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The GMI now registers 1 and flashed a Sell signal as of Friday’s close and my QQQ short term trend   has turned down.   Sometimes these changes in short term trend do not persist for more than a day or two, so I watch the market action very closely.     There are a lot of other technical indicators that make me very cautious this week.   The QQQ is sitting on its 10 week average.   A weekly close below it (about 98) would be a significant sign of a weakening in the   longer term trend. Failure of the bounce back above its daily 15.2 BB would be a serious sign of short term weakness. Both of these areas of support remain around 97.80-98.   I always look for a close below important support levels before I act.   I therefore restrict most of my daily trading to around 3:45 PM when I can estimate where things will close.   If I trade earlier in the day I am often whipsawed by the action. IBD still sees the up-trend under pressure, another sign for me to be cautious. There were 46 new highs and 214 new lows on Friday, the opposite of what I would expect from a healthy rising market. Again, the action was different for tech stocks versus other stocks:   63% of all stocks rose Friday compared with 91% of the Nasdaq 100 non-financial tech stocks. On the plus side, the T2108 is now at 25%, closer to where bounces occur and the put/call ratios have been above 1 for two days……..

Four Nasdaq 100 stocks have a 15.4 daily stochastic above 80, representing recent price strength. They are VRTX, SIAL, FB, EBAY. While a reading above 80 is often considered over bought, strong stocks can remain at this level for long periods. The signal I watch for is a decline in the stochastic below 80 after being above for a number of days.

I don’t often nail a break-out, but did you see what AGIO did on Friday after I had posted about it Thursday night?

I had no inside information. I just let the technical indicators and the news alert me that something was up. I learned from my stock buddy, Judy, who picks a lot of biotech winners, that one can learn a lot by reading news reports about drug companies’ promising clinical trials and scheduled presentations.   Being in the research field, I know that one schedules public presentations to highlight good research results. The astute reader might have read last week that AGIO has a big presentation coming up about their research on new drugs they are developing. And while it pains me to say it, Jim Cramer has been crowing about AGIO.

I run a TC2000 scan every night for bio-tech stocks that have advanced that day on unusually high volume. Then Judy goes to work researching them to uncover the gems. The unusual trading volume is a clue to finding bio-tech   gems like AGIO and even VRTX before they take off. The exciting money to be made is in the revolution occurring in drug development.

Now, I know that some of you are going to write me to request the stocks that came up in my bio-tech scan from last night. If I listed the stocks, I suspect some people would just buy them and not do the due diligence to uncover the probable winners. And this, even though the market up-trend is in doubt!   The scan did uncover 7 stocks (XXXX, XXXX, XXXX, XXXX, XXXX, XXXX, XXXX). You will just have to stay tuned to see if I write about them–after doing the necessary research. I maintain a growing watch list of all stocks that have recently been detected by this bio-tech scan. I monitor them over time for signs of strength and news….

This week is critical for telling me the market’s probable trend. So I am unlikely to buy anything right now. Will Friday’s rebound hold???

One of the best areas of support for a rising stock is its 10 week moving average. A lot of rocket stocks rest there and then resume their rise.   I created a new TC2000 scan that scans over 6,000 U.S. stocks for a strong rocket pattern and a bounce up off of the stock’s ten week average.   This scan gives me a small list of stocks to research further for possible purchase. This weekend’s scan yielded 10 stocks, shown on the right. Two of them, PANW and THRM, have a blue flag on the left column, indicating they have appeared on an IBD50 list or other IBD lists at some point.   I looked closely at THRM (which I own) and found that it appears to have broken out of a cup and handle pattern, a base that occurs in an up-trend. I have labeled this daily chart of THRM to illustrate the pattern’s primary components.   First, there must be a prior up-trend because this is a continuation pattern. Second, there must be a pattern that looks like a side view of a cup and handle.   Then there must be a break out above the top of the handle (blue solid line) on above average volume.   IBD made this pattern famous as one that can lead to a large gain.   As always, however, whether this break-out continues will depend on the general market’s trend. I typically sell quickly if a stock closes back below its 10 week average or if a break-out fails.

LEA is another cup and handle break-out in the strong auto parts group.

Meanwhile, the GMI remains at a strong 6 (of 6) and a Buy signal.

As you know, I like to focus on stocks breaking to new 52 week highs.   Strength usually begets strength. One of the things that my stock gurus (Livermore, Darvas, O’Neil) have noticed   is that when a lot of the the types of stocks they traded broke out and did not continue higher it   often provided advance warning of   the weakening of a market up-trend.   Failed break-outs in strong stocks are ominous. This idea was behind my creation of the GMI Successful 1o Day New High Indicator years ago   as one of the 6 GMI components that I track daily.   The GMI Successful 10 Day New High Indicator measures the percentage of stocks that hit a   52 week high 10 days ago that closed   higher  today than they closed 10 days ago.   It is very conservative because all it asks is for a stock to   be up at all over its price 10 days ago when it hit a new high. If at least 50% of all of the stocks that had hit a new high 10 days ago pass this criterion, then the indicator is positive and adds a point to the GMI. I post this indicator weekly in my GMI table, see below.

Over the past few weeks the GMI was at 5 (of 6) a lot of the days, mainly because the Successful 10 Day New High Indicator was negative.   I decided to look more closely at how this indicator behaved recently.     From May 22nd until July 3rd, the GMI Successful 10 Day New High Indicator was positive (at least 50% of stocks passed) for all but one of these 29 trading days, or 97% of the days.   The one day that the indicator was negative was because only 47% of stocks had passed. On July 7 and 8 the indicator was negative for 2 days in a row (44% and 42% passed). From July 7 until August 1, this indicator has been negative for 17   of the 19   trading days, or 89% of the days.   The last day this indicator had a positive reading was July 24 (56% of stocks passed). This indicator has been negative for the last 6 days.

Maybe my stock gurus were onto something!   However, keep in mind that it is folly to place one’s bets based on just how one indicator has performed, but the performance of this indicator is one of the reasons I was in cash or short last week and made money in my trading accounts. Another   warning sign was described in my post last Monday…….

So what is the Worden T2108 indicator showing?   This indicator measures the percentage of all NYSE stocks that have closed above their simple moving average of closes the past 40 days. I post its value every day on this blog and you can also get it through the TC2000 program or at their free website freestockcharts.com, by entering the symbol T2108.   To me, T2108 represents a pendulum of the market.   Markets tend to be extended up when the T2108 is above 80%. When it is below 10%, the market is usually close to the bottom of a steep decline.   This weekly chart of the T2108 has a red and green line marking these extremes. The market can reverse at any level, but I do know that if the T2108 should again decline to single digits it is time for me to grit my teeth while the market gossip is terrible and buy a market index ETF. (The market, but not   all individual stocks, has always recovered.) As this weekly chart   shows, the T2108 does not stay   below 10% for long. I drew a blue line at the   low of the T2108 last week. You can see that during the strong market advance since 2010, the T2108 has traded this low at least once each year.   So the current weakness does not necessarily signify the end of the   longer term up-trend….

IBD still sees the market   “up-trend under pressure.”   They have not considered the market to be in a correction.   In Monday’s edition, they note the fact that with the put/call ratio at 1.9 on Friday, it is at an extreme level where at least a bounce is likely. The GMI is still on its Buy signal from April 22nd.   The GMI measures a mix of short and longer term indicators of the market’s strength.   My QQQ short term trend count   has now changed to down, after 56 days of a QQQ short term up-trend. Note, however, that QQQ short term down-trends since 2006 have often been very short.   Since 2006, about one quarter of new short term down-tends have lasted less than 6 days. When a new short term down-trend begins, I often buy a little of the 3X bearish QQQ index ETF (SQQQ) and add to my position only if the down-trend lasts 5 or 6 days.

After 15   weeks above, the SPY has now closed below its critical 10 week average.   The QQQ remains above its 10 week average, reflecting greater relative strength in tech stocks. The GMI is now at 1 (of 6) and if it registers below 3 on Monday, it will flash a Sell signal. The large cap stocks, including banks look very weak and remind me of 2007. I remain largely in cash and a little short in my trading accounts.   My university pension is still 100% invested in mutual funds, for now.

On more thing.   Everyone asks about AAPL and many consider it the “safe” stock to own. But as one of my gurus says, “all stocks are bad unless they are going up.” Over the years, I have found AAPL fine to own as long as it remained above its rising 10 week average.   Its 10 week average is now 93.44.   A weekly close below that level would concern me.   Check out this weekly chart of AAPL, adjusted for its recent split.   The 10 week average is the blue dotted line. Click on chart to enlarge.