ETF

GMI: 0; GMI-R: 0; Worden T2108 indicator: 9.3%– in bottom territory

@ 11:24 am

Isn’t it interesting that after a 20% drop the media pundits finally acknowledge the “bear” market.  I learned many years ago that bull and bear markets are called by the press 6 or more months after the turn.  Pity the average person who waits to take action after the turn is called.  On the other hand, the GMI has kept me on the right side of this market again. Note that according to my count, it has been 17 days since I identified the current QQQQ down-trend.  I do not label markets as bear or bull, because such a pronouncement carries a ton of baggage regarding how long or deep such markets should be.  It is far better to just label the current trend as up or down and to wait until it ends.

There were 11 new highs and 574 new lows on Thursday in my universe of 4,000 stocks.  While the markets remain in a down-trend, the T2108 indicator (available from TC2007 at www.worden.com) is flashing a possible bottom or bounce.  That indicator is now at 9%.  With the exception of the October 1987 rout (T2108:  <1%) major bottoms or bounces since then have occurred when this indicator was in the 5-8% range:  1990: 5.3%; 1994: 7.7%; 1998: 8.5%; 2001: 6.8%; 2002: 7.7%; 2007: 7.7%.  With T2108 now at 9%, I am getting to the point where I might have to grit my teeth, hold my nose and buy at least a small amount of the Ultra Dow ETF, DDM.  I might even just buy a few call options on DDM.  If this indicator falls below 9, I will have to act. 

GMI: 3; GMI-R: 6; Critical juncture; China stocks toppy?

@ 10:58 pm

The GMI is at 3 (of 6) and the GMI-R is 6 (of 10). The GMI-R is more sensitive to short term trends and reflects the growing strength in the QQQQ.  There were 91 new highs and 92 new lows in my universe of 4,000 stocks on Monday.  The QQQQ is right up against resistance. A close above 49 will push the GMI into bullish territory.  The strength in RIMM and the fact that the IBD Growth Mutual Fund Index has retaken its 50 day average suggest to me that this rally may have further to go, at least through option expiration this Friday.  ChinaETF

Meanwhile, I think that China stocks are about to break down.  A lot of individual China stocks (CHA, SNP,  PTR, LFC, CHL, ACH, JFC, GCH, CEA, ZNH, CHN) have the reversal pattern reflected in this ETF, FXI.  Note the reversal in the 30 week moving average (red line).  I would not hold any stocks with this ominous pattern; I own puts on LFC.

GMI:5; GMI-R: 6; Split market continues; BAC-plunging banks

@ 8:38 pm

The GMI is 5 (of 6) and the GMI-R is 6 (of 10).  The GMI-R counts 4 additional short term indicators not counted in the GMI. Gmi0606

The fact that the GMI-R is only 6 of 10 reflects the weakening in the QQQQ.  Hard to believe, the QQQQ and IJR (small-caps) remain in up-trends even as the SPY and DIA remain in solid down-trends.  There were 115 new highs and 116 new lows in my universe of 4,000 stocks on Friday.  However, only 44% of the Nasdaq100 stocks closed above their 30 day averages, down from over 80% in mid-May.  And only 53% of the 4,000 stocks in my universe closed above their 10 week averages. The Worden T2108 indicator is now at 50%, down from 77% in early May, but far from the area where bottoms tend to occur (below 15%).

Last week I transferred all of my pension money from mutual funds into money market funds.  When I looked at how most of the Dow 30 stocks are  doing, I became very concerned of the future of that index and the general market.  Only 8 Dow stocks closed Friday above their critical 30 week averages, and 3 of these 8 are within only one point of falling below that average.  A stock below its 30 week average is likely in a down-trend and I never buy a stock trading below its 30 week average. Only 32% of the S&P500 stocks and 42% of the Nasdaq100 stocks closed one or more points above their 30 week averages. Most important, the SPY and DIA index ETF's themselves are both below their declining 30 week averages.  The QQQQ's 30 week average is also declining, but that index closed above that average, for now.  So, I remain largely in cash and have written covered calls on most of my long stock positions.

The major bank stocks look especially weak. BAC

Look at this weekly chart of  Bank of America (red line= 30week average; click on chart to enlarge). Other bank stocks with similar charts include : WB, UBS, STI, and DB.  When major bank stocks are in a free-fall, can the rest of the market be far behind?