Month: August 2005

The standoff continues; GMI: +2; IBD 100 curse?

@ 12:01 am

Monday was a standoff.  The market had every opportunity to rise or fall  but basically closed where it began the day. Gmi822_1  The GMI remains at +2.  A number of my indicators did get stronger Monday, however.  There were 88 new yearly highs and only 20 new lows.  Stocks in a short term up-trend increased to 24% and now 52% of stocks in my universe of 4,000 stocks closed above their 10 week average. 56% of the Nasdaq 100 stocks rose, 58% of the S&P 500 stocks and 53% of the Dow 30 stocks.

I cannot stress enough the need to be patient now.  The market will break either way soon, and it is important not to become attached to the bear or bull case.  We need to wait until the market tips its hand and react accordingly………………….

Today, www.thekirkreport.com, an invaluable source of market news, posted a link suggesting that stocks at the top of the IBD 100 list make good short sale candidates.  I think this article about the "curse" of the IBD 100 deserves our attention.  I have often thought that by the time IBD ranks a stock very highly, it is too late to buy.  But is it a good short? Check it out for yourself……..

Please send me your feedback at: silentknight@wishingwealthblog.com.

A pivotal week coming-sitting on the 50; GMI: +2; WPM reveals short term deterioration; cash and puts

@ 10:00 pm

This week should reveal whether this short term decline Changesgmi819 deepens, or terminates.  The main indexes I follow are sandwiched in between their 30 and 50 day averages, and resting just above their 50 day averages.  Note from this chart that the QQQQ has closed below its 10 day average (dotted line) for the last 11 days.  The QQQQ has also closed below its 30 day average (red line) for the past 4 days and the 10 day is crossing below the 30 day.  Note that during the past 4 days the QQQQ has closed between the red line (30 day) and the green line (50 day).  The prior decline ended at the end of June when the QQQQ held its 50 day average.  Will it hold again?

The chart above also shows the changes in the GMI (click on chart to enlarge).  The GMI is now +2, but the IBD  Growth Mutual Fund Indicator is very close to turning negative, demonstrating that even the growth fund pros are having trouble making money.  This is a bad omen. Gmi819_1There were also only 38 successful 10 day new highs and only 62 new yearly highs Friday, in my universe of 4,000 stocks.  Only 35% of the Nasdaq 100 stocks rose Friday, along with 55% of the S&P 500 and 40% of the Dow 30 stocks.  We are now in the fourth day (D-4) of the decline in the QQQQ.

The WPM reveals the depth of the weakness in the short term indicators.Wpm819  Compared to the week ending on 8/12, all 5 indexes now trade below their 30 day averages. Furthermore, there have been considerable declines in the percentage of their component stocks that closed above their 30 day averages.  The biggest decline occurred in the small cap stocks– only 22% of them closed above their 30 day averages, compared with 42% a week earlier.  A large decline also occurred in mid cap stocks (31% vs. 47%), although the remaining 3 indicators also showed declines.  In contrast, the longer term indicators hardly budged, demonstrating that the market is till in a general up-trend.

So, what do I discern from the above?  The short term trader should probably be in cash or short.  Since August 2 when the QQQQ peaked, this Nasdaq 100 ETF has fallen 3.19%, and 73% of its 100 component stocks have declined–36% of these stocks declined more than 5%.  Why fight these odds?  This is also not the time to buy stocks breaking to new highs.  The longer term trader who tends to stay in stocks for months probably can retain positions for now, with the protection of defensive stop losses.  It remains to be seen whether this short term weakness will turn into a major decline.  Such a development would be evident to me if the GMI goes to zero.  As for me, my IRA is currently 90% in cash with my remaining funds in September and October puts.  Housing, autos and mortgage securities are in downtrends, for now.  I always become more cautious during the September/October period.  Have a great week.

Please send me your feedback at: silentknight@wishingwealthblog.com.

GMI declines to +2; only 20% of stocks in up-trend; GOOG and MO

@ 12:01 am

The GMI declined to +2 on Thursday as my short term indicators turned bearish.  Gmi818_1 There were only 66 new yearly highs and 47 successful 10 day highs.  For now, buying stocks at new highs is a high risk strategy.  The daily QQQQ and SPY indexes are now negative.  We are therefore in day 3 of the QQQQ decline (D-3).  Less than one half (48%) of the stocks in my universe of 4,000 stocks closed above their 10 week averages and the percentage of stocks in a short term up trend declined to a new low of 20%.  As long as the remaining 2 indicators remain positive, I consider the market to be in  a short term decline.  I hold only put options and cash in my IRA.

As you know, with the announcement Thursday of plans to issue more stock, GOOG declined again.  Could we have anticipated this bearish reaction?  I am posting an updated "Naked Chart" of the type I posted on 8/14.  I wrote on 8/14:

"In my previous post, I showed you a "Naked Chart" of GOOG displaying the 10 and 30 day averages without the prices.  It was clear that the up trend in a stock (GOOG as an example) was clearly shown by the 10 day average’s being consistently above the 30 day average.  Well, over the past 2 weeks many of the leading stocks, including GOOG, have shown a negative cross-over with the 10 day average now being below the 30 day average."

Here is GOOG’s chart as of Thursday’s close.  Goog818 For the first time since the stock rallied in April, its 10 day average remains consistently below its 30 day average.  The lesson to be learned for me is:  Do not buy or hold any stock where its 10 day average is consistently below its 30 day average.  Such stocks are my short candidates, especially after a long period where the 10 day was above the 30 day, as in GOOG.

MO rallied sharply Thursday on a favorable court judgment.  Could we have spotted the reversal in trend days before the news came out?  You be the judge. ……………………………. Mo818

Please send me your feedback at: silentknight@wishingwealthblog.com.