Month: October 2008

GMI: 0; GMI-R: 0; T2108: 3%; On sidelines, mainly in cash and a little short in my IRA

@ 12:01 am

The GMI ad GMI-R are both back to zero.  There were 3 new highs and 38 new lows in my universe of 4,000 stocks on Tuesday.  The Worden T2108 indicator remains at 3% and Tuesday was the 31st day of the current QQQQ short term down-trend…. 

Why place bets on the long side now when the odds are so against us?  The market indexes I follow (QQQQ, SPY, DIA)  are still in down-trends, and most stocks decline with the indexes.  For example, since I identified the current QQQQ short term down-trend on September 2, that index has declined 26%.  During the same period, 98% of the Nasdaq 100 stocks (measured by the QQQQ) declined; 40% have declined 30% or more.  At the same time all but one of the Dow 30 stocks have declined along with 97% of the S&P 500 stocks. My approach to trading is to always be consistent with the trend of the market indicators.  So, I have little choice but to be in cash on the sidelines, or short.  In my IRA, I can go short by buying deep in-the-money put options on stocks in solid down-trends.  I buy deep in-the-money puts because they have the smallest time premiums and will be profitable quickly with a minimal decline in the underlying stock. Shorting is very difficult and anxiety provoking.  One can get scared out by a sudden bounce like the one that occurred on Monday. It is preferable to not be too greedy and to set profit limits so as to lock in gains before they evaporate.  William O'Neil's small book on shorting has helped me to trade on the short side.

GMI: 0; GMI-R: 1; 0 new highs and only 68 new lows; T2108: 3%

@ 12:01 am

Well, the bounce finally occurred!  The bleeding has stopped.  New lows went from 2,832 to 68 in just one trading session.  There were no new highs.  The GMI-R even advanced to 1 (of 10).  This is still a market to watch from the sidelines.  The market remains in a down-trend.  It remains to be seen whether the indexes can climb enough to change the trend.  The Worden T2108 indicator is still oversold and in extreme bottom territory at 3%.  Monday was the 30th day of the current QQQQ short term down-trend. 

GMI: 0; GMI-R: 0; 2,832 new lows on Friday; T2108: 1%; Our embarassing failure to educate youth about the market

@ 12:01 am

The GMI and GMI-R remain at zero.  On Friday, there were 23 new highs and 2,832 new lows in my universe of 4,000 stocks.  This is the largest number of daily new lows since I started this blog three years ago. The Worden T2108 indicator remains at 1%, about as low as it gets.  This is the time to be on the sidelines in cash.  No one knows when this down-trend will end.  Friday was the 29th day of the current short term down-trend in the QQQQ…

It is amazing how Jim Cramer is now claiming to have been urging people to be in cash.  The truth is that he and the other market pundits have been urging people to buy stocks all the way down.  At  no time did any of them say to go mainly to cash.  Cramer has repeatedly ridiculed the use of charts.  But it is the chart patterns that warned me to get out of this market recently, and in 2000.  I started this blog to give the little guy (and gal) a chance to learn  how to discern the market's trend.  When the trend is down one should not be looking for stocks to buy.  One goes to cash or goes short.  There will be plenty of time to ride the next up-trend once it has proven itself….

It is a crime that we do not teach people how to think for themselves when they invest their hard earned money. High schools and universities should require students to attend classes in financial planning and investments. I teach an honors course at the university  and my students have a thirst for knowledge about the market. They often report that my class on technical analysis  is the most practical course they have attended and that it should be required for all students.  Why do we fail to educate our youth about such an important topic?  Think how many of our ageing baby boomers are now looking at greatly reduced assets for retirement. It is painful to me to consider the ramifications of this colossal failure to educate our citizens about how to manage their stock market investments.