GMI: +6; Market steady; Perils of stop orders

The GMI held at +6 and the Dow 30 stocks were strong in the face of a weak tech sector, led by the GOOG decline.  77% of the Dow 30 stocks advanced on Wednesday, but only 60% of the Nasdaq 100 and 58% of the S&P 500 stocks advanced.  Gmi020106 The GMI-L remains at 100 and the GMI-S reclaimed the 75 level.  My remaining indicators were level or stronger.  Wednesday was the fourth day in the short term QQQQ up trend (U-4)……….

In spite of this strength in the internal market indicators I remain somewhat defensive in view of the weakness in some of the market leaders.  The abrupt fall in GOOG shows the potential weakness of a stop loss order in a sudden gap down.  Persons with a close stop loss order on GOOG would have been hurt by the fact that GOOG opened Wednesday at 389.03, way below Tuesday’s close of 432.66.  For example, a sell stop at 429 would have been executed somewhere around 389.  The problem is not with stop orders–they provide necessary, though imperfect protection against a large loss. The problem is in holding a stock when it is about to announce earnings–especially if it has already risen a lot and other stocks are getting slaughtered even after releasing decent earnings…..

Please send your comments to:

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.