IBD

A pivotal week coming-sitting on the 50; GMI: +2; WPM reveals short term deterioration; cash and puts

@ 10:00 pm

This week should reveal whether this short term decline Changesgmi819 deepens, or terminates.  The main indexes I follow are sandwiched in between their 30 and 50 day averages, and resting just above their 50 day averages.  Note from this chart that the QQQQ has closed below its 10 day average (dotted line) for the last 11 days.  The QQQQ has also closed below its 30 day average (red line) for the past 4 days and the 10 day is crossing below the 30 day.  Note that during the past 4 days the QQQQ has closed between the red line (30 day) and the green line (50 day).  The prior decline ended at the end of June when the QQQQ held its 50 day average.  Will it hold again?

The chart above also shows the changes in the GMI (click on chart to enlarge).  The GMI is now +2, but the IBD  Growth Mutual Fund Indicator is very close to turning negative, demonstrating that even the growth fund pros are having trouble making money.  This is a bad omen. Gmi819_1There were also only 38 successful 10 day new highs and only 62 new yearly highs Friday, in my universe of 4,000 stocks.  Only 35% of the Nasdaq 100 stocks rose Friday, along with 55% of the S&P 500 and 40% of the Dow 30 stocks.  We are now in the fourth day (D-4) of the decline in the QQQQ.

The WPM reveals the depth of the weakness in the short term indicators.Wpm819  Compared to the week ending on 8/12, all 5 indexes now trade below their 30 day averages. Furthermore, there have been considerable declines in the percentage of their component stocks that closed above their 30 day averages.  The biggest decline occurred in the small cap stocks– only 22% of them closed above their 30 day averages, compared with 42% a week earlier.  A large decline also occurred in mid cap stocks (31% vs. 47%), although the remaining 3 indicators also showed declines.  In contrast, the longer term indicators hardly budged, demonstrating that the market is till in a general up-trend.

So, what do I discern from the above?  The short term trader should probably be in cash or short.  Since August 2 when the QQQQ peaked, this Nasdaq 100 ETF has fallen 3.19%, and 73% of its 100 component stocks have declined–36% of these stocks declined more than 5%.  Why fight these odds?  This is also not the time to buy stocks breaking to new highs.  The longer term trader who tends to stay in stocks for months probably can retain positions for now, with the protection of defensive stop losses.  It remains to be seen whether this short term weakness will turn into a major decline.  Such a development would be evident to me if the GMI goes to zero.  As for me, my IRA is currently 90% in cash with my remaining funds in September and October puts.  Housing, autos and mortgage securities are in downtrends, for now.  I always become more cautious during the September/October period.  Have a great week.

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

IBD Meetup Group Night; GMI: +6; QQQQ rally leaders; FNM and FRE look sick

@ 11:58 pm

Tonight was IBD Meetup night.  A large group of 14 persons came, indicating that interest in the market has returned.  The group could be characterized as being cautious about the market.  It seemed that people were making some money, but were still licking their wounds and their accounts were mainly down for the year.  One of the persons most skilled in IBD techniques was skeptical about the current rally because of its mediocre volume.  Maybe this bull has further to go………………………..

The GMI is still at +6.  The indexes were a little stronger todayGmi727  with 251 new highs among the 4,000 stocks in my universe.  There were 146 successful 10 day new highs–stocks that hit a new high 10 days ago and closed higher today than 10 days ago.  72% of the Nasdaq 100 stocks closed above their 30 day averages.  However, the percentage of stocks in a short term uptrend fell to 51%, suggesting that fewer stocks are following the leaders.  Still, between 59% and 63% of the stocks in the Nasdaq 100, S&P 500 and Dow 30 indexes rose today.  We are in the 14th day of the QQQQ uptrend (U-14)………………..

Since the beginning of this uptrend on July 8, the QQQQ has risen +5.16%.  During that time 70% of the Nasdaq 100 stocks rose–anywhere from 4% to 32%.  The median increase among the advancing stocks was +6%.  However, the top 10 performers rose from 14-32%.  The largest gainers were (percents are rounded):  SNDK (+32%), AMZN (+26%), SSCC (+22%), EBAY (+22%), APCC (+18%) and AMGN (+18%).  The largest decliners were: DISH (-5%), PETM (-5%), JNPR (-5%), VRSN (-13%) and SANM (-15%). The 70% of stocks gaining in this period demonstrates the wisdom of Livermore and O’Neil’s rule to always trade with the general market trend.  Why fight the trend– and the odds…………………………………..

A number of stocks I have been trading showed strength today–HANS, BBY, IVGN, KOMG, SHLD.  And a lot of other growth stocks bounced off of their moving averages.  However, two stocks that look particularly sick are FRE and FNM (I own puts on FRE).  My interest rate indicators continue to climb.  Maybe the higher rates are going to finally kill the mortgage market……………………………….

Send me your feedback at: silentknight@wishingwealthblog.com.

The Cramer Circus; GMI: +6; GOOG and IVGN

@ 10:30 pm

Did you see the Cramer Circus tonight?   It was   a live show complete with a hand picked audience filled with shouting fans and extreme adulation for JC.   Elmer Gantry could not have done better.   I   attended a speech by Jim Glassman around 2000, soon after he had published his book, DOW 36,000, in which he made the “rational” case for the bull market to exceed that figure. I remember thinking that if there ever was a sign of a bull market top, this was it.   And so I felt today.   It may not come tomorrow or this month or next month, but the Cramer show today smacked of froth and irrational exuberance.

We now know why the short term interest rate indicator rose and the closed end bond funds I wrote about declined   earlier in the week.   Alan is committed to more interest rate hikes.   It is my experience that when the market stops worrying about the higher rates and believes the economy can tolerate them, the bottom falls out of the market.   I think we are getting near that point.   Alas, October is always a good month for the market to bottom.

But I wait for the GMI to detect the change in trend.   And right now things are fine at a steady +6.   Gmi720 There were 250 successful 10 day new highs today and a whopping 423 new highs in my universe of 4,000 stocks.   One in ten stocks hitting a 52 week high–hmmm.   There were 10 new lows.   69% of the Nasdaq 100 and S&P 500 stocks rose today, along with 60% of the DOW 30 stocks.   This is day nine (U-9) of the QQQQ rally.

With EBAY’s stellar earnings release tonight, GOOG appears ready to take off toward that well expected $350 level.   Heaven help us if its earnings disappoint tomorrow. Ivgn By the way, I added more IVGN today. As this monthly chart shows, IVGN topped out in 2000 at 99.50 after a rapid run-up, declined until early 2003 and rallied and peaked again around $82 in 2004.   It began a new rally in August, 2004 and has recently broken through the   $82 prior 2004 peak.   IVGN’s earnings have been up triple digit.   The company provides supplies to many biotech companies. I think IVGN provides a way to ride the biotech boom without depending on new drug discoveries to power the stock.