IBD

GMI: +4, GMI-S: 25; Small caps weaken; on side lines

@ 12:01 am

The GMI barely held +4 on Friday.  A weak day on Monday could reduce it to 2. The IBD Mutual Fund Index is declining and approaching its 50 day average, suggesting that growth fund managers are having trouble making money in this market environment. The GMI-S is at 25, indicating that only 4 of 16 short term indicators for the DIA, QQQQ, SPY and IJR are positive.  Even the small cap stocks are weakening (see WPM below).  Gmi0210 Only 30% of the 630 stocks that hit a new high ten days ago closed higher Friday than they closed ten days before.  Buying new highs has not been profitable. There were only 100 new highs in my universe of 4,000 stocks.  Only 36% of stocks are in a short term up trend and only 6% of stocks that doubled in the past year hit a new high on Friday.  64% of the Nasdaq 100 stocks advanced on Friday, along with 59% of the S&P 500 stocks and 70%  of the Dow 30 stocks.  Friday was the sixth day (D-6) in the current short term down trend on the QQQQ…….

I added a new indicator to the table tonight.  Stocks that are in a strong advance tend to close above their 10 day moving average for some time.  This new indicator shows the percentage of stocks that have closed above their 10 day average for the past four days.  19% of the stocks in my universe did so on Friday.  We will watch to see whether this turns out to be a sensitive indicator of the strength of the market….

The WPM showed interesting divergences in the five market indexes last week.  The small and mid cap stocks weakened, even as the DIA, QQQQ and SPY remained stable or strengthened.  Wpm0210 The DIA is now above its 30 day average.  But there were declines in the percentage of the MDY and IJR component stocks that closed above their 30 day averages. And while all five indexes closed above their 30 week averages, there were declines in the percentage of the  components of the MDY and IJR  that closed above their 30 week averages.  This weakening in the strength of the mid and small cap stocks is a startling departure from the recent past and warrants further attention…

The markets remain in a short term down trend.  It makes no sense to fight the market’s trend.  Continued weakness this week will bring about a significant decline in the GMI, and may be the beginning of a serious longer term decline.  This remains a good time to be on the side lines, in cash, in my trading account……

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

GMI: +4; Clues to this rout? WPM shows small/mid caps stronger; Bounce coming? Chickens survive

@ 12:01 am

Friday was just one of those days.  The GMI cannot predict changes in trend, it only provides me with a reasonably certain indication that the trend has changed.  The GMI was +6 as of the close on Thursday and fell to +4 by Friday’s close.  Could we have anticipated Friday’s rout?  Over the years I have noticed that the way that traders react to earnings announcements often provides a clue of things to come.  Certainly the reaction to earnings news about YHOO, INTC and AAPL suggested that there might be a tendency to react negatively to even good earnings.  Furthermore, when I ran a scan this weekend to look at the largest decliners in the Nasdaq 100 stocks from last Tuesday through Thursday, I came up with the following four largest decliners:  YHOO (-14.4%), INTC (-12.23%), AAPL (-6.69%) and GOOG (-6.56%).  When the biggest losers are the major big names, it may signify that the market is going to crumble.  Hence Friday’s action.  Perhaps we have a clue for identifying the next big move down—or up?

So, is this a real change in trend?  I am not convinced yet.  First of all, the GMI is still at a +4, with the longer term indicators still in an up trend.  Gmi0120 And there were a surprising 326 new highs in my  universe of 4,000 stocks on Friday.  The daily GMI indicators are too close to call, but I counted them as negative. Only 3% of the Nasdaq 100 and Dow 30 stocks advanced on Friday, along with 10% of the S&P 500 stocks.  And the QQQQ, SPY and DIA all closed below their 10 week averages, an ominous  sign.  On the other hand, about two thirds (66%) of stocks are still above their 10 week averages and 32% of the stocks that have doubled in the past year hit a new high on Friday.  And more than one quarter (27%) of stocks are still within 5% of their 52 week high.  Furthermore, IBD indicates that the put/call ratio hit .94  on Friday, indicating that 94 puts were traded for every 100 calls traded.  When this ratio registers greater than 1.00 the market often  puts in at least a short term bottom (pun intended).  The growing bearishness reflected in the trading of the option traders, suggests to me that we may not be that far away from at least a bounce in the market.  So I labeled Friday as the eleventh day (?) in the current short term QQQQ up trend (U-11).  Monday’s action could cause me to change the short term trend to down, however.

The WPM shows that the weakness in the markets last week was really concentrated in the large cap stocks.  Wpm0120  While the DIA, SPY and QQQQ all closed below their 30 day averages, the MDY and IJR ETF’s did not.  In fact, more than half of the mid and small cap stocks in these indexes remain above their 30 day averages.  But only 23% of the Dow 30 stocks closed above their 30 day averages.  In contrast, all five indexes and their component stocks remain above their longer term 30 week averages.  The divergence between the large cap stocks and the small and mid caps in the short term 30 day averages is dramatic and suggests that the rout was aimed primarily at the Dow and Nasdaq tech stocks.  In fact, over the past week, 43% of the small cap stocks rose along with 29% of the midcaps and 28% of the S&P 500 stocks.  However, only 21% of the Nasdaq 100 stocks, and 17% of the Dow 30 stocks advanced last week.  Clearly, we should not be relying solely on the Nasdaq 100 and Dow 30 indexes to reflect all stocks.

I am therefore content to remain mainly on the sidelines until the market trend becomes more clear to me.  Why take on great risks in such a volatile market environment.  A chicken lives to play another day, while hogs get slaughtered and ostriches gets run over.

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

GMI: +6, WPM shows continuing strength; Rally continues–but for how long?

@ 12:07 pm

The GMI remains at the maximum +6, and has been an excellent indicator of the market’s primary direction.  Gmi1125 There were 158 new highs in Friday’s shortened session, down from 351 on Thursday.  Much of the pre-rally gloom seen in mid-October has dissipated.  Friday was the eighteenth day in the QQQQ up-trend (U-18).  Between 55-63% of the Nasdaq 100, S&P 500 and Dow 30 stocks advanced on Friday.  60% of the 4,000 stocks in my universe are in a short term up-trend and 69% closed above their 10 week averages.  27% of stocks are within 5% of their 52 week highs.

The WPM also shows improvement in the stocks of all five market indexes.  Wpm1125 80% or more of the stocks in these indexes closed above their 30 day averages, and 70% or more closed above their 30 week averages.  The only exception was the S&P small cap stocks (63% above their 30 week).  Again, the small stocks are lagging the others. ………………………..

While the markets are strong, none of these statistics can tell us when this rally will end.  Trend followers, by definition,  follow the trend–they do not lead it.  We will therefore have to give up some of our profits before we discern a change in trend and sell out.  This is the price we pay to avoid selling too soon in the hope of getting a larger gain.

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.

How have you used this site to inform your trading?  Can you send me some experiences I can post for others  (anonymously, with your prior permission)?  Please send your pearls of Wishdom to me at: silentknight@wishingwealthblog.com.