ETF

The GMI fell to 1 on Friday, although two of its indicators are too close to be definite.  The GMI-S fell to 25, indicating that most of my short term indicators for 4 primary index ETF’s (SPY,DIA,QQQQ,IJR) are negative. There were only 72 new highs in my universe of 4,000 stocks and only 35 successful 10 day new highs (few of the stocks that hit a new high 10 days ago closed higher on Friday than they closed 10 days earlier).  The daily indexes for both the SPY and QQQQ are now likely negatives.  The DIA daily indicator is also close to turning negative.  The IBD Growth Mutual Fund Index is also negative–below its 50 day average.  When these fund managers are not doing well, I do not make money buying growth stocks. Only 32% of the Nasdaq 100 stocks rose on Friday, along with 22% of the S&P 500 stocks and 10% of the Dow 30 stocks.  Only 52% of the stocks in my universe closed above their 10 week averages, the lowest reading since 52% on August 10, before last summer’s rally.

In addition, according to Monday’s IBD, the put/call ratio on Friday was .41, close to the lowest reading reached in the past 12 months (.38 on March 16, 2006). A low p/c ratio suggests relatively fewer people bearish enough to buy puts, a contrary indicator, often signaling impending market weakness.

The IBD 100 lists of stocks that I have been following also exhibited poor  performance, relative to the Nasdaq 100 stocks. Only 19-26% of the stocks in these six lists rose on Friday, compared with 32% of the Nasdaq 100 stocks.  And only 25-45% of the stocks closed above their average price of the past 30 days, compared with  49% of the Nasdaq 100 stocks. Some of the lists did have more new highs, though. It is noteworthy that only 35% of the stocks on the IBD 100 list published on 12/18 closed higher than they did on that date.  Buying IBD 100 type growth stocks has not been profitable in the past few weeks.   

So, with the GMI at 1 and the QQQQ and SPY showing weakness, I bought two of the inverse index ETF’s, QID and SDS.  I know I took a loss last week on my prior QID purchases, but this market appears to be in transition with considerable whipsawing going on.  Bernard Baruch wrote that he often times bought and sold stocks near the top in 1929, as he tried to catch the major trend.  Time will tell if we are at the beginning of a major down-trend.  Right now, the prudent course for me is to make small bets on the down-trend with close protective sell stops, in case the market moves up.  If the down-trend deepens, I will accumulate the inverse ETF on the weaker index. Be careful out there.  This is no longer an upward trending market.

Be sure to read my disclaimers at the bottom of my previous post.

NOTE:  THE PROSHARES ETF’S WENT EX-DIVIDEND YESTERDAY AND THEIR PRICES WERE REDUCED BY THE DIVIDEND.

Well, the GMI weakened 1, to 5 on Wednesday.  Only 34% of the Nasdaq 100 stocks rose, as did 51% of the S&P 500 and 33% of the Dow 30 stocks.  43% of the stocks on the IBD 100 list from 12/18 also rose.  After 86 days of an up-trend, the QQQQ is now in a short term down-trend (D-1).  This does not mean that the down-trend will last long.  But for now, I am short the QQQQ (by owning the inverse ETF, QID) and mainly in cash.  The QQQQ is acting very differently than it has been.  AAPL and GOOG continue to weaken, and RIMM is just holding on.  I believe the odds are turning against growth/tech stocks.  As the GMI declines, I will add to my short position.  Stay tuned………………………………..

Ever hear of the Dow theory?  It seems that the Dow Industrials and Dow Transportation averages should each confirm the major trend. Has anyone noticed that the Dow Transportation average appears to be faltering?  In fact, one might even see a head and shoulders top in this chart.  Is this another sign of impending market weakness? Why would the transportation stocks be weakening in such a strong economy?

Please note my disclaimer at the bottom of Wednesday’s post.