The market held by the end of last week and I am getting more bullish. This is because we appear to be at the beginning of a significant turn up in the QQQQ. According to Weinstein’s stage analysis, the QQQQ is beginning a Stage 2 up-trend, as shown by the fact that its 30 week average is now starting to curve up. This is the sine qua non (I went to Boston Latin School) of a bull move. Weinstein’s stage analysis (note his classic book, to the lower right) is the most important way for me to determine the trend of individual stocks and the general market. By staying out of the market during aStage 4 declines (like the one we just finished) one can put the odds in favor of one’s portfolio’s long term growth. The GMI, which includes this measure from stage analysis, remains at 4 (of 6).
If calling the short term trend of the market were easy, we would all be rich and retired. Last week, my short term QQQQ indicator gave me a head fake and turned my daily trend count down. That new downtrend lasted for two days and then the up-trend resumed. However, I had indicated at the time that my short and long term QQQQ indicators were giving inconsistent readings, with the long term indicator remaining in an up-trend. The new short term up-trend just completed its 3rd day.
The more that I analyze the market, the more I become convinced that I should rely on the longer term weekly trends to determine the market trend (see discussion of the Guppy chart below). The QQQQ has been above its critical 10 week average for 11 weeks and the SPY for 10 weeks. But I have told you that I am a chicken, and would rather go to cash at the first sign of weakness and re-enter the market later, after the dust has cleared. I actually have other, personal reasons, for why I am unwilling to enter the market right now. I cannot trade successfully when I am stressed by other concerns. The only stock I own is ASIA, with a close stop loss.
The QQQQ completed the 37th day of its up-trend on Friday. However, there were only 16 new highs and 5 new lows in my universe of 4,000 stocks on Friday. Five of the 16 were on my IBD100 lists: VNUS, GMCR, HANS, LINC and INT. All of these 5 but VNUS were also on the IBD New America page at some time this year. I keep a watchlist of New America stocks to look for possible winners. New America stocks are companies that IBD staff think have innovative products and exciting businesses.
Both Nicolas Darvas and IBD’s William O’Neil have written that winning growth stocks tend to have great stories behind them. Most of the New America stocks eventually make it onto the IBD100 stocks lists. So it is worth watching these stocks. INT was on the New America list last February around $31 and closed on Friday at $41.90. And HANS was written about last January around $34 and closed Friday at $42.55. So, stocks on the New America list often take off sometime after their story is published in IBD. One recent addition to the New America list that looks promising technically to me if it can break $18.60, is ASIA.
The media pundits claim the market needs to rest. The market gets tired and needs to consolidate for a while–such utter nonsense! I wrote a few posts ago that the rebound in the indexes thus far is actually quite small, compared with the rebounds in the 30’s. The Dow is up only about 24% from the bottom, compared with about 100% snap backs from the bottoms in the 30’s. The QQQQ is only in the 22nd day of its up-trend. The up-trend that ended July 27, 2007, lasted 80 days! The current rally may have a lot longer to go.
Meanwhile, by following the market’s up-trend and the GMI , my account is now in the black for the year and I am now working off the 5% loss from the prior year. How am I doing it? Just by buying the types of stocks that I list to the right of my post each day. Long positions in stocks like AAPL, GMCR and NFLX have helped, along with some call options on QLD. Now that so many stocks are in up-trends I am also writing cash secured puts in my IRA on stocks I hope never to own. I will write more about this interesting technique in a later post.
I just completed the best 2 week period in a year. I own a lot of the stocks listed to the right, which are having terrific runs. The GMI registered 5 for the first time since August, 2008, before the start of the major market decline. My Successful 10 day New High Index turned positive. There were finally enough stocks that hit a new high 10 days ago that have closed higher than they did 10 days ago.
Stocks on the 52 week new high lists that are also at or near all time highs is where I find potential rockets. Nicolas Darvas made a fortune trading such stocks. IBD100 stocks near all time highs include: GMCR, NFLX, MNRO, QSII, VLGEA, AZO, SNDA, NTES, ALGT. TNDM. TSYS, HGG and ORLY are also very strong, but are not yet on my IBD100 lists.
While most of the world looks for bargain stocks at new lows, I seek rockets heading to the moon. The greatest winning stocks are those heading up to ever higher levels. Think of how many times that YHOO or CSCO or MSFT hit all time new highs as they multiplied their prices many times during their great bull runs. If you want to hop a rocket to the moon, it better be pointing up and gaining altitude.