GMI: 1; GMI-R: 1; Not in stocks

I guess some of you probably thought that now that I am 100% in cash, this must be the bottom!  It could be, but my track record in avoiding major declines has been quite good.  I am a chicken and would rather get out and be proven wrong than stay in and suffer a large loss.  The media pundits make us think that we must be invested all of the time so that we will not miss the next rise.  But this is horrible advice.  Any advance worth trading lasts months and one can wait for the train to leave the station and still hop on for a long trip.  The advance that just ended lasted 50 days, the prior advance lasted 80 days, and the one last December lasted 86 days.  So what’s the need to hurry?

Fighting the trend of the major indexes is a loser’s game.  Since the beginning of the current decline (identified by my definition, D-1)  on November 8, the QQQQ has fallen 3.7%.  During that time, 87% of the Nasdaq 100 stocks have declined.  What about the other stocks not measured by the QQQQ?  75% of the stocks in the S&P500 declined (including one that is unchanged) along with 80% of the Dow 30 stocks and 65% of the S&P 600 smallcap stocks.  With odds like these, why would anyone be looking for stocks to buy??!!  At least one could go short and have the trend in his/her favor.  Do you see why I get out of the market or go short when the GMI breaks down?   Only 25% of the 4,000 stocks in my universe rose during this period; only 16% rose 2% or more. 

So I am content to remain in cash until the GMI rises. Gmi1123 (Click on table to enlarge.) The only indicator still positive is the Weekly QQQQ Index, which is just sitting on support.  (The analogous indicators for the S&P500 and Dow 30 turned negative 3 weeks ago.)  It is only the lack of financial stocks in the QQQQ that is making this index outperform the others.  Buying stocks at new highs is a loser’s game now.  Only 11 of the 88 (13%) stocks in my universe that hit a new high 10 days ago closed higher on Friday than they did 10 days earlier. Compare this number to the 363/519 (70%) of stocks that hit a new low and have closed lower–far better odds to short new lows than to buy new highs.

I do not know when this decline will end–nor does anyone else.  We could be at the end of a correction or at the beginning of a many month decline.  It does seem odd to me that the QQQQ declined about 11% in four days and still has not mounted much of a bounce back rally.  With conditions like these, I prefer to watch from the sidelines.


4 thoughts on “GMI: 1; GMI-R: 1; Not in stocks”

  1. Just wanted to say that your site is probably the most underrated investing site on the net. I was looking through your posts and I can see that you’ve done quite well in catching the up moves while avoiding the down moves.

    So, if your indicators are telling you to be careful, I know that this is probably NOT the moment to be calling a bottom.

    Really, excellent, excellent work here. Please keep it up and thanks so much for your efforts.

    Happy holidays.

  2. I am in cash as well , not cuz you said you are , but because the indicators I follow , similar to yours, they are saying to be out of equities .

    I also track the “alpha” of the various market subsectors . More than 50% of the 212 subsectors are now at 4 year lows alpha wise (only been tracking 4 yrs now) – The sectors that depend on the consumer are trashed , along with banks , retail , REITS , Transports, and any home build , remodel , decorate related – Even Oil and Gas sectors look bad , as well as most of the metals – alpha wise .

    Never seen it this bad , long zero columns on the sector alpha point and figure charts , with no sign yet of even a 3 box reversal up .

    In spite of what market news folk say , I’m personally scared to death of what may be coming

    Feeling somewhat safe in TIPS though – good performance last 5 months price wise – looking for minor correction in these though (higher yield)

    You blog helps encourage me – I like it , thanks – Bill

  3. Trend Following in the Current Market

    Trend: The Nasdaq (QQQQ) has started to follow the other major indexes down. Dr. Eric Wish at the Wishing Wealth blog describes the current stock market. (I read Dr. Wish’s blog because he has a great set of indicators and he is objective — he doesn’t …

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