General Market Index (GMI) table

Rally continues as we head towards end of quarter window dressing; GMMA of AAPL

@ 7:00 am
GMI6/6
GMI-R10/10
T210875%

With options expiration behind us, the next major event that may cause the stronger growth stocks to go higher is the end of quarter mutual fund window dressing.   This event will be followed by release of quarterly earnings beginning in mid-October, followed by election results. All of these events might give the market a reason to rise, but we may have the typical October swoon somewhere in here.   But with   the GMI at 6 (of 6), I remain long in my IRA and 100% invested in my university pension. The QQQQ short term up-trend has now completed 9 days (U-9) and the QQQQ and SPY have now closed above their 10 week averages for three weeks. The Worden T2108 indicator is at 75%, which is high but not at an extreme over-bought level yet.   94% of the Nasdaq 100 stocks closed with their MACD above its signal line, a sign of short term strength. While the media pundits appear to be focusing on the idea that the S&P500 index is at the top of its recent trading range, it appears to me that tech stocks, as measured by the QQQQ have already broken out of their range. Tech stocks may lead the market higher, with so many new developments exciting people, such a cloud computing (CTXS, FFIV) and electric cars (PPO, SQM).   And the fact that such market leaders as PCLN, NFLX, CMG and AAPL continue to rise, bodes well for the market.

A major characteristic of rocket stocks in strong up-trends is that their short term averages are well above their rising longer term averages.   I think that the weekly GMMA provides an extraordinary way for identifying such stocks. AAPL provides a great example, below. Note that this weekly chart (click on to enlarge) has all of the shorter term averages (black) well above their rising longer term averages (red).   AAPL has consolidated the past 5 months but appears to be getting ready to break to all-time highs.   I own some AAPL, and if it breaks out, we could see a strong move up. This weekly GMMA chart shows the typical chart pattern of all rocket stocks that I buy.

QQQQ short term up-trend completes 4th day; GMMA suggests up-trend

@ 7:00 am
GMI6/6
GMI-R10/10
T210873%

The QQQQ up-trend continues and all of my indicators are now positive, with the GMI at 6 (of 6) and the GMI-R 10 (of 10).   The QQQQ and SPY indexes have now closed above their critical 10 week averages for the second straight week.   In addition, 95% of the Nasdaq 100 stocks closed with their MACD above its signal line, a sign of short term strength. The Worden T2108 indicator is now 73%, which is near overbought levels, but it can remain there for months.   With options expiration coming at the end of this week and the end of the 3rd quarter with mutual fund window dressing at the end of the month, we could see a nice rally. I know everyone fears the market in October, so we may get some turbulence in October before earnings come out. Still, I am accumulating stocks , given the strong GMI reading. In addition, the GMMA weekly chart of the QQQQ (click on chart to enlarge)   shows the averages holding their own. The shorter term weekly averages (in black) appear to be slowly rebounding off of the longer term averages (in red). Check out the column to the right to see the types of stocks I am trading.

This rally may have legs–IBD100 top ten out-shine again!

@ 7:00 am
GMI4/6
GMI-R8/10
T210875%

When everyone is so bearish and expecting the worst, it is time to expect the opposite.   Last week, the Investor’s Intelligence Survey of letter writers and advisers actually showed more bears than bulls (38% vs. 29%, percents rounded). This is an exceedingly rare phenomenon and should have told us all that the market would rally.   The survey is known as a contrary indicator, when there are many bears, the market goes up, presumably because many persons have already sold or are afraid because stocks have declined. When there are more than 50% bulls, it is time to start looking for a market decline.   I am posting more explanations these days because I have a new class of undergraduate students who are new to these concepts.

Meanwhile, the GMI is 4 (one more flat or up day could turn it to 5) and the more sensitive GMI-R is at 8.   It is now time for me to close out my few short positions and start going long.   There are just too many stocks breaking out.   There were 226 new 52 week highs on Friday in my universe of 4,000 stocks.   This is the most new highs since August 9 (229). While the QQQQ short term trend is still down, by my count, it may end at Friday’s day 16 (D-16) if we have a flat or up day in the index on Tuesday. Both the SPY and DIA have closed above their critical 10 week averages, the level at which I can begin to trade profitably on the long side. 76% of the NASDAQ 100 stocks closed with their MACD above its signal line, a sign of near term strength.   And the Worden T2108 indicator is now at 76%, getting close to overbought territory, but this indicator can remain around 80% for   months.   The T2108 measures the percentage of all NYSE stocks that closed above their 40 day simple moving averages.   It behaves like a pendulum of the market, swinging from overbought to oversold…….

As you know, I think the IBD approach to trading stock is quite effective.   My strategy is to select stocks from the IBD 100 list,     the top 100 stocks that meet the IBD   CAN SLIM criteria.   I then time the entry according to my own trading rules.   The IBD100 list is published every Monday (this week on Tuesday) and is also available on their website for persons who subscribe to the newspaper.   I am always amused how some traders dismiss the IBD100 list as containing stocks that have already passed their time.   They say that when a stock appears on this list, it is too late to buy them.   I think the evidence does not support this assertion.   IBD100 stocks often outperform most other stocks, except during a market decline when these growth stocks can fall more.

From time-to-time, I record the first 10 IBD100 stocks on the list and compare their performance to other stocks.   I did this for the top ten stocks on the list published on Monday, July 12.   The top ten stocks are the first ten listed in the IBD100 table published each Monday, and presumably the most promising. I tracked the change in these ten stocks from the preceding Friday’s close (7/9) through last Friday.   This table (click on to enlarge) shows the extraordinary out-performance of the ten IBD100 stocks. 90% (9/10) of these stocks rose in this period, with 70% rising 20% or more.   In comparison, only 17% of the NASDAQ 100 stocks and 11% of the S&P 500 stocks rose at least 20%.   This performance of the top ten IBD 100 stocks occurred while the QQQQ (NAASDAQ 100 index ETF) advanced   8%. While I do not necessarily concentrate my purchases among the top ten stocks on the IBD100 list, I do tend to concentrate on stocks that have appeared on the list or in the IBD New America daily columns. Almost every Friday,   the New America page lists an archive of the companies written about during the past few months.   I use this archive to update a watch list of promising stocks to follow. The first ten stocks on today’s IBD 100 list (published on Tuesday this week) are, in order:   NFLX, ARUN, BIDU, PCLN, JKS, PPO, MELI, TSL, VIT, FFIV.   I already own some of these. It will be interesting to see how these stocks perform over the next month.