GMI: 4; GMI-R: 5; Techs show strength; Mainly in cash

The GMI fell to 4 (of 6)  and the GMI-R is now at 50%.  There were more than twice as many new lows than new highs in my universe of 4,000 stocks (226/91) on Friday, an ominous sign.Gmi1019   Many of the new lows are banks, apparel companies and trucks, possible indications of a slowing economy. Less than one half (47%) of the Nasdaq 100 stocks closed above their 30 day averages, a level not seen since late last August.  I should have noticed earlier last week that there are now 3 times as many bullish advisors than bearish advisors in the latest poll, with over 60% being bullish–almost at the 5 year high.  Finally, the Worden T2108 indicator is now at 44%, down from 82% and suggesting to me that this market pendulum is falling out of the bullish range.  All of these may be signs of some type of a top in the market.

On the other hand, the tech stocks,  as indicated by the Nasdaq 100 index remains in an up-trend.  And the put/call ratio on Friday broke 1.00 (1.08) indicating that 108 puts were traded for every 100 calls.  This is a sign that options players are getting bearish, at least short term, a good contrary signal.  And we are approaching a seasonally strong end-of-year period for the market. This decline could set up a nice year-end rally. So, maybe Monday will bring a reversal to the up-side, after the hysterics and media pundits realize that 2007 is not 1987.

So what to do?  Almost all of my covered call stocks were exercised and bought out this weekend.  So, I am left with a lot of cash.  With the markets so volatile, I prefer to stay in cash and write more calls at the end of October.  I am willing to forfeit some additional premium in order to gain a little more clarity on where this market is heading.  I will also consider closing out my QLD position early this week if the QQQQ fails to show sustained strength.  I know the market climbs a wall of worry, but this wall appears to be lined with barbed-wire and land mines.

2 thoughts on “GMI: 4; GMI-R: 5; Techs show strength; Mainly in cash”

  1. Love the work you’ve done here doc… the GMI and its recent revision are quite useful, though I must admit I’m a bit more bearish than you. Have you looked into trading SRS and SKF in the midst of this real estate/credit mess?

  2. Just hope you don’t lose your 40 years’ experience and become Judy 😀

    And I never see you analyze which sector is the strongest.

    I am bullish by the way.

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