Jim Cramer

Well, the GMI and GMI-R continue to register zero.   There were 500 new lows in my universe of 4,000 stocks on Tuesday, and 28 new highs.   On January 9, there were 1,011 new lows, so the current decline has not created as much damage thus far.   Nevertheless, since the start of this down-trend on January 3, the Nasdaq 100 index has fallen 8% and 83% of the Nasdaq 100 stocks have declined, 31% have declined 10% or more.   Ten of the stocks have fallen 18% or more, including past leaders such as RIMM, ISRG and GRMN.   You can see why it does not pay to fight the trend of the index (QQQQ).   It also shows the wisdom of using stop loss orders to preserve gains.   When the leaders like GOOG (-7%) and even AAPL (-13%) begin to falter it presents ominous signs for the rest of the market.

Nicolas Darvas was right when he wrote that it is folly to remain in a bear market and to thereby surrender one’s precious bull market profits (see my post on Darvas on last Monday, 1/14).   And what did Cramer say to his viewers tonight about the market?   Because there has never been a 20 year period when the market did not gain, people should remain in the market!   So, we should all stay in this market knowing that our money will probably be worth more in 20 years—masochists rejoice!

The GMI and GMI-R remain at zero.   The down-trend in the QQQQ is in place. So, what to do when only 40 of the 4,000 stocks in my universe of stocks hit a new high on Friday while 232 hit new lows?   Friday was the 7th day in the current QQQQ short term down-trend and the GMI has been less than 3 for the past 8 days.   (Click on chart to enlarge.) The GMI has registered zero for the past six days.   So, I have been telling you how I have been mainly in cash.   I only play when the odds are in   my favor.   So why do the media pundits, including Cramer,   continually look for stocks to buy?   Why are they looking for safe stocks in a rotten market?   I must assume they make no money and have no audience if the public stays away during bad markets.   It is because I was angry at how these mental midgets misled the public in the 2000-2002 debacle that I began this blog. I want to educate the little person as to how I have protected myself from the major market declines since 1995.

So, if you still are unconvinced, listen to what the genius trader, Nicolas Darvas said about bear markets.   Darvas, as you will recall from my favorite post on him (see bottom right), made a fortune in the bull market of the late 1950’s as he traded part-time and literally danced around the world.   In a rare sequel to his best-seller of 1960 (You Can Still Make It In The Market, published in 1977) , Darvas wrote about bear markets.   This book was written after Darvas had experienced the painful market declines in 1970 and 1974.

…..I like to be sure the odds are in my favor. If the market is in a down-trend and the industry group is performing weakly I know that the cards are stacked against me and that my chances of making big profits are poorer than if the market and the industry are strong.   You cannot be too careful in the stock market.   …………….There have been any number of stocks that have multiplied in price manyfold in a bear market, just as there are plenty of stocks that have hardly moved in a bull market.   But my temperament is such that I would rather be safe than sorry.   So I keep out in a bear market and leave such exceptional stocks to those who don’t mind risking their money against the market trend……………..

Many people seem to think they must always keep their money “working,” i.e. constantly invested in stocks.   But why remain invested in a bear market when everything is dropping? Why ride the market up and down and lose on the downside what you have so painstakenly made on the upside?……There are even some people who believe that a policy of “buy and hold” is the best, so they hang on through thick and thin.   Presumably they get some masochistic pleasure from seeing their capital melt before their eyes every two or three years in successive bear cycles, or they just close their eyes, grit their teeth, and sit it out.   With that sort of approach stock-market investment becomes a succession of nightmares.   I prefer to sleep soundly at night, even if it means going into cash for long periods.

Oh that we had more highly visible experts like Darvas, speaking accurately about the stock market! Instead the pundits of the day try to scare us into stocks, lest we miss the next rise.   But no one knows when the turn will come and there is plenty of time to jump on a real bull move.   So I sit on the sideline during this down-trend, comfortably in cash, and wait for the GMI and the market to turn………………