Market still trendless; GMI: +2; DIA closes below its 50 day; IBD Meetup tonight

While the market weakened Tuesday, it refused to cave in.  Gmi823 The GMI remains at +2, but there are positive and negative signs in this market.  There were 90 new highs in my universe of 4,000 stocks, very close to the 100 needed to turn that indicator positive.  But there were also 36 new lows, the most since June 27.  The percentage of stocks in a short term up-trend rose to 26%, up from a low of 20% last Thursday. The QQQQ is in its 6th day of decline (D-6).  The DIA closed below its 50 day average for the first time since July 7.  However, the SPY and QQQQ held above their 50 day averages.  Only 23% of the Dow 30 stocks advanced, compared to 34% of the Nasdaq 100 and S&P 500 stocks.

The market still has not chosen a definite direction.  My IRA remains  mostly in cash with a few puts, but I remain ready to hop on the train when a real trend develops.  Wednesday evening is the IBD Meetup.  I am interested in assessing the members’ sentiment towards this market.

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The standoff continues; GMI: +2; IBD 100 curse?

Monday was a standoff.  The market had every opportunity to rise or fall  but basically closed where it began the day. Gmi822_1  The GMI remains at +2.  A number of my indicators did get stronger Monday, however.  There were 88 new yearly highs and only 20 new lows.  Stocks in a short term up-trend increased to 24% and now 52% of stocks in my universe of 4,000 stocks closed above their 10 week average. 56% of the Nasdaq 100 stocks rose, 58% of the S&P 500 stocks and 53% of the Dow 30 stocks.

I cannot stress enough the need to be patient now.  The market will break either way soon, and it is important not to become attached to the bear or bull case.  We need to wait until the market tips its hand and react accordingly………………….

Today,, an invaluable source of market news, posted a link suggesting that stocks at the top of the IBD 100 list make good short sale candidates.  I think this article about the "curse" of the IBD 100 deserves our attention.  I have often thought that by the time IBD ranks a stock very highly, it is too late to buy.  But is it a good short? Check it out for yourself……..

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A pivotal week coming-sitting on the 50; GMI: +2; WPM reveals short term deterioration; cash and puts

This week should reveal whether this short term decline Changesgmi819 deepens, or terminates.  The main indexes I follow are sandwiched in between their 30 and 50 day averages, and resting just above their 50 day averages.  Note from this chart that the QQQQ has closed below its 10 day average (dotted line) for the last 11 days.  The QQQQ has also closed below its 30 day average (red line) for the past 4 days and the 10 day is crossing below the 30 day.  Note that during the past 4 days the QQQQ has closed between the red line (30 day) and the green line (50 day).  The prior decline ended at the end of June when the QQQQ held its 50 day average.  Will it hold again?

The chart above also shows the changes in the GMI (click on chart to enlarge).  The GMI is now +2, but the IBD  Growth Mutual Fund Indicator is very close to turning negative, demonstrating that even the growth fund pros are having trouble making money.  This is a bad omen. Gmi819_1There were also only 38 successful 10 day new highs and only 62 new yearly highs Friday, in my universe of 4,000 stocks.  Only 35% of the Nasdaq 100 stocks rose Friday, along with 55% of the S&P 500 and 40% of the Dow 30 stocks.  We are now in the fourth day (D-4) of the decline in the QQQQ.

The WPM reveals the depth of the weakness in the short term indicators.Wpm819  Compared to the week ending on 8/12, all 5 indexes now trade below their 30 day averages. Furthermore, there have been considerable declines in the percentage of their component stocks that closed above their 30 day averages.  The biggest decline occurred in the small cap stocks– only 22% of them closed above their 30 day averages, compared with 42% a week earlier.  A large decline also occurred in mid cap stocks (31% vs. 47%), although the remaining 3 indicators also showed declines.  In contrast, the longer term indicators hardly budged, demonstrating that the market is till in a general up-trend.

So, what do I discern from the above?  The short term trader should probably be in cash or short.  Since August 2 when the QQQQ peaked, this Nasdaq 100 ETF has fallen 3.19%, and 73% of its 100 component stocks have declined–36% of these stocks declined more than 5%.  Why fight these odds?  This is also not the time to buy stocks breaking to new highs.  The longer term trader who tends to stay in stocks for months probably can retain positions for now, with the protection of defensive stop losses.  It remains to be seen whether this short term weakness will turn into a major decline.  Such a development would be evident to me if the GMI goes to zero.  As for me, my IRA is currently 90% in cash with my remaining funds in September and October puts.  Housing, autos and mortgage securities are in downtrends, for now.  I always become more cautious during the September/October period.  Have a great week.

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