Well, we finally got the long awaited bounce. While the GMI remains at zero, some of my indicators strengthened Thursday. A lot of stocks advanced– 74% of the Nasdaq 100 stocks rose, along with 82% of the S&P 500 stocks and 90% of the Dow 30 stocks. The last time we had percentages like this was January 3. The interesting thing is that 95% of the IBD 100 stocks (as of 5/15) advanced. IBD 100 stocks had been among those most battered during this decline. It is therefore noteworthy that people bought the growth stocks yesterday. We will continue to monitor the IBD 100 stocks for a resurgence of growth stocks, but with the IBD growth mutual fund Index below its 50 day average, I am not ready to buy these stocks. When these super managers can’t make money in growth stocks, neither can I.
In spite of this strength Thursday, there were only 36 new highs and 30 new lows in my universe of 4,000 stocks. My TC2005 scan of the 4,000 stocks yielded 160 "Submarine" stocks but only 10 "Rocket" stocks. Only 8% of the 4,000 stocks are now in a short term up trend and only 27% closed above their longer term 10 week averages. For now, these indicators have bouncedoff of their extreme lows. Still, only 21% of the Nasdaq 100 stocks closed above their critical 30 day averages and only 12% of stocks are within 5% of a new high. There were again very few successful 10 day new highs. Only 9% of the 209 stocks that hit a new high ten days ago closed higher on Thursday than they closed ten days ago. Buying stocks at new highs has, thus, been a losing proposition. On the other hand, shorting stocks at new lows 10 days ago would have been profitable in 58% of the cases. Thursday was the eleventh day (D-11) in the current QQQQ short term down trend.
Putting this all together, I remain largely in cash, while holding puts on a few stocks in my IRA. It will take a few more days for me to determine whether this is a dead cat bounce or the beginning of a meaningful up-trend. I am reluctant to buy more puts now. This is because the put/call ratios and letters from readers suggest a lot of retail interest in put options. When that happens we usually get at least a bounce–the market does not usually accommodate the bets of option players.
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