ETF

The GMI remains at a maximum of 6.  There were 195 new yearly highs in my universe of nearly 4,000 stocks on Friday and Friday was the 79th day in the QQQQ up-trend.  55-62% of the stocks in the Nasdaq 100, S&P 500 and Dow 30 indexes advanced on Friday.

With my market indicators so positive, some of you have written to me asking me why I have been raising cash and even taking on a position in QID, the ultra inverse ETF for the QQQQ.  You raise an important question that I have been struggling with.  Why not stay with the up-trend signaled by the GMI and not try to anticipate a change in trend?  You may be right– maybe I should fly on instruments.  But doing so subjects me to a possible large cut in my profits because my indicators will only call the peak after the indexes have fallen some.  So, to retain profits I have decided to cut back.

Furthermore, while the GMI indicates that the up-trend is intact, there are a number of other signs that make me cautious:  1) there are twice as many bullish  than bearish newsletters; 2) some market leaders (GOOG, AAPL and RIMM) have stopped hitting new highs; 3) the MACD for the QQQQ is declining; 4) the QQQQ has closed 7 of the past 10 days below its 10 day average; and 5) market peaks have been common in December the past 5 years.

In addition to the above, I prefer to phase in and out of my positions in the market index ETFs.  When I turned bullish I bought on the way up.  Now, I am simply cutting back in stages.  If it turns out that some of the warning signs above lessen or reverse,  I will buy more QLD again…..

Meanwhile the IBD 100 lists in the recent past have done quite well. Four of the five lists closed higher than on the day they were published.  64-82% of the  individual stocks closed higher than their 30 day averages.  The list from 11/20 had 16 new yearly highs on Friday. Compared with the Nasdaq 100 stocks, the IBD 100 type of growth stocks appear to be thriving in this market.