IBD

GMI since inception; introducing the WPM; on analyst earnings estimates; IBD 100 rockets

@ 3:00 pm

To my visitors: I am only one trader, not a guru, and not a financial advisor.  I am presenting my own opinions and my own experiences and people are welcome to decide for themselves what, if anything, on this site is of value to them.  Please refer to the additional comments, highlighted in red, at the end of this post.

I thought I would begin by looking over the changes in the GMI  the last few weeks. Gmichanges715_1 After falling to +3, the GMI has remained at +6 since July 8 when this rally began.  It took only one day for the GMI to go from +3 to +6.  This is an example of how bad it is to marry a scenario.  When the instruments tell me the market is reversing direction, I must act on it and not fight it.  I am comfortable now being long and having no shorts.  The rally has now completed its 6th day.  (Click on chart to enlarge.)……………………………

I am introducing a new chart, the WishingWealth Pulse of the Market (WPM), which I will update periodically.  I thought it was important to track how various types of stock indexes are performing.  Wpm715 The WPM looks at the Dow 30, S&P 500, Nasdaq 100, S&P 400 (mid-cap) and S&P 600 stock (small-cap) indexes and their component stocks.  The short term trend measures focus on whether the index closed above its 30 day average and the percentage of the component stocks that closed above that average.  The longer term trend measures focus on the 30 week averages.  Why 30 day and 30 week?  Over my 40+ years of trading, I have found that these are the best trend indicators for market movement.  I must admit it was Stan Weinstein’s classic book (see Weinstein’s book at right) that alerted me to the usefulness of the 30 week average.  The reversal in the QQQQ’s 30 week average in 2000, and 2003 alerted me to get out of the market in 2000 and to get back in, in 2003.  Check it out!  As for the 30 day average–I have found it to be the most reliable indicator of the short term trend.

The current WPM is quite bullish.  All indexes closed above their 30 week and 30 day averages.  The weakest indicator is the Dow 30 stocks, where only 63% closed above their 30 day averages and 53% above their 30 week averages.  Let me know what you think of the WPM and how often you think I should post it………………………

This is earnings season.  Have you ever noticed how the media report earnings in such a way as to maximize volatility and emotional reactions?  It all focuses on whether a company beats analysts’ expectations.  So, some group polls the analysts that follow a stock and then highlight the average of their estimates.  Now, consider the following hypothetical per share estimates from 5 analysts: (.25, .30, .20, .20, .30).  The average is .25 per share.  Now say the company reports .21 per share.  The media would report that the company missed earnings estimates by 4 cents (.21 instead of the predicted average of .25) even though the company actually beat the estimates of two analysts (who predicted .20 each).  So everyone sells and the stock dives, not because missing the estimate is so bad–the company made a profit–but because everyone fears that the other person will sell.  And so the hysteria continues.  If the media and financial community wanted to report earnings responsibly, they would report the range of the analyst estimates.  In this example, they would have said that analysts expected anywhere from (.20-.30 per share) and that the actual earnings were within the predicted range.  I think this would take a lot of the hype out of investing. (I suspect, however, that someone would report that the earnings fell at the bottom of the predicted range–and provide another excuse for selling.) Darvas was right when he said Wall St. was a big casino.  …………………………………….

Here is a list of stocks from the IBD 100 that had triple digit earnings increases last quarter and look to me to be rockets:  CNXS, BMHC, CPSI, LUFK, HANS, SNHY.  (Also, AFFX, PTC and CTO have year-over-year growth in earnings of 100% or more.) This is a list worth researching…………………………………….

Gary–I lost your email and could not reply to you.  I appreciate your inquiry into why I did not post Thursday’s report on time–just sleepy.  Thanks for your feedback.

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

Please remember that the stock market is a risky place, especially now.  I am not providing recommendations for you to follow.  My goal is to share tools and methods that I have used over the past 40 years of trading, so that you may learn from them and adapt them to your trading style and needs.  While I do my best, I do not guarantee the accuracy of any statistics computed or any resources linked to my blog.  Please consult with your financial adviser and a mental health practitioner before you enter the stock market,  and please do not take unaffordable risks in the current market environment.  See the About section for more statements designed to protect you (and me) as you navigate this market. Past performance does not guarantee future results, but I would rather learn from a former winner than a loser.

Another good day; GMI: +6; Stocks to watch

@ 11:30 pm

To my visitors: I am only one trader, not a guru, and not a financial advisor.  I am presenting my own opinions and my own experiences and people are welcome to decide for themselves what, if anything, on this site is of value to them.  Please refer to the additional comments, highlighted in red, at the end of this post.

Another good day, but weaker than yesterday.  There were 495 new highs, down from 629.  Only 60% of the Nasdaq 100 stocks advanced, compared to 52% of the S&P 500 and 47% of the Dow 30 stocks.  Gmi712 The GMI remains at +6.  If you look at the chart of the Growth Mutual Fund Index in IBD, you will see that growth mutual funds are doing well now.  The Index is well above its 50 day average, and rising.  84% of the stocks in my universe of 4,000 stocks closed above their 10 week averages and 65% of all of the stocks are in a short term up trend, up from 42% just 6 days ago.  If we can’t generate profits in this market something is wrong with our trading technique…………………………..

Still, there were a few warning signs today.  BOOM could not hold its gains today and NTRI and SHLD also retreated from their highs today.  On the other hand, there was renewed life in CME and NDAQ and LDG today. SWN, BBY, MW and HANS are still consistent climbers.  (I own some of these.) ………………………………..

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

Please remember that the stock market is a risky place, especially now.  I am not providing recommendations for you to follow.  My goal is to share tools and methods that I have used over the past 40 years of trading, so that you may learn from them and adapt them to your trading style and needs.  While I do my best, I do not guarantee the accuracy of any statistics computed or any resources linked to my blog.  Please consult with your financial adviser and a mental health practitioner before you enter the stock market,  and please do not take unaffordable risks in the current market environment.  See the About section for more statements designed to protect you (and me) as you navigate this market. Past performance does not guarantee future results, but I would rather learn from a former winner than a loser.

The trend is our friend; GMI: +3; Interest rates rising; a short list of stocks

@ 11:00 pm

To my visitors: I am only one trader, not a guru, and not a financial advisor.  I am presenting my own opinions and my own experiences and people are welcome to decide for themselves what, if anything, on this site is of value to them.  Please refer to the additional comments, highlighted in red, at the end of this post.

You may ask, why do I continually talk about the GMI?  It is because the majority of stocks follow the trend of the general market averages.  It is exemplified by the "M" in CANSLIM.  It is said that about 70% of stocks follow the market trend. If this is true, then why not trade with the odds in our favor?  This is one of the hardest lessons to learn.  In the past, I would lose all of my hard earned trading profits and more, when I kept buying break-out stocks in the inevitable decline that followed a bull move.  According to my analyses, the QQQQ is in day 6 (D-6) of a decline.  Using the TC2005 technical analysis program, I can count how many of the Nasdaq 100 stocks rose over the past 6 days– 38%.  Thus, if I bought a Nasdaq 100 stock on 6/24 and held it through Friday, 7/1, I had a 38/100 chance of having a profitable position.  On the other hand, if I had shorted a stock on 6/24, I had a 62% chance of having a winner.  As they say, the trend is our friend……………………………..

The GMI closed Friday at +3. 701gmi  The Spy and QQQQ indicators continue to be weak. IBD still maintains that the market is in a "confirmed rally."  And S&P thinks we are in for a great second half of the year.  I am not so sure.  I added a new indicator to the GMI box, Stocks in a Short Term Up-trend.  This indicator shows that 42% of the 4,000 stocks in my universe are in an up-trend, down from 55% when this decline began.  Furthermore, only 39% of the Nasdaq 100 stocks rose on Friday, compared to 63% of the S&P 500 stocks and 67% of the Dow 30.  The Dow 30 stocks look terrible to me with the following 20 stocks in a down trend:  UTX, INTC, MO, CAT, JNJ, PG, C, AXP, GE, MSFT, HD, DIS, KO, VZ, MMM, MCD, PFE, DD, AA, MRK.  Get the picture?  Two thirds of the Dow 30 stocks look technically weak to me.  It never fails to amaze me how these market analysts presume to predict the direction of stocks based on their interpretations of the economy.  Don’t they understand that the market always predicts the economy.  We typically find out the economic reasons for a market decline or a rise after it has occurred.  Maybe I should buy puts on the Dow ETF–DIA………………………………………….

It is also curious to me how the pundits cling to a bullish scenario in the face of an aggressive Fed.  I think that it is well known that the market has an up-hill battle when rates are rising (Marty Zweig was a master at using Fed actions to time the market) and there is no ambiguity here. Irx701  The short term interest rate indicator has hit yet another new high.  It looks to me like the Fed will  over-tighten, yet again, and push the economy off the cliff.  Even if they don’t, rising oil prices and heating bills may kill the economy next winter.  When we read all of their market predictions, we must remember that market pundits tend to be overly optimistic–they need someone to buy their stocks from them.  It is rare that a commentator will advise the public to go to cash or to take the short side.  The wise speculators trade both sides of the market and embrace a trend, regardless of its direction.  Don’t take my word for it–read the classics listed on the right………………………………………….

I told you before that I have been successful in avoiding the bulk of market declines since 1998.  I exited the market completely in October, 2000 and got back in after it bottomed.  So, now I sit in cash or short and wait for the trend to develop.  If I am wrong about this decline, I can always reverse direction in an instant.  There is plenty of time to climb aboard a rising market if it is a  sustained multi-month uptrend–the only kind in which I can make big money………………………………..

I am beginning to look for stocks to short.  I ran a scan of the market to find stocks in consistent declines (falling rockets).  One industry that came up a lot was steel and iron mining stocks:  TONS, ROCK, WPSC, AKS, GNA, RESC, CGA.  Another sector that came up often was Telecom services-foreign:  DT, KPN, PT, TCP, SCM, CTC.  Should I add them to my short list?

Happy July 4th holiday to all.

Send your feedback and questions to: silentknight@wishingwealthblog.com.

Please remember that the stock market is a risky place, especially now.  I am not providing recommendations for you to follow.  My goal is to share tools and methods that I have used over the past 40 years of trading, so that you may learn from them and adapt them to your trading style and needs.  While I do my best, I do not guarantee the accuracy of any statistics computed or any resources linked to my blog.  Please consult with your financial adviser and a mental health practitioner before you enter the stock market,  and please do not take unaffordable risks in the current market environment.  See the About section for more statements designed to protect you (and me) as you navigate this market. Past performance does not guarantee future results, but I would rather learn from a former winner than a loser.