General Market Index (GMI) table

It has been a very difficult time for me to time the market.   The QQQ is   stronger than the SPY and DIA, which appear quite weak. But the 30 day moving average of the QQQ is flat, reflecting the cycling of the QQQ above and below it.   The short term trend of the QQQ is down, but the down-trend is still young (D-3) and could easily reverse up with a couple of strong days this week. The longer term trend of the QQQ remains up.     IBD still sees the market in a correction. This is a news driven market, responding to each change in the U.S. approach to Syria and the looming U.S. budget actions in Congress. And September is the worst month for the market. However, the Worden T2108 is at 23%, very close to the area where bottoms occur.   And the daily 10.4 stochastics is quite low, at 23.   It too, is at a level where bounces often occur. This is the time for me to be largely out of the market in my trading accounts.

I did run my new high and good earnings scan and came up with 6 stocks:   JAZZ, ATRO, NXPI, RNET, SPLK, BLOX, FB. I own a little of FB. If FB can close above its all-time high of 45, I will buy this green line break-out. I have noticed that an IPO (newly public stock)   that forms a multi-month (green line) top and then closes above it, is often a terrific buy signal.   Note this monthly chart of FB, with the green line top drawn in at its all-time high, reached in May, 2012. Note also the higher volume the past two months as FB climbed. To learn more about the usefulness of green line break-outs, view my free Worden Houston webinar from December, listed to the right of this post.

The weekly chart usually provides me with a better picture of the market’s main trend.   The weekly chart of the QQQ below clearly shows that this index has been in a Stage 2 up-trend.   Note that the index is well above its rising 30 week average (red line).   As long as the major indexes show this pattern, I remain 100% invested in my primary university pension accounts.   All of the major indexes I follow (QQQ, DIA and SPY) are in Stage 2 up-trends.

You can also see from this chart all of the recent   GMI buy/sell signals.   The GMI has been on a Buy since July 5.

The table below shows the components of the GMI and the GMI2. I have revised the GMI2 by adding two new indicators (7 and 8) that I want to monitor.   I use the GMI2   to keep me focused on this set of 8 very technical indicators and not for specific buy/sell signals.   Note that the GMI2=8, which means that all of its indicators are positive.

While the longer term up-trend is still very much in place, the short term trend is very risky.   On Friday I wrote that IBD sees the market in a correction.   My indicators have weakened too, with the GMI and GMI2 each at 3 (of 6). Now the Worden T2108 Indicator is very weak, at 38%. As this weekly chart shows, T2108 can bottom   at this level, but most often it falls further before a bottom is reached. Currently, 38% of all NYSE stocks closed above their simple 40 day average price.

The horizontal green line in the chart is at an extreme level (10%) where major bottoms have occurred.   The past three years, bottoms were very likely with T2108   under 20%.   The SPY and DIA index ETF’s look weaker than the QQQ.   This may largely reflect AAPL’s recent strength.   AAPL comprises a large part of the Nasdaq 100 index, measured by the QQQ. Two down days in a row in the QQQ early this week could trigger a GMI Sell signal.

The table at the bottom of this post shows the components of the GMI and GMI2.   The GMI would have to register zero for me to consider reducing the mutual fund holdings in my university pension.   I think this is unlikely.   However, I have eliminated almost all of the long positions in my trading accounts and bought some SQQQ last week. SQQQ is a 3X leveraged inverse ETF that shorts the QQQ.   I hedged this long position with some put options so that I have controlled the maximum loss I could take if I am wrong and the QQQ rises (and SQQQ falls) during the period from now through late September when my options expire. This daily chart of SQQQ is the reverse of the chart of the QQQ because SQQQ rises as QQQ declines. Thus, when the QQQ gapped down last Thursday, SQQQ gapped up, as shown in this daily chart.

Last week QQQ declined -1.3% and SQQQ rose +4%. The leveraged ETF’s can be dangerous because they are designed to rise and fall three times faster than the underlying index. That is why I hedged my long position with put options.   If QQQ falls a lot this week, you will recognize me by   the smile on my face.   🙂