ETF

GMI:5; GMI-S: 100; QLD at twice the speed of QQQQ

@ 12:01 am

The GMI is still at 5 and the GMI-S is 100, indicating that all of my short term indicators for four primary stock index ETF’s (SPY, DIA, QQQQ, IJR) are positive.  53% of the Nasdaq 100 stocks advanced on Tuesday, along with 63% of the S&P 500 and 67% of the Dow 30 stocks.  Gmi0829 There were 183 new yearly highs in my universe of 4,000 stocks and only 21 new lows.  59% of stocks are in an up-trend, up from 15% on July 14.  Tuesday was the eighth day in the current QQQQ up-trend.

Did you know there are relatively new ETF’s that allow one to bet on twice the percentage move  of major indexes and that these ProShares ETF’s  just surpassed a million share day?  If we think the QQQQ train is moving up, we can jump on QLD and travel at twice the speed of the index.  But remember, QLD can move twice as fast in both directions……..

Please send your comments to:  silentknight@wishingwealthblog.com.

GMI: 5?; GMI-S: 100; Short-term rally?; IAI

@ 12:01 am

I leave town for a few days, and the market rallys.  In my defense, I remind you that my previous post did say that I saw some signs of strength in the market.  I noted a bullish divergence in the MACD and more new highs (94) than I had seen in a long time.  However, I failed to pay any attention to another major sign of strength given off by the market–its failure to decline after the terrorist plot in Britain was announced.  The market glass is always half full or empty and the way that the market responds to major events provides valuable clues as to how the masses are feeling towards stocks.  (The same is true about how the market responds to news regarding individual stocks.)  Gmi0818_1

So the GMI rose to 5 on Thursday and remains a 5? after Friday’s action, questionable because there were only 97 (very close to the 100 needed to turn that index positive) new highs in my universe of 4,000 stocks.  However, the GMI-S is now at 100, indicating that all of my short term indicators for four major stock indexes are positive. However, the longer term GMI-L is 63, and the Weekly QQQQ Index in the GMI is still negative.  The QQQQ is finally back above its 10 week average but remains below its key 30 week average.  In contrast, the SPY and DIA are above both their 10 week and and 30 week averages. Five times as many stocks in my universe are within 5% of their yearly highs than their lows (21% vs. 4%). 

As I read these statistics, it looks like the short term trends for the stocks represented by DIA, SPY, QQQQ and IJR are up.  The longer term trends for the large cap stocks (SPY and DIA) are also up.  Thus, this appears to be a tradeable rally and I closed out all of my short positions and have been slowly wading into the market on the long side.

The IBD 100 stocks are still underperforming. 23% of the IBD 100 stocks from 5/15 are in a short term up-trend, compared with 47% of my universe of 4,000 stocks.  Since the 5/15 IBD 100 list was published, 21% have risen, compared with 45% of my stock universe.  Only one of the stocks on the IBD 100 list from 5/15 hit a new high on Friday (DRIV), and only three of the stocks on the IBD 100 list for 8/14 hit a new high (DRIV, NVEC and PNFP)…

In my early years in the markets during the 60’s and 70’s, I noticed that after each major decline the new bull market would rise on record daily trading volume.  Back then, I remember the first time daily volume reached 10 million shares. This trend towards higher volume with each advancing market has continued to this day, so that now daily trading volume is measured in billions of shares. I therefore reasoned in my youth that it was pretty much a certainty that the stock brokerage industry (Darvas considered them to be the casinos) had to prosper with each new bull market.  So if I bet on any industry to recover from a declining market it would be the stock brokers(bet on the house).   But which brokers to buy? Iai  I want to diversify across a few of the big brokers so I do not get stuck with just one or two laggards. Fortunately, since May there is a new ETF that includes a number of stocks in the U.S. brokerage industry (IAI).    If this up-trend is for real, I will watch this ETF very closely……….

Please send your comments to:  silentknight@wishingwealthblog.com.

Cramer Contrary Indicator and GMI have protected us; GMI:1; IBD 100 Index rigged?

@ 12:01 am

"While driving to work Thursday, I opined that when the Today Show producers are so sure of the bull trend that they invite Cramer to appear and declare that the current bull market is like that of the 1920’s, this was a big indication of a market nearing its top.  Katie missed the opportunity to remind him how the bull market of the 1920’s ended………………

So, the GMI weakened to +4 and the QQQQ closed below its important longer term 30 week average for the first time since last October.  When a major index is below its 30 week average I get very defensive in the stocks represented by that indicator.  But the QQQQ is not alone.  The IJR small cap index short term indicators have weakened greatly (see the GMI-S index below) and this index ETF is now below its 30 day average, a sign of possible short term weakness.  The QQQQ looks miserable and may be on the verge of a major bear market even though it did not participate much in the rise in the DIA and SPY. Only 10% of the QQQQ stocks advanced on Thursday, along with 11% of the SPY stocks and 3% of the "strong" DIA stocks.  Only 51% of the 4,000 stocks in my universe closed above their 10 week moving averages.  The QQQQ is now in its first day of a new short term down trend (D-1)………."

                                                         Wishing Wealth post on May 12, 2006

I wish I had been too pessimistic last May.  From the end of January until that post the GMI had been mainly in the 5-6 range and never less than 4.  However, after the above post the GMI fell from 4 to 1 and remained between 0 and 2 through June 30.  Between July 3-6 the GMI rose to between 3-4, and then returned to 0-2 since.   If you have been following my blog, you know that I have therefore been in a defensive mode all of this time.  Most of my short trades since May have been profitable.  With the GMI still at 1 today, there is no reason to go long.  When it gets up to 4 or higher the odds of making money on the long side will be in our favor again.  Patience is the sine qua non of successful trading……………….  Gmi0811

On page B4 of Monday’s IBD (8/14/2006) you will see the regularly presented comparison of the IBD 100 stocks and the S&P 500 stocks.  Today it shows that that from 5/2/03 to 8/4/06, the IBD 100 stocks  have gained +127.8% versus the S&P 500’s +37.6%.  Sounds pretty good doesn’t it?  However, note IBD’s explanation to the right, of how they compute the IBD 100 Index.  Ibd100index Stocks that perform poorly are removed from the index each week as the index is recalculated.  Well, this is not so unreasonable, because don’t the Dow 30 and S&P 500 indexes also occasionally replace poorly performing stocks?  For example, only GE remains from the stocks tracked by the original Dow Jones Industrial Average.  But wait a minute, how often are stocks dropped from the IBD 100 Index?  If it occurred very frequently then wouldn’t we expect the resulting index to outperform other indexes that do not replace poor performers as often?  For the past few months I have been posting the performance of the IBD 100 stock list published on 5/15.  I have shown that since that list was published, all but 20 of the stocks are the same or below where they closed when that list was first published; 36 of the 100 stocks have declined 20% or more. I  just compared the specific stocks on today’s IBD 100 list to the list published on 5/15.  Was I surprised to find that only 37 of the original 100 stocks are still on the list!  In other words, in less than 3 months, IBD has replaced almost two thirds of the list with better performing stocks.  Are we therefore surprised that the IBD 100 index outperforms most other indexes that do not regularly drop as a high a proportion of their component stocks? 

Could mutual fund managers get away with computing their funds’ performance by counting only the stocks in their portfolios that have worked out?  IBD publishes a great paper based on a winning strategy for picking stocks.  We readers deserve a more accurate system for tracking the performance of the IBD 100 selections.