000 stocks on Friday.   The Worden T2108 indicator is at 22%.

I have been writing about how I remain largely in cash during market declines.   A lot of people think highly of Nicolas Darvas, who made a fortune in about two years of trading in the 1950’s (see favorite book list to lower right).   In his later book written in 1977, Darvas wrote:

“Of course there are exceptions to the rules.   There have been any number of stocks that have multiplied in price manyfold in a bear market, just as there are plenty of stocks that have hardly moved in a bull market.   But my temperament is such that I prefer to be safe than sorry.   So I keep out of a bear market and leave such exceptional stocks to those who don’t mind risking their money against the market trend.” (You Can Still Make It In The Market, 1977, p. 126).

I too have found my odds of profting are much better if I trade consistent with the market trend.   So, I remain mainly in cash and hold a few puts in my IRA.

Well, the GMI and GMI-R remain at zero.  There were only 50 new highs and 372 new lows in my universe of 4,000 stocks on Tuesday.  The Worden T2108 indicator is now at 39%; when it falls below 20% I will start looking for a bottom.  In the meantime, I am in cash and short.  My account went up on Tuesday as my shorts rose.  As long as one trades with the trend of the general market it is possible to profit.  This was one of the key rules of all of my favorite gurus (Livermore, Darvas, Weinstein, O'Neil, to name a few.)  It took me over 30 years to learn this simple truth.  Don't let it take you that long.  Simply evaluate your trades the past 2 years in relation to the GMI.  I know you will find that the big gains came while going long when the GMI is above 3.  However, being long when the GMI is less than 3 brings mainly misery and losses.  Keep in mind that there are always a few exceptions to the trend in any market.  I prefer to trade with the odds in my favor.  About 70-80% of stocks follow the market trend.  Why look for the 20% that buck the trend when one can trade with the trend and have an 80% chance of success?