General Market Index (GMI) table

Friday was the 18th day of the QQQ short term down-trend.   AAPL is a good metaphor for the tech market.   It is a broken stock, for now.   Most people have no rules for exiting a stock and just ride a winner up and back down. On October 8, with AAPL at 652, I wrote that the stock had closed below its critical 10 week average.   My sell rule with AAPL and most growth stocks is never to hold it when it closes below its 10 week average.   This rule has worked repeatedly for me with AAPL. When AAPL reclaims its 10 week average (now about 647) I will consider reentering this stock.   I never marry a stock.   As the perspicacious William O’Neil of IBD says, all stocks are bad unless they are going up.

With the GMI at 1 and in a sell signal since October 22, I remain in cash or short in my trading accounts. I remain fully invested in mutual funds in my university pension. I like to short the indexes with the triple (3X) inverse ETF’s, SQQQ (a bearish derivative of QQQ) and SPXS (S&P 500).   With 3X inverse ETF’s I buy in slowly and only add more to my position if the ETF rises. I never average down, which amounts to placing a larger bet after the first one was wrong. With 3X ETF’s which can decline fast, it is critical for me to have an exit plan for each position.

I remain short the QQQ in the leveraged ETF, SQQQ. With the GMI having flashed a Sell signal, I think it best to be short or in cash. It never pays for me to fight the general market’s trend. I am publishing this post Sunday night in case I lose power from the storm.

From some of the questions I am receiving from readers, I think it best to clarify my market timing strategy.   I have two types of money, my IRA and margin accounts in which I am free to time the market versus my university pension which is invested in mutual funds that I cannot trade in and out of at will.   The first group I call my speculative money and the second group is my more conservative money.

When my QQQ short term indicator turns down or the GMI goes below 3, I start to become more cautious with my speculative funds. I may raise sell stops, move to cash or go short.   At that time I do not move my conservative money out of mutual funds. Only after the GMI has been 1 or 2 for a while and the longer term moving averages curve down do I move my conservative money from mutual funds into money market funds.   I tend to exit and reinvest in stages, not all at once.   In declining markets, even after I move my conservative monies to a money market fund, I continue putting the new allocations into mutual funds so that the new money dollar cost averages into mutual funds.   (My money buys mores shares as the price declines.) I do that with mutual funds, unlike individual stocks,   because I am pretty confident the mutual funds will rise again.

Given that explanation, I am pretty much in cash in my margin account. In my IRA, I am also mainly in cash but am short the QQQ by the 3x bearish ETF, SQQQ. I remain fully invested in mutual funds in my university pension. The QQQ short term down-trend completed its 10th day on Friday.   If I had been nimble enough to buy SQQQ on the close of the first day of the new short term down-trend I would be up almost 12%.   That is difficult to do, however, because on the first day of a new trend one does not usually believe it will last. The GMI, now at 1 (of 6), flashed a buy signal last week but it may reverse to a sell by Monday’s close. Meanwhile, the QQQ short term down-trend shows no signs of weakening.   The Worden T2108 is at 52%, well in neutral territory.   It would take a serous decline to get T2108 below 10% and into oversold territory. And the daily 10.4 stochastic for the QQQ is at 30,   not in oversold territory. Both the SPY and QQQ are below their critical 10 week averages. One positive sign—the put/call ratio was a little over 1.0 on Friday.   Readings above 1.0 typically signal too much bearishness and an imminent bounce.