Technical Analysis

GMI back to +4; Performance of my picks

@ 2:42 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.

The GMI lost another point today, to +4.Gmi610 The Weekly QQQQ Index dropped below positive and is too close to call.  If I strictly follow my rules, then it is a negative.  This does not mean that the up trend is over, as long as the QQQQ Daily Index remains positive. We are in the 25th day of the up trend and some prior up trends have gone into triple digits before the index turns negative.  The 10 day successful new high index is barely negative, at 90, and given that we had well over 100 daily new highs every day in the past 2 weeks, this index has a good chance of turning positive again. (It measures the number of stocks hitting new highs 10 days ago that closed today higher than their close on that day, see archive post–4/26).  New highs in my universe of 4,000 stocks totaled 150, with only 25 new lows.  In spite of this strength, only 17% of the Nasdaq 100 stocks advanced on Friday (the least since June 5), 39% of the S&P 500 stocks and 43% of the Dow 30.  The QQQQ remains below its 10 day average, and I will start becoming defensive with a CLOSE below 37.  On the other hand, a bounce at 37 would cause me to get bullish.

A lot of my stocks are consolidating or are still advancing.  I just relax and let my sell stop orders and put options (see yesterday’s post about using puts for insurance) watch the market for me.  If I can hang on until the last week of June and the calendar quarter, I think they will close strong. I do expect some volatility through option expiration this week.

I have been writing this blog since mid April. I thought it would be informative for me to examine the performance of the stocks that I have been highlighting during this rally. Performance610_1   I computed two analyses.  The first (Part A in the table–click on it to enlarge.) contains all stocks that I wrote about positively, with an accompanying chart. The second shows the performance of all of the stocks I published in a table containing the results of a scan of the market for potential rockets I did on May 18.  (While, I checked my list and the computations, please let me know if you detect any errors or omissions.)

I was surprised by the results.  All of the 8 stocks that I had posted as being bullish and for which I posted a chart (Part A) rose in the period since the original post and  Friday’s close. GOOG and NDAQ did the best, climbing more than 20%.  PROP and PTRY rose the least, 2-3%.  Since the time  (5/6-5/10) when I posted NDAQ, NSI and GOOG, the QQQQ rose between 4-5%, so these 3 stocks rose about 5  times more than the general Nasdaq tech stocks. The last 3 stocks listed (ORCT, MW, CME) actually rose during a period when the Nasdaq index-QQQQ, declined.

Part B shows the performance of the 15 stocks that survived a scan for rockets that I posted on 5/18.  During this period, the QQQQ rose just 1%, but 13 of these stocks rose, 6 by more than 10%.  If you want to know more about how I find rockets, check out my strategy posts in the archive on 4/23 and 4/30, and the scan on 5/18.

I am not showing you these results to receive your accolades or to recommend these stocks.  I am trying to show you that someone with no accounting background and with limited understanding of the intricacies of the economy can use technical analysis along with tools like IBD, TC2005 and free internet research tools to select possible winners.  Most important, one can do this while working full-time and without the need to be glued to a monitor all day.  But you must do your homework first.  In addition to reading this blog, you should check out www.thekirkreport.com daily to keep up on important business news and market topics.  You  should also read the writings of the successful stock market traders; most of the gurus who have really educated me are described in John Boik’s new book.  In addition, you should read Stan Weinstein’s book to learn some simple technical charting techniques. (All I use is the very simplest tools.)………………………………………..

I am becoming accustomed to writing this blog–my first post was on 4/17.  I try to post by midnight during trading days.  During the weekend I have more time to reflect on the market and to write.  I read all of your emails and greatly appreciate them, but I often must wait until the weekend to reply. (If I ever fail to respond, please remind me.) Writing this blog has actually helped my trading performance.  It has helped me to systematize my rules and to have the discipline to follow them–thank you.  My largest losses have occurred when I have deviated from my rules.  Keep sending me your questions and comments.   Send your feedback 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.

A mixed day, trend-followers, GMI: +5

@ 10:00 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.

Today was a mixed day, and the GMI remains at +5, as we complete day 17 of this QQQQ uptrend (U-17).  Gmi531 There were 35 successful 10 day new highs and only 11 "successful" new lows.  More than 70% of the 49 stocks that hit new highs 10 days ago, closed higher today than they closed 10 days ago.  There were 155 new 52 week highs in my universe of nearly 4,000 stocks, and only 23 new lows.  What is somewhat troubling is that only 36% of the Nasdaq 100 stocks rose today, 32% of the S&P 500 stocks and only 7% (2) of the 30 Dow stocks.  So, while there were a large number of new highs, most stocks did not rise today.

Still, some of the stocks I have been discussing hit new highs today, including GOOG, BOOM, NSI, MW, PNRA  (I own some of these).  A sign of a bull market top is weakness in the leaders.  We will therefore continue to monitor these stocks for any signs of weakness–clearly they are still very strong.  Moreover, given the strength of the GMI, I am not in a defensive mode yet.  It will be interesting to see whether the market can bounce back tomorrow……………………………………..

In my prior post, I said I was an orthodox agnostic when it came to believing in a rationale for market moves.  Since then I read an interview in Technical Analysis of Stocks & Commodities, June edition, with Michael W. Covel.  Mr. Covel recently published the book, Trend Following: How Great Traders Make Millions in Up or Down Markets. In the interview, Covel says, "A trend-follower doesn’t need to know the "why" of market behavior during trends.  They just need to know the price.  A lot of trend-followers don’t even want the name of the markets.  They just want the price data and they can tell you whether they can trade it by the price data alone.  I think this kind of mentality is odd to most people."(p. 55)

I guess Darvas, Livermore, O’Neil and a host of other gurus would be called trend-followers today.  I don’t feel so weird about my orthodox agnostic comment anymore.  I am in good company.  However, Covel is describing the most extreme case of trend following, someone who needs no fundamental information about a stock other than its price and volume–an approach we call in my field, blind empiricism.  Most of the successful gurus I admire wanted to trade with the trend, but also factored in other information about the company’s profitability and industry.  By the way, I was disappointed with Covel’s book.  It merely makes the case that specific trend-followers have been successful, without providing any details of how these people achieved their success. Borrow it from your local library.

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.

Bear Market?

@ 2:32 pm

“Jim Rogers: Bob, there’s no question we’ve had a big pounding in the market in the last two weeks. So we may be due for a rally. But the market is going to be down this year and it’s going to be worse next year. We had huge amounts of money spent in 2003 and 2004 by the government to win an election. Now we have to pay the price. It’s not the end of the world. It’s just a bear market.”   THE COST OF FREEDOM RECAP, SATURDAY, April 23.

I like to watch Jim Rogers every Saturday morning.   In 2000, at the height of the tech market mania, Damon Vickers was the only radio commentator I heard who had the courage to tell (really scream) people to run for the exits.    Today, Jim Rogers is equally explicit (but calm) about his concerns for the state of the economy and for the U.S. stock markets.   And Jim is no neophyte.   He made his fortune in his 30’s trading along side George Soros.   When Jim speaks, I listen.

As long as I am talking about the   Fox Cost of Freedom Saturday morning telecast, I must mention The Chartman, Gary B. Smith. Gary was a presenter at my university’s investors speakers series a few years ago.   I missed his presentation, but heard about his accolades for the TC2000 technical analysis program that he was using.   It was on his recommendation that I subsequently switched to that program and became an enthusiastic user of TC2005.   (When I placed 5th in the Barron’s Stock Challenge a few months ago-in the professor category- I contacted Gary and we had lunch together.)   Gary is an avid chartist and writer who brings his considerable expertise in technical analysis to the Bulls & Bears program on Saturday mornings.

I received a question from a reader today asking me if I am somehow associated with   IBD or TC2005.   The answer is an unqualified no.   I am simply an enthusiastic and dedicated customer of both concerns. I can honestly say that I did not begin to make money in the market until I subscribed to IBD in the 80’s.   And, as I shall show in a subsequent post, the TC2005 program lets me do amazing scans of the market quickly and at low cost. (The program itself is free–how can one beat that?   I just pay about $25 each month for downloads of stock prices.)   How do you think I compute the WW General Market Index (WW-GMI)   and my other indicators each night?

Speaking of the WW-GMI, it is stuck at dead zero again.   Are you surprised?   Only 11 stocks that hit new highs 10 days ago closed higher today than 10 days ago.   That’s 11 out of 4,000!   Only 40/4,000 stocks even hit a 52 week high today.   Most telling, 99 stocks hit a 52 week low 10 days ago and are trading lower today than 10 days ago. So, the odds of having a successful short trade on a new low are 9 times higher than being successful going long on a new high!   The key to success in the market is trading with the odds in one’s favor.   At the very least, these statistics tell me not to buy any stock hitting a new high.   By the way, 208/4,000 stocks hit a new 52 week low today, five times the number that hit a new high.

I have been down on the housing stocks for sometime.   Today, 21/26 stocks in that sector declined.   Check out the trends in such stocks as MDC, MTH, BZH, CTX, MHO, WLT or DHM.   (I own puts on two housing stocks not shown here.)   Now, take a look at a chart of DIS, which fell 3.5% today on above average volume.   Do you think the weakness in housing stocks and a leisure stock like Disney is telegraphing something about the future economy?   Maybe this market smells the R word (recession).   It would not be the first time that the Fed tipped the economy into recession in its zeal to put a lid on inflation.   Remember, the Fed is an exclusive club of bankers, whose first priority is to protect all of their banks’ outstanding loans from the ravages of inflation.

I thought you might like to see a long term monthly chart of the NASDAQ Composite index. Click on this chart to enlarge.   It doesn’t take much chart knowledge to see the difference in the chart pattern since mid-2000.   Between 1993-2000 the index closed above its rising 30 month moving average (the red line). Then it began a sustained 3 year decline with the index below the average. After the bottom in 2002 there has been a relatively weak recovery.   Note the moving average is barely rising.    The time to make big money is when the indexes are rising smartly as they did in the 90’s.   You could have ridden that index up for years.   You could also have ridden it down for 3 years.   There is plenty of time to ride a real trend.   Right now we don’t   have a long term trend that is   worth riding–at least not in NASDAQ stocks.