Dr. Wish

GMI: 0; GMI-R: 0; T2108: 3%; 33rd day of QQQQ short term down-trend; EBS breaks out

@ 12:01 am

My general market indexes (GMI, GMI-R) remain at zero.  There were 2 new highs and 764 new lows in my universe of 4,000 stocks on Thursday.  The indexes are far below the levels which would suggest to me a change in trend.  Thus, the markets remain in down-trends and I will remain in cash.  Thursday was the 33rd day of the current short term down-trend in the QQQQ (Nasdaq 100 ETF)…..

During bear markets, the prudent thing to do is to create a watch list of stocks that are building bases and resisting the down-trend. EBS

One such stock is EBS.  It apparently owns the rights to the only FDA approved anthrax vaccine and it just got another large contract from the federal government.  EBS is one of the only stocks to hit new  highs this week on huge volume.  I do not own this stock but might be tempted if the market trend turns up. EBS reports earnings on November 6.  After this huge market decline EBS is one of the only stocks to emerge unscathed.  EBS is up about 64% from a year ago. Note, however,  that buying stocks at new highs in a declining market can be treacherous. I would love to buy a stock like this in a rising market.

GMI: 0; GMI-R: 0; T2108: 2%; only 347 new lows; puny decline compared with October, 1987; comfortably in cash

@ 12:01 am

The GMI and GMI-R remain at zero and the Worden T2108 indicator is at 2%.  In spite of the decline on Wednesday, there were only 347 new lows (and 1 new high) in my universe of 4,000 stocks.  Compare this with over 2,000 new lows for each of three days last week.  This means that in spite of the declines in the averages, most  individual stocks are not as low as they reached last week.  It will be interesting to see if the number of new lows is contained again the rest of this week.  The media pundits got it wrong again.  On October 19, 1987 the Dow fell 22.61%  (-508),  a far cry from Wednesday's puny 7.87% (-733) decline.  Meanwhile, I  (and you?) comfortably watch this market from the sideline, almost totally in cash. 

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.