General Market Index (GMI) table

This market is not out of the woods; Finding bio-tech stars like $AGIO and $VRTX

@ 8:28 pm
GMI1/6
GMI-23/9
T210825%

The GMI now registers 1 and flashed a Sell signal as of Friday’s close and my QQQ short term trend   has turned down.   Sometimes these changes in short term trend do not persist for more than a day or two, so I watch the market action very closely.     There are a lot of other technical indicators that make me very cautious this week.   The QQQ is sitting on its 10 week average.   A weekly close below it (about 98) would be a significant sign of a weakening in the   longer term trend. Failure of the bounce back above its daily 15.2 BB would be a serious sign of short term weakness. Both of these areas of support remain around 97.80-98.   I always look for a close below important support levels before I act.   I therefore restrict most of my daily trading to around 3:45 PM when I can estimate where things will close.   If I trade earlier in the day I am often whipsawed by the action. IBD still sees the up-trend under pressure, another sign for me to be cautious. There were 46 new highs and 214 new lows on Friday, the opposite of what I would expect from a healthy rising market. Again, the action was different for tech stocks versus other stocks:   63% of all stocks rose Friday compared with 91% of the Nasdaq 100 non-financial tech stocks. On the plus side, the T2108 is now at 25%, closer to where bounces occur and the put/call ratios have been above 1 for two days……..

Four Nasdaq 100 stocks have a 15.4 daily stochastic above 80, representing recent price strength. They are VRTX, SIAL, FB, EBAY. While a reading above 80 is often considered over bought, strong stocks can remain at this level for long periods. The signal I watch for is a decline in the stochastic below 80 after being above for a number of days.

I don’t often nail a break-out, but did you see what AGIO did on Friday after I had posted about it Thursday night?

AGIOtakesoff

I had no inside information. I just let the technical indicators and the news alert me that something was up. I learned from my stock buddy, Judy, who picks a lot of biotech winners, that one can learn a lot by reading news reports about drug companies’ promising clinical trials and scheduled presentations.   Being in the research field, I know that one schedules public presentations to highlight good research results. The astute reader might have read last week that AGIO has a big presentation coming up about their research on new drugs they are developing. And while it pains me to say it, Jim Cramer has been crowing about AGIO.

I run a TC2000 scan every night for bio-tech stocks that have advanced that day on unusually high volume. Then Judy goes to work researching them to uncover the gems. The unusual trading volume is a clue to finding bio-tech   gems like AGIO and even VRTX before they take off. The exciting money to be made is in the revolution occurring in drug development.

VRTXcluesNow, I know that some of you are going to write me to request the stocks that came up in my bio-tech scan from last night. If I listed the stocks, I suspect some people would just buy them and not do the due diligence to uncover the probable winners. And this, even though the market up-trend is in doubt!   The scan did uncover 7 stocks (XXXX, XXXX, XXXX, XXXX, XXXX, XXXX, XXXX). You will just have to stay tuned to see if I write about them–after doing the necessary research. I maintain a growing watch list of all stocks that have recently been detected by this bio-tech scan. I monitor them over time for signs of strength and news….

This week is critical for telling me the market’s probable trend. So I am unlikely to buy anything right now. Will Friday’s rebound hold???

GMI09262015rev

 

 

Market is weaker than it looks–nifty 50 all over again?

@ 9:52 pm
GMI5/6
GMI-27/9
T210840%

There are some very curious statistics tied to the current market. At a time when the SPY, and DIA are near new all-time highs, the measures of the market internals are weak.   For example, why is the T2108 only at 40%?   This means that only 40% of NYSE stocks closed Friday above their 40 day average prices.   In June, T2108 was above 70%! The Wishing Wealth   10 Day Successful New High indicator showed only 25% of the stocks that hit a new 52 week high 10 days ago closed higher on Friday than they closed 10 days   earlier.   In contrast 68% of the stocks that hit a new low 10 days ago closed lower on Friday than 10 days earlier. And there were as many stocks hitting a new high on Friday as hit a new low.   That is very strange. Why should 200 stocks be hitting new lows? And on Friday, only 32% of all U.S. stocks and 24% of the Nasdaq 100 stocks rose! Could it be that the few hugely favored growth stocks are driving the indexes while the rest of the market is weakening. Years ago in the 1960’s and 1970’s such a phenomenon occurred with the “nifty 50”.   All one had to do was to invest in these   high growth “one decision” stocks and one’s investments would be assured. We all know how that investing strategy failed in the bear markets of the 60’s and in 1974. Perhaps AAPL, AMZN, GOOG and TSLA are among this cycle’s one decision stocks.   At some point they may join the majority of   stocks that have been silently weakening…

GMI09192014

 

Market technicals weakening

@ 9:01 pm

The excitement about Apple and Alibaba may be diverting attention from the general market’s weakening.   The Worden T2108 Indicator, the percentage of all NYSE stocks that closed above their simple 40 day average price has peaked again and started down.   Look at this weekly chart of the T2108 (click on to enlarge):

T210809122014T2108 has peaked recently at 65%, indicating the last rise was not even strong enough to get the T2108 to the more typical 70-80% level.

In addition, interest rates on bonds are moving up, as reflected in the decline in IEF, an ETF composed of 7-10 year U.S. treasury bonds.   Falling bond prices   = rising rates.   (Think of it this way.   Current interest rate or yield= Constant pay-out/changing current price.   As the denominator–the current price of a bond falls, the value of this fraction, or the yield, increases.) Note that IEF has closed below its 30 week average and declined 1.09% last week.   The 10 year treasury bond now yields 2.61%. When the Fed meets this week, it could attract attention to rising interest rates.   Rising rates hurt the stock market because people will begin to sell their relatively more risky investments in stocks and invest instead in safer, higher yielding government bonds. If retirees can earn 5% or more by keeping their money in FDIC protected CD’s or governments bonds, why should they gamble in the scary stock market roller-coaster? Most bear markets are precipitated by rising interest rates.

IEFweekly09122014

This daily chart of the SPY (S&P500 ETF) shows some ominous patterns.   Note the high red volume spikes during the market’s decline in August, followed by the relatively low volume rebound to new highs in September.   Now note the large down volume (red) spike on Friday.   A break of Friday’s low of 198.56 would likely result in a larger near term decline. Then what?

SPYdalily09122014

This technical weakness in the general market is also reflected in the GMI-2, now at 3 (of 8). It is noteworthy that the GMI is at 4 (of 6) and still on a Buy signal since August 14.   However, the two components of the GMI that are negative are very telling.   Fewer than 100 stocks reached a 52 week high on Friday and less than 50% (only 28%) of the stocks that hit a new high 10 days earlier closed Friday above their closing price from 10 days earlier.   Failed break-outs in strong stocks can be an early sign of a weakening market. And this is the wonderful, famously weak September/October period.

GMI09122014

So what to do?   I am mainly in cash in my trading accounts.   I remain fully invested in mutual funds in my university 401 (K) accounts, pending further signs of weakness. I remain cautious in the midst of the Apple and Alibaba euphoria.