IBD

The GMI and GMI-R are still zero.  Wednesday was the 19th day in the current QQQQ short term down-trend.  There were 26 new highs and 57 new lows in my universe of 4,000 stocks on Thursday.  Five of the stocks at new highs were on the IBD 100 stock lists I have been following:  BLK, RATE, SID, TNE, PRXL.  I am still mainy in cash and am monitoring the down-tend. 

Both the GMI and GMI-R remain at zero.  There were 18 new highs and 45 new lows in my universe of 4,000 stocks on Friday.  Only two (PRXL, ISYS) of the 509 stocks on the IBD100 lists I tracked the past year hit a new 52 week high on Friday.  Growth stocks are just not climbing to new highs.  There is no reason to be long growth stocks in this market unless I just want to gamble and try to fight the tide.  Friday was the 16th day (D-16) of the current QQQQ short term down-trend.  While my most sensitive daily indicators are off of the extreme low values they hit early last week, none of my indicators have turned positive. Trend followers catch the up-trend after it has developed.  I am content to wait for a true bottom and a subsequent up-turn before I wade back into this market.  Many of the bear markets I have witnessed back to the 70’s continued for nine months or more.  We are only a little more than two months into the current decline…….

Over the past 40 years, I have rarely found a book on trading that made a significant difference to my approach to trading.  I have listed those few books to the lower right of this page. (I earn no money off of any sales of the books I mention and receive no income from this blog.)   Well, I recently read a book that I will list with the others.  Michael Covel’s new book, "The Complete Turtle Trader," is a masterpiece in describing the trading philosophy and rules used to train the famous Turtles, who learned how to make millions trading, in a two week course taught to them by Richard Dennis and William Eckhardt in the 80’s.  The most important thing I learned from this book was the mentors’ primary emphasis on exits from a trade rather than entry.  Dennis is quoted as basically saying one might profit by selecting positions by trial and error as long as one had a good exit strategy.  Go into every trade as if you will lose money and you will be prepared in advance for that possibility and limit your losses. Don’t take my word for this, read the book.  The turtles used an extremely systematic and innovative set of rules to trade futures, which I think can be adapted for trading equities.  This is a good time to be out of the market, to analyze one’s prior trading performance and to, perhaps, read a great book….

The GMI and GMI-R remain at zero.  The GMI flashed a sell signal at 2+ on January 2 and has remained at zero since January 4.  (Click on chart to enlarge.) There were 1,453 new lows and 24 new highs in my universe of 4,000 stocks on Tuesday.  The percentage of Nasdaq 100 stocks closing above their 30 day averages is now 5%.  The Worden T2108 fell one to 18%.  Tuesday was the 13th day of the current QQQQ down-trend.  Only 13% of the stocks in my universe closed above their 10 week averages.  Some of these readings are the lowest I have seen in the past three years.

When I began this blog in 2005 I wrote that I was a chicken and had successfully avoided all significant market declines since 1995.  It appears that my indicators have kept me out again.  While I do not make recommendations on this blog I did tell you when I went to cash in my pension plan and in my trading IRA.  I hope that many of you looked at my indicators and also took actions to protect your funds.  The market signaled this decline weeks ago and if we heeded its warnings and ignored most of the "stay invested" media pundits it was possible to emerge unscathed.

The market will signal a bottom at some point and it is critical to concentrate on its behavior.  The trick is to wait for the turn and to wade in slowly.  Anticipating bottoms is a fruitless exercise.  I am very willing to miss quick short-term bounces and to wait for the signs of a real change in trend. When the GMI returns to 3 or 4 and the QQQQ is in an up-trend there will be ample time for me to profit from the rise.  In 2003 after the bear market my account gained over 50% in the market rise, without margin (not allowed in an IRA) or the use of options.  I have learned over the past 40 years that the secret of success is to be in the market (on the long side) only when the market is in a confirmed up-trend. So I will remain in cash now and monitor the IBD100 stocks for possible future leaders. (See yesterday’s post.)  As Jesse Livermore once said, the most money is made in the sitting, not in the trading…..

See my disclaimers at the bottom of yesterday’s post.