GMI: +2; IBD 100 stronger

The GMI fell back to +2; there were only 53 new highs (82 lows) in my universe of 4,000 stocks.  On Monday, 24% of the Nasdaq 100 stocks advanced, along with 33% of the S&P 500 and Dow 30 stocks.  The GMI-S fell to 69, with more weakness in the short term indicators for the QQQQ and IJR ETF’s.  Gmi0807 In contrast, the SPY and DIA indicators remain strong.  Monday was the 23rd day in the current short term decline in the QQQQ.  However, the IBD 100 stocks of 5/15 outperformed the general market on Monday.  54% of the IBD 100 stocks from 5/15 advanced while only 32% of the 4,000 stocks in my universe advanced.  I do not yet know if the IBD Mutual Fund Index has turned positive.  My TC2005 scan of the market yielded 282 submarines and nine rockets.  With the GMI at +2, it is a good time to sit back in cash. The growing strength in the IBD 100 growth stocks suggests that there is interest in acquiring stocks with good fundamentals.

Please send your comments to:  silentknight@wishingwealthblog.com.

 

GMI: +3; QQQQ masks underlying strength in IBD-100; Stocks to watch

I am back from a much needed vacation. In the past two weeks my market indicators strengthened a lot more than the QQQQ would indicate.  The QQQQ is in its 22nd day (D-22) of its current short term decline and has closed below its 10 week average for 12 weeks.  However, the GMI is now at +3 and surprisingly, the IBD Mutual Fund Index is back near its 50 day average and is too close to call (?). Gmi0805  The latter indicates that the growth funds are starting to rise. I have found that when these funds start rising, I can make money trading IBD type growth stocks.  While 70% of the 21 stocks in my 4,000 stock universe that hit a new high 10 days ago closed higher on Friday than they closed 10 days ago (i.e. successful 10 day highs), only 25% of the 260 stocks that hit a new low 10 days ago closed lower.  This suggests that shorting new lows has been unlikely to have been profitable recently.  I am glad I closed out my shorts before I left on vacation. It was better to have bought stocks at new highs. There were 213 new highs on Friday in my universe of about 4,000 stocks.  Reflecting the out-performance of the big cap stocks, my Daily SPY Index has now turned positive.  The GMI-L is now at 50, up 25 from my last post on 7/21.  The GMI-S is at 81, up 75 from its low pre-vacation reading.  All four of my short term indicators for the DIA and SPY are positive, compared with 3/4 of the IJR indicators and only 2/4 of the QQQQ indicators.  Clearly, the small cap and tech stocks are lagging the big cap stocks.  This is not surprising, because after a decline, people are most confident buying the blue chips.  After these trades yield some profits, they move on to the more speculative stocks.

But a look at my universe/IBD 100 performance comparisons tells a slightly different story.  While the indicators for my stock universe all strengthened the past 2 weeks, so did my IBD 100 indicators.  Ibd0805 65% (+30) of my stock universe closed above their 10 day averages, as did 63% (+48) of the IBD 100 stocks from 5/15.  My earliest indicator of a possible up-trend–stocks trading above their MACD signal line, was 69%  for both my stock universe (+32) and for the IBD 100 stocks of 5/15 (+50).  Thus, incredible improvement has occurred in the short term indicators of both my stock universe and the IBD 100 type of growth stocks.  The action of the tech and small cap stock indexes (QQQQ, IJR) fail to reflect this improvement.  In fact, as of Friday, twice as many stocks in my universe were within 5% of a new high (18%) than a new low (8%).  In spite of their recent strengthening, the IBD 100 stocks of 5/15 are not out of the woods yet–only 21 of them (21%) closed higher on Friday than they did on 5/15 when this list was published; 28% of them are down 20% or more. As IBD frequently cautions, one should not simply buy the IBD 100 stocks and hold them through a weak market……

So where are we?  First of all, during a few days in my vacation I tuned into CNBC and was struck by the bearishness of the comments.  These pundits tend to look backward at the market rather than focusing on the the current trend.  There is much wisdom to be gained from other successful trading gurus (Darvas was an extreme example) who tuned out all media gossip and focused on their technical indicators to assess the market’s trend.  In his most recent excellent book, John Boik says that the very successful IBD-type trader (Roppel) he describes used to keep CNBC on all day with the volume muted.  For me to be successful in trading, I also must tune out the huge amount of misinformation on the airwaves and concentrate on my analysis of the technicals.

So, for now, it looks like the big cap stocks have turned up and the IBD type growth stocks are showing some signs of strength.  I have closed out all of my shorts and am now looking to purchase stocks with good technicals.  If the GMI continues to climb I will wade slowly into this market.  There is no need to hurry, because there is plenty of time to jump on board the train, if a real up-trend is starting.  Among the technically strong stocks I am watching are (I own one of these):  GPIC, OCN, OMNI, BVX, FAL, IAAC, DAKT,VOL,TXUI BMRN and EME. Also, the four IBD 100 stocks from 5/15 to hit a new high on Friday were:  SAFT, CLB, CTSH, MVK.  It’s nice to be back…….

Please send your comments to:  silentknight@wishingwealthblog.com.

GMI: 0; GMI-S: 6; GMI-L: 25; Gone fishing

While the GMI has been zero for some time, note that the GMI-L is now 25 and the GMI-S is 6.  This means that all but one of the 16 short term indicators for the four major indexes are negative; and now the long term indexes are weakening.  Gi0720 12% of the Nasdaq 100 stocks rose on Thursday along with 21% of the S&P 500 stocks and 27% of the Dow 30 stocks.  While 18% of my universe of 4,000 stocks rose, only 6% of the IBD 100 stocks from 5/15 rose.  The market is slaughtering tech and growth stocks.  Only 50% of the IBD 100 stocks from 5/15 are in a bullish stage 2 up-trend, the lowest percentage since I began tracking this indicator on June 9 (range: 50-81%).  Only 32% of these IBD 100 stocks from 5/15 closed above their 30 day averages.  The QQQQ is in its eleventh day (D-11) of the current short term down-trend and has closed below its 10 week average for 10 straight weeks.

So what to do?  I am going on vacation, but will try to update the GMI sometime between now and early August when I return.  Every successful trading guru I respect has written that there are times to be out of the market.  The eloquent Jesse Livermore said there were times to go short, go long, and to go fishing.  Nicolas Darvas said only to trade when one’s conditions for trading are perfectly met by the market.  The "M" in CAN SLIM says to stay out of growth stocks when the general market is declining.  There is no hurry or urgency to trade. With the market acting so schizoid, I am going fishing.  The saying, "in May go away," has never been more appropriate.  Check out Thursday’s Investor Education myth buster article in IBD for an analysis of why it makes sense to be out of the market during declines.  Perhaps the market will give us a better opening in the fall.  Conservation of capital keeps one in the game…….

Please send your comments to:  silentknight@wishingwealthblog.com.