Month: October 2008

GMI: 0; GMI-R: 0; 37th day of QQQQ short term down-trend; decline just beginning?

@ 12:01 am

The GMI and GMI-R remain at zero.  There were  3 new highs and 671 new lows in my universe of 4,000 stocks on Wednesday.  The indexes I follow remain in solid down-trends and I made a little money in my IRA as my put options increased in value…..

I have been going to trader meet-up groups the past three years and had noticed that attendance was sometimes a good contrary indicator at market tops and bottoms.  When few people attend the meeting it often signifies disgust with the market and a possible bottom.  Last night we had the largest attendance ever, an ominous sign to me.  When I mentioned this to the group they all laughed, which I interpreted to mean that they did not think the market was in for a further decline.  Many of the new attendees were noticing the volatility of the market and wanted to find ways to profit from it.  Could it be that as long as we have lots of people looking for opportunities, this market will not bottom?  Capitulation (and bottoms) usually occurs when people want no part of the market. Moreover, when I look at this monthly chart of the QQQQ, I see a market that may be closer to the beginning of a decline than to the end. QQQQMONTHLY

Note that the shorter term moving average (dotted line) has just crossed below the longer moving average (red line).  In contrast, the 2000-2002 market spent two years with this short moving average declining below the longer average.  Maybe we should get ready for a long decline and stop trying to find a bottom.  What do you think?

GMI: 0; GMI-R: 0; T2108: 3%; 36th day of QQQQ short term down-trend; LPHI; My TA course

@ 12:01 am

All my market indicators are back to zero.  There were 6 new highs and 109 new lows in my universe of 4,000 stocks on Tuesday.  The market indexes I follow (SPY, DIA, QQQQ)  remain in down-trends.  Tuesday was the 36th day of the current QQQQ down-trend.  The short term down-trend in the QQQQ that ended on March 24, lasted 55 days, and the one that ended on August 5, lasted 39 days.  So, we may have a ways to go before we get a reversal of the current short term down-trend.  Such a reversal would occur within a longer term down-trend but could still be a trade-able rally.  For now, I remain in cash and a little short and keep a watch list of promising stocks to buy when the market turns.  My latest  candidate is LPHI, which hit a new high on Tuesday and is within 5% of its all-time high.  LphiThis is a promising monthly chart of LPHI. I might be tempted to buy

LPHI if it closes above its peak price of 42.32.  LPHI has appeared on the IBD100 list

and has solid earnings and a PE below its earnings growth rate. I will

watch LPHI along with EBS, which I mentioned a few days ago. Stocks

that can survive this market near their all-time highs are potential rockets

in any rallying market. If we want to catch a rocket to the moon we must jump on one pointing towards the moon and that is rising to new heights.  I don't want to buy stocks at bargain low prices.  Think how many times past stock market stars hit new highs over and over again as they climbed to the heavens. I love bear markets because there are so few stocks hitting new highs that it is far easier to spot the new leaders….

Thank you for those of you who inquired about my college course on technical analysis.  Unfortunately, the course is limited to just 20 honors students each year for one semester.  You can still get an idea of the course by reading the books in "my best trading books" section to the far lower right of this blog.  These are the books that made a difference to my trading success over the past 40 years and my students read all of them during the first four weeks of the semester. They then design their individual trading strategy and begin a 10 week trading simulation with a virtual margin account worth $100,000.  They also learn how to use TC2007, a terrific technical analysis tool,  to scan the market for potential stocks to buy or short. I use TC2007 to compute all of the statistics I display in this blog.

GMI: 1; GMI-R: 2; T2108: 4%; 35th day of QQQQ short term down-trend; Signs of strength;

@ 7:48 am

The GMI rose to one and the more sensitive GMI-R, to two on Monday.  The Worden T2108 is now at 4%, still in extreme low territory where bottoms occur.  However, the percentage of Nasdaq 100 stocks with their MACD above their signal line is now 39%, a level not seen since August 28.  Often times this MACD pattern shows up early in a reversal of trend to the up-side.  So, while the indexes remain far below my typical buy point for a trend reversal, there are signs of life.  According to my methods, the QQQQ has just completed its 35th day of a short term down-trend and would have to rally a lot to change to an up-trend.  Of significance to me, IBD now  reports the market to be in a rally, having experienced a follow-through day.  I may be tempted to make a small pilot buy in a strong stock if the market continues to strengthen.  But for now I treat all rallies as suspect.