GMI: 1; Hysteria Reigns; Serenely in cash

When I listen to the media pundits, I think the sky is falling.  But when I look at my charts, I see only a puny decline, thus far.  Could it be that the self-serving speculators and powers-that-be are hyping the market decline so that the government will bail them out? 

The market is actually in relatively fine shape at the moment. Stage2  The QQQQ and DIA remain above their rising 30 week averages.  Compare the current decline in the QQQQ with what happened last summer.  The pundits weren’t screaming bloody murder in 2006! Yes, the IJR and SPY are now below their 30 week averages, but those averages are still rising and both indexes appear to have found support at their 50 week averages where they stopped declining last summer.  As Stan Weinstein so masterfully demonstrated in his book cited to the right, real declines occur when these indexes are below their declining 30 week averages.  (That pattern in the QQQQ sent me to cash in October 2000.) While the short term trend is down (GMI-S: 6%), the majority of my long term indicators for the SPY, QQQQ, IJR and DIA remain positive (GMI-L: 63%). Yes, things can always get worse.  But I am content to wait to see if stocks can hold their 30 and/or 50 week averages.

You probably are thinking that I am missing the carnage because the QQQQ omits financials. Stage2spy  So let’s look at the SPY, which has been weaker than the QQQQ. Can you honestly look at this weekly chart of the SPY and see an atypical decline?  The SPY is sitting just below its 30 week average (red line) and above its 50 week average (green) near where it has found support in the past.  Compare the current decline to that in 2006 or even 2005.  I see a pattern of higher lows and rising moving averages.

So, I must conclude either that the current cries of doom are coming from persons who are much more perceptive about the true economic fundamentals than I am, or from persons who will benefit by a government bail-out, or both.  Don’t get me wrong, things may get worse.  But right now the market is just in an ordinary decline, and with the GMI at 1, I will remain serenely on the sidelines, mainly in cash.

2 thoughts on “GMI: 1; Hysteria Reigns; Serenely in cash”

  1. Hi, Eric,

    I respect you so much and thanks for sharing your valuable eperience with me. I learned a lot from you and regarding you as my teacher!

    May I ask you how do you average up your position? After we made the first pilot buy and succeed, when will you make additonal buy, how much percentage it is higher than the previous one? Is there any example?



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