GMI: +4; Massive deterioration; More new lows than highs; Small caps falter

The GMI fell to +4 as my market indicators seriously weakened.  There were 49 yearly highs and 65 new lows in my universe of 4,000 stocks on Tuesday.  When more stocks hit new lows than highs, it is often a very ominous sign for the market.  Gmi0307 Less than one half of the stocks that hit a new high 10 days ago closed higher on Tuesday than they did 10 days earlier. Only 4% of the stocks that doubled in the past year hit a new high on Tuesday.  Only 37% of stocks remain in a short term up trend, and only 18% are in a sustained rise.  Only 54% of stocks closed above their 10 week averages.  The GMI-S fell to 50, with the IJR index(small cap) indicators showing the largest weakness.  Only one of the four short term indicators of the IJR remain positive. Only one half of the indicators for the SPY, DIA and QQQQ remain positive.  Tuesday was day one (D-1) of the new QQQQ down trend.    The continued weakness in the two market leaders (GOOG and AAPL) has been a good predictor of market weakness.  I am becoming defensive and raising cash and/or going short, focusing on the housing and interest rate related stocks….

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GMI:+6; QQQQ weakens

The GMI remains at +6 but the Daily QQQQ Index is close to turning negative again.  Gmi0306 There were only 170 new highs in my universe of 4,000 stocks and 54 new lows.  The last time we had more new lows was on December 21.  Only 44% of stocks remain in a short term up trend.  Only 20% of the Nasda 100 stocks rose on Monday, along with 22% of the S&P 500 stocks and 27% of the Dow 30 stocks.  This was the third day in the QQQQ short term up trend (U-3).  One more down day will change the trend to down………….

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GMI: +6; Short housing?

The GMI closed the week at +6, and the QQQQ showed signs of strength.  Gmi0303 There were 274 new 52 week highs on Friday and only 14 new lows in my universe of 4,000 stocks.  61% of the 327 stocks that hit a new high 10 days ago closed higher on Friday than they did 10 days earlier.  It is a sign of strength when many stocks hit a new high and retain a gain 2 weeks later.  51% of stocks are in a short term up trend, 30% are in a strong rise. Almost two thirds of stocks closed above their 10 week averages, indicating a longer term up trend.  Almost one third (32%) of stocks closed within 5% of their 52 week highs.

The WPM indicates that the Nasdaq 100 stocks did a little better than the other stocks last week.  Wpm0303 While all five indexes closed above their 30 day and 30 week averages, only the QQQQ showed an increase in the percentage of its component stocks that closed above these two  averages. The QQQQ may be playing catch up with the rest of the market.

The long term bonds weakened substantially last week, suggesting that Greenspan’s conundrum may have been resolved.  Tlt0303 This chart of the 20+ year Treasury Index shows an ominous curving down of the 30 week average.  In addition, the ten week average is below the 30 week for the first time since September, 2004.  The recent peak in this index is very close to the prior peak in June, 2003–a double top? The shorter term bond indexes have similar ominous charts.  Just when everyone agrees that the Fed has failed to drive long term rates up, will the Fed suddenly prevail?

Housing stocks continue to decline, and their demise may be just the first of the consequences of higher interest rates. Is it too late to short housing–or is this the beginning of a decline? Housing0303 The chart of the residential housing index looks to me as if it is completing the right shoulder of a head and shoulders top.  A close below 1705 would indicate  a major top and a decline to come. If I were a betting man, I would come down on the bearish side of this one.  If housing goes, what will happen to the rest of the economy?  We need to watch our indicators and charts very closely during this critical ninth inning of the economic recovery….

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