General Market Index (GMI) table

QQQ’s 4wk average is now below its 10 week average, a sign of technical weakness. Failure to retake the 4 wk average (red dotted line) this week would suggest to me at least a decline to the 30 week average (red solid line at $337). The weak month of September is on tap and the GMI=1 and is Red. Time to be in cash, short (in SQQQ) or on the sidelines.

SQQQ is the the triple leveraged inverse of QQQ.

Another way to be short QQQ is to purchase a deep in the money put option on QQQ. If QQQ declines in September to the 30 week average, the put could rise a lot. For example the September, 29  380 QQQ put is trading at about 17.75 x100= $1775. Break even is 380-17.75= 362.25. Every point that QQQ is below 362.25 leads to a gain in the put of $100. If QQQ declines to 337 between now and the end of September, this put would trade at around $43 (380-337), yielding a gain of $25.25 (x 100) on an investment of $17.75 or +142%. The risk, of course, is that QQQ rises a lot and one could lose the entire cost of the put. When you buy an option you cannot lose more than you paid for it, so at least your loss is capped. Study how options work. I like Michael Sincere’s book, “Understanding Options.” I used to assign it to my honors course students.

My modified daily Guppy charts show that the RWB up-trends are over and with the major indexes closing below (dotted line) all 12 averages, it is possible we will see BWR down-trends (shorter term red lines declining below blue lines with a white space between them). The key in technical analysis is to be prepared to react once a trend is in. Friday was the 8th day of the current $QQQ short term down-trend. Being long right now is fighting the tide. It is so much easier to profit on the long side when the GMI is Green and the short term trends are up. Here is the daily modified Guppy chart of QQQ. All of the major indexes have similar patterns.  We are in the post earnings release period when the market tends to wander or decline. When the third quarter earnings are released in October, we might see a new up-trend. The post earnings decline sets up the next rise. But rather than predict, I prefer to wait and then react. I currently am in cash and SQQQ and own a little ACHR in my trading IRA.

ACHR is a leader in the new electric vertical takeoff and landing industry. Cathy Wood is buying it and the weekly chart just looks very promising to me. Note the volume the past 3 weeks as ACHR has resisted the market decline. I almost never buy cheap stocks but my stock buddy, Judy,  alerted me to this new industry a long time ago. I posted about it a while ago and I own a few shares as a bookmark. I want to see it hold its rising 4 wk average (red dotted line).

The GMI remains Red. Both QQQ and SPY have closed below their 10 week averages. But the longer term trend of QQQ remains up with the 10 week above the 30 week for the 25th consecutive week.

I am on the defense in my trading account. I hold some SQQQ, a 3X leveraged ETF which is designed to  rise three times as much as QQQ falls. It is the opposite of TQQQ which rises three times as much as  QQQ rises. I noted last post that in the past few years 40% of the new QQQ short term down-trends have ended within 5 days, so I must be nimble and act fast if the current down-trend should end this week.

It is disconcerting that the GMI has now turned Red. While QQQ remains in a Stage 2 up-trend, the GMI is telling me to be on the defensive. Breakouts will be more likely to fail. And with fewer than 100 stocks hitting new highs each day, betting on stocks at new highs to continue rising is a difficult game to play right now. The strength of new highs  is also measured by the first component in the GMI table. Only 34% of the stocks that hit a new high 10 days ago closed higher Friday than they closed 10 days earlier. QQQ has now closed below its 10 week average, a significant sign of technical weakness. The last time this occurred was last March near the beginning of the new up-trend. Unless QQQ should close below its 30 week average I remain invested in my long term conservative accounts.

The 10:30 week chart below tells the story. The gray line plots the weekly closes. The red line is the 30 week average and the dotted line is the 10 week average. As long as the 10 week average is rising above the rising 30 week average it is a strong Stage 2 up-trend.

If QQQ should close below its 30 week average, the sole remaining positive component of the GMI would turn negative and the GMI=0. I exit the market when that happens. Note that the two stochastics indicators in the GMI2 are <20. QQQ is very oversold short term and a bounce could occur soon. I do not follow the GMI2 total at all. The GMI2 table is there just to remind me to record its components after each market close. The GMI2 components are not all positively correlated with the market. Note that SPY and DIA remain above their 10 week averages. The tech stocks in QQQ are the source of its weakness.