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GMI:+6; My favorite posts; GMI as a trend indicator; WPM shows all indexes strong; Jim Cramer on charts; Some big earners at new highs

@ 9:50 pm

NOTE:    A NEW SECTION TO THE BOTTOM RIGHT PROVIDES LINKS TO MY FAVORITE PRIOR POSTS.  THESE INCLUDE MY STRATEGY POSTS, DEFINITIONS OF THE GMI COMPONENTS, AND MY ANALYSIS OF WHY THE TRADING TECHNIQUES OF THE GREAT NICOLAS DARVAS WORK BEST DURING BULL MARKETS AT ALL-TIME HIGHS.

What a week!  The GMI remains firmly at a maximum +6.  Gmi1111 I will show you below how the GMI has kept me out of the market (or short) during declines and back in during rallies.  80% (57/71) of the stocks that hit new highs 10 days ago closed higher Friday than they closed 10 days earlier.  In contrast, only 24% of the stocks that hit new lows 10 days ago closed lower than they did 10 days earlier.  The moral?  In a strong market buying new highs is much more likely to prove profitable than shorting new lows. There were 234 new highs on Friday and only 44 new lows in my universe of 4,000 stocks.  56% of stocks are in a short term up-trend and 53% closed above their 10 week averages.  Almost three quarters (72%) of the 165 stocks that have doubled in the past year closed above their 30 day averages, along with 80% of all of the Nasdaq 100 stocks.  Friday was the ninth day (U-9) in the QQQQ (Nasdaq 100 ETF) up-trend.

Here is a chart of the changes in the GMI since its inception. Click on this to enlarge.  Note the periods Gmi1111_1 when the GMI is greater then 5 that it has been a good time to be long.  The GMI was +6 for all of July and 5 or greater since November 1. I leave you to judge whether it is a useful market timing indicator.  It is for me.

The WPM showed major strength in all five indexes.  Wpm111105 All of the indexes closed above their 30 day and 30 week averages.  83% of the Dow 30 stocks and 80% of the Nasdaq 100 stocks closed above their 30 day averages and the remaining three indexes were not far behind.  60% or more of the component stocks are now above their 30 week indexes.  This is a market where all types of stocks are participating and where both the short term and longer trends are up.  It is noteworthy that the Dow 30 stocks are now quite strong. 

We never know how long a trend will last.  But it is important to hitch a ride on a strong trend early and ride it until it flashes warning signals.  The reasons behind this up-trend will eventually come out.  But often times the good news comes out closer to the end of the up-trend than to the beginning.  It is important not to fall into the trap of waiting for a rationale for an up-trend before getting in.  When your train leaves the station, it does little good to stay on the platform and argue that the schedule is off or that it should not have departed.

Cramer had a nice interview on 60 Minutes tonight.  It was a love feast–I thought they were supposed to be investigative reporters!!??  Anyway, I though I would quote you what JC has to say about charts in his new book.  "Looking at the chart, the graphic demonstration of where a stock has gone, is not homework.  It can tell you nothing.  …………..In investing a picture is not worth a thousand words; in fact it is almost worth nothing.  A chart is never enough to buy a stock. Never. Don’t be conned into believing that looking at a chart can suffice for homework; it simply can’t." (Cramer, 2005, pp86-87.)

I agree with Cramer that trading decisions should not be made solely according to a chart.  (Why not buy stocks that look technically strong AND that have good fundamentals?)  A few pages later Cramer writes: "Because stocks anticipate the fortunes of their companies, the collapse of Maytag the stock occurs ahead of Maytag the company." (p. 110).  Cramer proves the value of charts.  If a stock tanks before the bad business news underlying the decline comes out, the only way we outsiders can discern the weakness early enough to get out is by studying the stock’s price and volume trends via its chart.  Studying the Nasdaq’s chart got me out of the market in 2000, and had me buying put options (selling short) on Enron long before the bad company news came out.  I rest my case.

Here are a few stocks with good fundamentals and charts.  Among the stocks that hit new highs on Friday, who are up at least 60% this year  and who have recent quarterly earnings  increases of  100% or more are:  TIE, LMIA, NWRE, TRAD, IRIS, HANS, ISRG, HUBG, MRVL, VTAL, HOLX, GHL, JLG, SUPX.  I own some of these and think they are good stocks to research.  I make a small pilot buy and slowly average up in the ones that work out.  I also always place a stop loss for insurance, to limit my losses.  Have a great week.

Please send me your feedback at: silentknight@wishingwealthblog.com.

GMI: +6; Some promsiing stocks

@ 8:30 am

The GMI is solidly at the maximum reading of +6.  I am surprised that I listened to a local weekly radio commentator (Yudee Chang) Saturday morning (AM 570) who said we were in a "secular bear market." One of my fellow IBD meet-up participants also wrote that he was resisting this rally.  Well, I fly on instruments. And the instruments tell me this market is in a confirmed up-trend, maybe the best this year.  Three quarters of the 60 stocks that hit a new high 10 days ago closed higher on Friday than they closed 10 days earlier. Gmi1104 There were 114 new highs on Friday among the 4,000 stocks in my universe of stocks. Almost one half (46%) of the stocks closed above their 10 week averages, and 40% are in an up-trend, the highest since September 20, and up from 8% in mid-October.  Three quarters (77%) of the stocks that have doubled in the past year are now above their 30 day averages, and twice as many stocks (18% vs. 9%) are within 5% of a new high as to a new low.  This is the time for buying proven growth stocks at new highs.

The WPM paints a similar bullish scenario.  Wpm1104 All five market indicators are now above their 30 day and 30 week averages.  Two thirds or more of their component stocks closed above their 30 day averages and one half or more are above their 30 week averages.  The Nasdaq 100, as measured by the QQQQ, is the strongest index.  The time for  tech stocks is here.

Over my 40+ years of trading, I have noticed that during the times when I have become so frustrated with the market that I have totally gone to cash, the market bottoms.  The past 10 days I was in such a state of mind and therefore took the opportunity to transfer my account to a new broker.  So, of course, the market bottomed while I had no access to my funds.

Now that I am ready to jump back into the market, I used TC2005 to scan the market for all stocks that hit a new high on Friday.  In a new up-trend, the stocks that break first to new highs often become the leaders of the new cycle.  I then refined the list of stocks to contain only those with high recent earnings or revenue increases, that have doubled in the past year, and that are near all-time highs.  These are the stocks I will watch for further signs of strength, ranked by last quarter’s earnings increase:

  KUB,BABY,GOOG,VTAL,NWRE,CUTR,RL,CPL,IX,TRAD,WVVI,

OCAS,DBRN,MKTAY,TMI,IRM,PETS,GS,ITG,GES,AOB,MRGE,

AQNT,KSU,ESLR,GROW, MGI.

All of thee stocks will not perform well.  The key is to research them, pick a few, make pilot buys and then to slowly concentrate money in the few that prove themselves, always maintaining a stop-loss order as insurance against big losses.

Please send me your feedback at: silentknight@wishingwealthblog.com.

GMI: +1; Stronger QQQQ–weak Dow, Too much gloom

@ 11:28 pm

The GMI is still at +1.  Gmi1021_2  But there were some signs of strength last week.  On Friday, 68% (19/28) of the stocks that hit a new high 10 days ago closed higher than they closed 10 days earlier.  Still, this represented only 19 successful 10 day highs.  There were 60 new highs on Friday and 96 new lows.  More than one half (51%) of the 183 stocks that doubled in the past year closed above their 30 day averages, indicating support for the strongest stocks.  And 42% of the Nasdaq 100 stocks closed above their 30 day averages, up from 21% on October 12.  9% of the stocks in my universe of 4,000 stocks are now within 5% of their yearly highs.

The greater strength in the Nasdaq 100 stocks is also apparent in this week’s WPM.  Wpm1021 The QQQQ (the Nasdaq 100 ETF) is the only index of 5 that is still above its 30 week average.  Moreover, 42% of its components stocks are above their 30 day averages, and 47% are above their 30 week averages.  The QQQQ stocks are therefore showing both short and longer term support.  In contrast, the Dow stocks are the weakest group and may lag the market in the next rally. Don’t judge the market by the Dow 30’s action.

Last week, Mark Hulbert published an article stating that the investment newsletter writers’ sentiment is extremely bearish.  In the past, such readings were found at market bottoms.   There are just too many bears for comfort, and we are entering the end of year period when the market tends to rally.  In the past, when I became so frustrated with losses that I abandoned the market (like the present), the market often turned.  Thus, in spite of the GMI ‘s being stuck at +1, I am looking to buy promising Nasdaq type stocks, especially if the QQQQ reclaims its 30 day average tomorrow.  Among the stocks that my scan for strong stocks came up with are:  PSYS, WCC, SMTS, KNDL, NDAQ, URBN and VIVO.

Please send me your feedback at: silentknight@wishingwealthblog.com.