How my General Market Indicator (GMI) and technical analysis kept me and my 401K out of the bear market


Many of you have requested that I post a chart showing the recent performance of the GMI over the past year.   The GMI, though not perfect, has successfully kept me on the right side of the market through the 2000-2002 and 2008 bear market declines.   I simply go to cash in my university pension and trade the short side in my IRA once the GMI starts to remain consistently below 3.   In order to show the GMI over time, I have plotted a weekly chart with the GMI changes for the last day of each week.  

Note, however, that the TC2007 program counts 5 days back from the last day in the chart as a week, so that my bars may not correspond exactly with Fridays because of holidays, when the market is closed.    GMIPERFORM09In addition, the GMI could have differed during the week from the end of week reading posted in the chart. This chart shows only changes in the GMI from week to week (click on chart to enlarge). It should be clear from this chart how effective the GMI was in keeping me out of the huge decline.   The last time in this period that the GMI was at 6 occurred in the bounce that took place last May.   After that reading, the GMI declined to zero, hit 4 in the next bounce, and then quickly returned to zero.   The GMI remained at zero from last September through December, helping me to stand clear from the market.   The GMI hit 4, in early April and has remained 4 ever since.   Last week, the GMI registered 5 on Wednesday and Thursday because there are now frequently more than 20 daily highs which are necessary to compute my Succeeful New High indicator component of the GMI.

It is because the GMi Is now 4 that I have begun to go long with this market.   The other key technical indicator in this chart that makes me very optimistic is that the 10 week average (dotted line) is now above the 30 week average (red line).   This is a key characteristic of tradable advances.   I have written often that my best gains have come when the QQQQ is consistently above its 10 week average. The hardest thing for my students to accept is that such things as interest rates, economic news and the Fed actions are only indirectly related to the market’s trend.

One must look at what the market is doing, as with the GMI, to determine the trend and not wait for the news to discover it.   Usually, the news and the media are simply distractions to me.   When you cross the street and a truck comes speeding towards you, you do not argue with its presence or check with others, you act.   Similarly when the market is in an up-trend, I grit my teeth and jump aboard.   The market began its decline in September and the GMI turned zero, long before the media pundits and the public   screamed bear market. If I wait for the news, I am late to the trend.

The GMI components are presented in this table.   GMI0612The QQQQ has closed above its 10 week average for 13 weeks, and the SPY for 12 weeks.   The Worden T2108is at 80% and 60% of the Nasdaq100 stocks closed with their MACD above its signal line.

I am therefore comfortable riding this up-trend.   I have moved 15% of the my university pension from money market fund to a growth mutual fund.   My 401k has never been higher.   In my trading IRA I continue to sell some cash secured puts and nibble at some stocks.   I am particularly interested in SYNA and HMSY and have some small pilot buys in these stocks.   If they perform as I expect I will add to my position.   If they fail, I will get out with a small loss.   Every loss brings me to the next winner. The key is to make a pilot buy, and only average up and buy more if the stock behaves as I expected.   I do not marry a stock.   As William O’Neil of IBD has said, all stocks are bad unless they go up.

4 thoughts on “How my General Market Indicator (GMI) and technical analysis kept me and my 401K out of the bear market”

  1. It looks like we had a nice retest of that 35.5 breakout level on the QQQQ this week. I think we are setting up for a break above 36.36 and then 37.36 (new high). I will stop myself out under 35.5 to reevaluate as it breaks both that retest level plus my lower channel line.

  2. I was going over some older posts and realized this is one of my favorites posts and probably my favorite graphic on the site. Your chart shows that even one simple rule, like being 100% cash whenever the GMI is one or zero for example, could have saved so many investors from disaster this past year.

  3. Shawn, you got it! I’ll give you an even simpler rule–I get out of the market whenever the QQQQ closes below its 30 week average! This is Stan Weinstein’s stage analysis approach. If one simply exits a stock or the market when it closes below its 30 week average one could avoid all melt downs! A few years ago, I scanned the market for stocks showing a 30 week average that was reversing down. I came up with Enron –before it collapsed. My students found and shorted Bear Stearns the same way, before it collapsed!

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