ETF

Buying Nicolas Darvas type stocks; New QQQQ short term up-trend

@ 12:04 am
GMI2/6
GMI-R5/10
T210845%

My short term indicators are coming back, although we are not out of the woods yet.   The GMI is now at 2 and the more sensitive GMI-R is at 5 (of 10).   The QQQQ short term down-trend ended after 21 days, and an up-trend has begun.   However, there were only 11 new highs and 17 new lows in my universe of 4,000 stocks on Wednesday. When the QQQQ is in a short term up-trend, I buy QLD (the Ultra long Nasdaq100 ETF)   and look for growth stocks.

Some of the stocks I have written about have came back to life, including TSYS, AMZN and NFLX.   I own some of these.   I ran my “Darvas” TC2007 scan, looking for stocks that would   meet the criteria that he used to select growth stocks.   Among the 11 Darvas stocks in my 4,000 stock universe are six that have also been on the IBD100 lists during the past year:   NFLX, SNDA, GMCR, QSII, LINC and SXL.   I especially like NFLX, GMCR and QSII because they are close to their all-time highs, which was a major requirement used by Darvas when he traded his way to two million dollars during a 2 year period in the late 50’s.   There is no guarantee that these stocks will do well, but I like to make pilot buys in such stocks, put in a stop loss, and then let the market tell me which, if any, will be winners. I then slowly buy more of the winners. To do well in the market, one has to keep the many losses small and pile into the few big winners.

How I use put options as investment insurance

@ 8:01 pm
GMI0/6
GMI-R0/10
T21087%

There were 7 new highs and 1,221 new lows in my universe of 4,000 stocks on Friday.   The QQQQ completed the 14th day of its short term down-trend within a longer term down-trend. I heard on Fast Money that the AAII survey has the most bearish reading ever.   Furthermore, the momentum indicator in IBD for the Nasdaq 100 index futures is below 25%, the place from which   rallies tend to begin.   And with the T2108 at 7%, in deeply oversold territory, I am becoming reluctant to add more shorts right now.

Last week, a person who knows nothing about the market asked me how to short stocks.   This is reminiscent of the   stories of the shoeshine boys providing stock tips, near the roaring 20’s market’s top.   The sentiment is just too negative right now.   Does this mean the market has to turn up?  

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Markets remain in down-trend, technical indicators hold above last year’s lows

@ 6:31 am
GMI0/6
GMI-R0/10
T21087%

I wrote a few posts ago about what market bottoms look like.   I showed that they are accompanied by huge weekly up volume.   Well, Wednesday’s rally came on low volume and Thursdays decline resumed on higher volume.   When we see declines on low volume, followed by rises on much higher volume we may have a turn.

Meanwhile, the QQQQ is in the 13th day of the current short term down-trend within its longer weekly down-trend.   During the past 13 days, the QQQQ fell about 13%, and 94% of this index’s 100 component stocks have declined–46% declined 15% or   more.   What this means is that shorting stocks or buying the inverse ETF’s has been profitable.   My successful new low indicator (the reverse of the successful new high component of the GMI) has been mostly above 80% during this down-trend.   What this indicator shows is that 80% of the stocks that hit a new low are trading lower 10 days later.   In contrast, there are not even enough (20) stocks hitting new highs to calculate the successful new high index.

So this is a market that has been great for shorts or for cash.   If I am still buying stocks in the hopes of a rise, I am fighting the tide–better to go to Las Vegas.   Why take a long shot (pun intended) when I can trade with the trend?

I would also note that my indicators have not   reached the low readings seen last year.   We had 1,103 new lows in my universe of 4,000 stocks on Thursday, but had over 2,000 daily lows last October.   Similarly, the T2108 is around 7%, but reached around 1% last October.

Until I see some high volume up days, I will remain mainly in cash or short.   To me, the best book on shorting is the one by Wiliam O’Neil, listed to the right.   This short book presents charts of   many past good shorts.   I, and my honors students,   use TC2007 to scan for stocks with technicals like O’Neil suggests.   I   bought puts on AXYS a few weeks ago because it looked promising.   Remember, fundamentals are irrelevant when looking to short.   The stock begins to decline long before the weak fundamentals behind the move become evident to the public…