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

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.

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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.

1 thought on “The trend is our friend; GMI: +3; Interest rates rising; a short list of stocks”

  1. Dr. Wish …. I would recommend NOT short selling the niche steel group that includes (profitable) mini-mills who operate their own (steel) scrap yards and shreders. Example: SCHN, GGB, RESC … I think this “specific” group is about to reverse course and rally. My favorite is SCHN.

    I make this statement with confidence, as I am “in the buisness”.

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