General Market Index (GMI) table

Long term Dow 30 chart ominous; Happy to be on the sidelines

@ 7:00 am
GMI0/6
GMI-R2/10
T210818%

This monthly chart of the Dow 30 really scares me.   On a long term basis, it looks like we have merely retraced a part of the decline from the 2007 market high.   In fact, the market rally has stopped at about the peak of the market in 1999-2000.   The Dow has now started down and the 30 month moving average (red line) is headed down.   This chart almost looks like a giant head and shoulders top!   What if the rise off of the 2008 bottom is over and we will now head back down to around Dow 7,000 or below?   Compare the up-trends in the 90’s and in 2004-2007 when the Dow was above its rising moving average, to the pattern the past year with the Dow below its declining moving average.   This chart, which is almost identical to that of the S&P500 index, makes me challenge my assumptions about this market.   I am watching the trend carefully and am contemplating transferring my university pension money out of mutual funds and into money market funds….

The GMI is back to zero and the more sensitive GMI-R is at 2.   The QQQQ completed its 18th day of its short term down-trend.   The QQQQ and SPY have closed below their 10 week averages for four weeks.   I rarely can make money owning growth stocks when these indexes are below their 10 week averages.   The Worden T2108 Indicator is at 18%, still near oversold territory from which the market can rally.   For me though, the odds are against my owning stocks.   I own a little GLD and remain largely in cash.   If you can’t get out of the market and sit safely on the sidelines in a down-trend, you may want to question whether you are in the market to make money or to satisfy an addiction to trading.   If you can,   pick up a copy of the old classic, The Money Game, by Adam Smith (a pseudonym), and read this perspicacious discussion of the diverse psychological motivations that bring people to the stock market.   Many persons are not there to make money.   Are you?

Submarine scan worked–PWRD dives; Market treacherous

@ 7:00 am
GMI0/6
GMI-R0/10
T210812%

On May 3rd, I posted the results of my submarine scan, designed to detect stocks in a significant down-trend. The scan was run on the close of 4/29 and this table shows the performance of the nine stocks since then.   TC2007 lets me run a watchlist tracking report that shows the changes of each stock in a watchlist as of the date the stock was added to the list. One can see from this list that all 9 stocks have declined, not an unexpected result, given the market’s decline since then.   Since the close on 4/29, the QQQQ has declined almost 11% and the S&P500 index (SPY), almost 10%.   Note, however, that 5 of the 9 submarine stocks ( 56%) have declined by 15% or more.     In comparison, only 17%of the Nasdaq 100 stocks and 19% of the S&P500 component stocks have declined at least 15% during the same period.   Thus, my submarine scan detected stocks that were more likely to have taken big dives   than would be expected in the components of the Nasdaq100 and S&P500 Indexes.

Furthermore, I wrote in that post on May 2nd, that the charts of 2 Chinese online gaming stocks (NTES and PWRD) looked quite weak and posted a chart of PWRD (click and scroll to post from May 3). Here is the current daily chart of PWRD.   I noted with an arrow the bar on 4/30 which I was looking at when I wrote the post on 5/3.   Note the tremendous gap down that occurred in PWRD on 5/17.   Both NTES and PWRD are down more than 15% since I wrote about them, but PWRD is down more than 25%. It clearly is possible to scan the market for a set of stocks that are more   likely to decline, if the general market weakens……..

As to the general market, all of my indicators are negative.   So the GMI and GMI-R are each zero.   Friday was the 13th day of the current QQQQ short term down-trend (D-13).   The QQQQ and SPY closed below their 10 week averages for three weeks.   Only 2 of the Nasdaq 100 stocks closed with their MACD above its signal line, a sign of short term weakness.   The Worden T2108 Indicator, at 12%,   is still in an oversold area where bottoms or bounces typically occur.  The strength of the bounce that began on Friday will determine whether we are in a brief correction or at the beginning of a major new decline.   I am watching the indexes very carefully, and remain mainly in cash in my trading IRA.   If it looks like a major decline is likely, I will move to a money market fund in my university pension. This is a very treacherous market and not the time to be a hero.   The major markets   look very weak to me.

China in Free-fall, buying FXP; QQQQ completes 8th day of short term down-trend

@ 7:00 am
GMI1/6
GMI-R1/10
T210828%

Every once in a while the charts become so bad that they scare me.   I check a number of market indicators every night and was concerned by the current steep decline in the Shanghai Composite Index.   The weekly   chart (and monthly chart, not shown) are very ominous.   After a major decline (almost 70%) from 2007 to 2008, this index began a rebound in which it almost doubled from the bottom, until August of 2009. Since its August top, the Index declined and made another failed attempt to rise, topping out in November, 2009.   It then declined again and made one last feeble attempt to rise, topping out in April 2010.   When that rally failed, the Index broke down below prior support and now appears to be in a free-fall.   Where it will stop is any person’s guess, but we do know that China’s government is trying to cool the economy.   In the U.S., when the Fed tries to cool the economy from a boom, it usually ends with disastrous consequences for the market.   While I think a crashing China would have disastrous consequences for the rest of the world that has been banking (pun intended) on China to help the world recover from its recession, I can still look for a way to profit from   the decline in this Index, if it continues.   I have therefore purchased a little of FXP, the Ultra Short ETF that tracks the daily performance of the FTSE/Xinhua China 25 Index. FXP is designed to rise twice as much as this Index falls. I know these ultra ETF’s can be very volatile and I therefore bought a few shares with the idea of adding to my position if the decline continues.   What caught my attention was the largest weekly volume of trading in FXP the last few weeks as it started to rise. So, the big boys are apparently buying FXP.   The volume of shares traded in FXP the past 5 weeks is the highest that it has ever been since this ETF started trading in 2008.   My students should see immediately from this weekly chart that this ETF may be completing a Stage 1 base and beginning a new Stage 2 up-trend.   It is still too early to know if this is happening, but I thought it was worth taking a small position in FXP, given the recent up volume (green bars). The other ominous situation I am tracking is the relationship between the China and the U.S. markets.   Both the China and U.S. markets declined steeply in 2008 and rebounded, but China’s market bottomed 5 months before the U.S. market. Now that China’s rebound appears to be over, could the U.S. market’s rebound also end   soon?

To answer that question, I rely on my GMI and GMI-R, which are both registering one point. We are in the middle of a short term down-trend in the QQQQ and I am in cash, fully hedged, or short in my trading IRA.   The one remaining positive indicator is my longer term, Weekly QQQQ Index.   If that should turn negative, making the GMI and GMI-R register zero, I will consider moving my university pension funds from mutual funds to money market funds. I typically, however, like to see a Stage 4 down-trend begin before I do that. Meanwhile, we are in the 8th day of the current short term QQQQ decline (D-8).   Since the inception of this decline (D-1), the QQQQ has fallen -2.6%, and 90% of the Nasdaq100 component stocks and 81% of the S&P500 stocks have declined.   So much for trying to find the few winners to go long with.   My students know that to have an edge in trading one must trade with the market’s trend, not against it. The Worden T2108 Indicator is now at 28%, out of oversold territory, having rebounded from 15% last Friday.   With options expiring this Friday, things could get very volatile.   I am content to be mainly on the sidelines with a bias towards the short side…….