IBD

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: +5; Market strengthening; Scan of the market

@ 12:07 am

The GMI rose to +5 Tuesday, indicating the beginning of an up-trend.  Gmi1101_1 There were 138 new highs and only 67 new lows.  The Daily QQQQ and SPY indicators turned positive.  And the IBD growth mutual fund index is now above its 50 day moving average, demonstrating that the pros who invest in growth stocks are doing better.  65% of the stocks that have doubled in the past year closed above their 30 day averages, another indication that the growth stocks are recovering.  Tuesday was the first day in the new QQQQ up-trend (U-1).

So it is now time to look for stocks to buy.  Among the strong stocks that came up in my scan of the market are: BBD, HOLX, RATE, NMTI, ESLR, GOOG, NDAQ, SMTS, THE , BCSI, PRLS, IRIS, TIE. This is a good list to begin to research.  All have doubled in the past year and are near their yearly highs. 

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

GMI: 0; WPM steady; Cramer calls a bottom; Be cautious

@ 7:30 pm

The GMI remains at zero, although the Weekly QQQQ index is too close to call.  Gmi1014_1 Friday was the eighth day in the QQQQ decline (D-8). While things look pretty bearish, there were some signs of market strength.  There were 27 new yearly highs in my universe of 4,000 stocks on Friday, up from just 8 on Thursday.  There were still more new lows, 110, however.  But between 70-80% of the stocks in the Nasdaq 100, S&P 500 and Dow 30 indexes rose. This was the highest percentage of advances in the S&P 500 since September 9.  The percentage of stocks that have doubled in the past year and closed above their 30 day averages increased 11, to 36%. And the percentage of stocks within 5% of their 52 week highs increased 3, to 8%. It may be that the formerly strong stocks are beginning to recover.

The WPM shows only a few changes since last weekend.  Wpm1014 The S+P midcap and smallcap indexes are now below their 30 week averages.  The QQQQ is the only index that is above its 30 week average–barely.  None of the five indexes closed above their 30 day averages.  In terms of the component stocks for the five indexes, the largest changes occurred for the midcap stocks, with only 19% (-7) of these stocks closing above their 30 day averages and only 41% (-5) above their 30 week averages. The Dow 30 stocks showed a little bit of improvement.  The eight Dow 30 stocks above their 30 day averages are:   IBM, BA, AIG, WMT, UTX, GE, JNJ, and C.

While the GMI and WPM indicate confirmed down-trends in U.S. stocks, it is important to be ready to react if the rally on Friday continues this week.  There are some signs of strength that should not be ignored.  First, we are entering the end of year, a season when the markets tend to rise.  Second, the put/call ratio broke above 1.00 one day last week, indicating that people were buying more puts than call options.  This means that traders are betting on a decline in stocks.  When the put/call ratio goes above 1.00 it often signals at least a short term bottom.  The ratio of actual shorting of stocks by the public versus the specialists on the floor of the NYSE is at very high levels (5-year high of 4.67 on 9/23, according to IBD), again indicating that the public is almost five times more likely to be betting on a decline than are the pros on the exchange floor.  Which side would you rather be on–that of the pros or the crowd? Finally, on Friday, Cramer called a bottom for the current market decline–does he represent the crowd or the omniscient insiders?  Cramer thinks the pessimism (i.e., selling) is overdone, but I seem to remember that all declines and advances go far beyond what people think is justified.  The Investors Intelligence poll of investment advisors now stands with 45.8% bullish and 29.2% bearish.  While the percentage of bears is moving up, there are clearly a lot of bulls to be converted. Check out this chart of the NYSE % bulls for an idea of the cycles and how much further sentiment could decline.

So, the bottom line is that this is a very tough market.  No one, perhaps except Cramer, can discern a change in trend before it has happened.  I guess where I come out on  all of this is to be short or in cash, but to be ready for a real change of trend, if it happens on sharply increased trading volume.  But remember that the indexes can retrace a lot of their recent declines without breaking their down-trends.  It never pays to be married too long to one trading scenario.

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