IBD

The GMI is still zero, as the markets weakened a lot more than was reflected in the major indexes. 50-54% of the stocks in the Nasdaq 100, S&P 500 and D0w 30 indexes advanced on Monday, but only 36% of my universe of 4,000 stocks rose, along with just 23% of the stocks in the IBD 100 list on 5/15.  Thus, it was the large cap stocks reflected in the big indexes that were most likely to rise on Monday.    There were only 16 new highs and 195 new lows in my universe of stocks.  Only 19% of the 132 stocks that hit a new high 10 days ago closed higher on Monday than they closed 10 days ago.  Buying stocks at new highs has not been profitable.  Tuesday was the eighth day (D-8) in the current QQQQ decline.  I would have expected a much larger rebound after the considerable declines of last week……

The deterioration in many of my indicators is evident in the chart of the performance of my universe of 4,000 stocks versus the IBD 100 stocks of 5/15.  Only 23% of my universe and 29% of the IBD 100 stocks of 5/15 remain in a short term up-trend.  Only 18% of the IBD 100 stocks of 5/15 are above their 10 week averages and only 14% (14/100) of them closed higher on Monday than they closed on the day this list of the IBD 100 was published on 5/15.  More telling, 48% of the IBD 100 stocks posted on 5/15 are down 15% or more from the day that list was posted on 5/15……..

My intent is not to question the value of the IBD 100 list in bull markets.  IBD 100 type growth stocks tend to do very well in rising markets. However, I am trying to protect my readers from impulsively buying the IBD 100 list growth stocks when they are listed in weak markets.  IBD itself cautions readers to buy these stocks only in a rising market and after careful analysis.  In addition, I want my readers to know that IBD’s practice of replacing underperforming stocks in the IBD 100 index with better performing stocks obscures the performance of any complete list of stocks they publish.  That is why I arbitrarily selected  the IBD 100 stock list published on 5/15 and track its performance. Anyone who bought stocks on that list on 5/15 and held them had a 14/100 chance of having a winner, through yesterday’s close. In a few months I will select a new IBD 100 list to track.

IBD is not alone in replacing underperforming stocks in an index.  All of the major indexes follow the same practice, thus providing the brokerage industry with a very misleading tool for convincing  investors of the  wisdom of buying and holding stocks for the long term.  (For example, only one original Dow Industrial stock, GE, remains in that index.)  Anyone who bought and held the stocks that have been dropped from these indexes might have seriously harmed their financial health, and wealth. Statistics based on the performance of these "corrected" indexes are therefore heavily biased towards gains and do not accurately represent the risk of holding stocks over time…….

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

The GMI returned to zero on Thursday.  Between 10-16% of the stocks in the Nasdaq 100, S&P 500 and Dow 30 indexes advanced.  Only 13% of my universe of 4,000 stocks advanced, as did only 9% of the IBD 100 stocks listed on 5/15.  There were 24 new highs in my stock universe and 249 new lows.  On June 13 there were 13 new highs and 292 new lows, so we are approaching the depths of the decline in mid-June.  18% of the Nasdaq 100 stocks closed above their 30 day averages. Put another way, only 18 of the Nasdaq 100 stocks closed above their average closing price over the past 30 days.  Only 29% of my universe of stocks are in a bullish Stage 2 up-trend, as defined by Stan Weinstein (see his book, listed on the right). 17% of my universe of stocks are within 5% of a new low, while just 9% are that close to a new high.  Approximately 3 of every 4 stocks closed on Thursday below the price they closed on 5/15…….

With the GMI at zero, I hold no stocks in any account.  There will be plenty of time to buy stocks again after the inevitable real turn occurs, sometime in ………………………

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