GMI goes to the max: +6, CME, QSII, CMN

@ 11:15 pm

Well, it finally happened–the GMI (see archive: 4/26 post) hit +6! Gmii601 For the first time since we began to post the GMI, there were more than 100 successful 10 day new highs–stocks that hit a new 52 week high 10 days ago and closed higher today than 10 days ago when they hit their highs.   This result assures us that buying   stocks at new highs has become profitable and relatively common.   In contrast, there were only 10 “successful” 10 day new lows. (Shorting new lows is not the way to go now.) There were almost 13x more new highs today than new lows (194/15) in my universe of almost 4,000 actively traded stocks.   And 71% of the Nasdaq 100 stocks rose today, 54% of the S&P 500 stocks and 50% of the Dow 30 stocks.   The Nasdaq tech stocks continue to lead this market.

The GMI indicates this market has begun a solid up trend.   How long will it last?   No one knows.   The QQQQ index is in its 19th day of the up trend (U-19).   Many of you may think that you missed this market.   However, the last time the GMI indicators looked like this, the QQQQ up trend lasted about 92 trading days (August, 2004 through January, 2005.) Of course, the rise could end tomorrow–past performance does not predict future results…………………………………….

A reader alerted me this week to the growing strength in CME, one of the big winners of 2004. Cme(I meant to mention CME last night–sorry.)   Often times a stock doubles or triples and then when it looks like it has topped out I forget about it only to see it surge back to new peaks.   CME quadrupled and then hibernated for 4 months and then started up again in the past month (see monthly chart).   So I decided to make a pilot buy of a very small number   (30) of shares on Tuesday morning at the open at 212.20.   I then placed a sell stop in below the prior day’s low at 209 and a buy stop in above the day’s high around 218, thinking it might rise to that in a few days.   If it fell, I was only risking 3 points. Well, CME broke through today and I automatically bought more around 219 and the stock closed at a new all time high of 232 today on very high volume.    This is the type of action one gets in rockets in a strong market. Note that this trade all began with a modest 30 share pilot buy, so that I had minimal risk and only added more when the stock moved up nicely…

Now for the ugly dogs of the day. In spite of a powerful market, sudden declines happen.   We must protect ourselves from these situations by using stops, by making pilot buys and gradually accumulating   shares, and by not   concentrating more than 20% of our funds in one position.

One Foolish writer said   that people were offered QSII   today at a discount. I say that owners of the stock were decimated by the stock’s sudden 15%+ drop today–no welcome bargain to them.Qsii Here is a stock that was rated #1 in the IBD 100 list 2 weeks ago and rated #2 last week with an A+ composite rating, and EPS rating of 99 and an RS of 98, that just fell apart on huge daily volume without any news. I was stopped out of this stock today at about 55.95.   I had placed my stop below the low of the day on May 18 when the stock went to a new high on considerable volume.   I figured if the stock fell below that day’s low it was a bad sign.   So, I was automatically sold out at 55.95 and the stock closed at 50.91 today after hitting a low of 49.80.   I could find no advance technical warning of this decline.   So, even stocks with great IBD ratings can suddenly drop–a perfect reason why one must slowly accumulate a position and not concentrate most of one’s funds in one stock.

A die hard O’Neil follower would say that if the stock had been bought at the proper pivot point, around 52, a trader would have had a minimal loss today.   Note that the stock did stop at its 50 day average today. One way to play this stock, if I still held it, would be to place a sell stop below today’s low, around 49.70.   At the end of April, QSII had a similar large decline but bounced back the next day.   After a sudden one day decline, it often works to place the sell stop right below that day’s low.   We’ll see if it works for QSII tomorrow…

Another train wreck today that was brought to my attention by a reader, was CMN. (Click on chart to enlarge.)Cmn Here was another stock with high IBD ratings (Composite of 98, EPS-97, RS-96), that fell 41% today. I did not own it, but I like to think I might have seen the technical warning signs.   First, there was that big decline on huge volume in early April.   Second, notice the low volume, consistently below the 50 day average (blue horizontal line) during the subsequent rebound, until today. Finally, note that the Money Stream value (red horizontal line) never regained the level it reached prior to the April decline.   MoneyStream is a proprietary indicator in the TC2005 software that is a modified on balance volume indicator.   It basically is a cumulative total of the volume on up days minus the volume on down days.   There is no way a stop loss order would have prevented a huge loss today, given that the stock opened far below yesterday’s close.   The only people who got out with less of a loss are those who sold the stock in extended hours trading, Wednesday night.   On Thursday, after it was too late, the reason for Cantel’s decline was announced. Looks like someone may have known something about this contract termination in early April. (Don’t you wish you could track down those sellers and question them, under oath, about their fortuitous early sales.)

Googlemania, GMI +5 and growing stronger

@ 11:01 pm

To my visitors: I am only one trader, not a guru, and not a financial advisor.  I am presenting my own opinions and my own experiences and people are welcome to decide for themselves what, if anything, on this site is of value to them.  Please refer to the additional comments, highlighted in red, at the end of this post.

Everywhere I turn I find articles on GOOG. Cramer was on CNBC today and on his MadMoney show this evening, taking credit for being an early believer in this stock.  (I have to admit I became interested in GOOG after listening to Cramer’s reasoning about projected earnings and suitable PE levels.) Goog601  This is all fine, but when the bandwagon gets so crowded I become a little skeptical. And when the chart starts to go into a vertical rise on the highest daily volume in 4 months, I need to take stock (pun intended).  The stock is very far from its 50 day average.  I think GOOG is an excellent long term play.  And I suspect that there will be serious buying at the end of this month (quarter too).  Cramer mentioned this possibility today, too–he must have read my post yesterday about mutual fund end-of-quarter window dressing.  So, even if we get this end of the month surge in GOOG, we still could get some weakness before then.  I do not know what will happen, nobody does.  Therefore I intend to hold my shares and not make new purchases until the stock reacts a little or forms a plateau.  As you know, I began SLOWLY accumulating GOOG in April after that delicious gap up.  Throughout the rise, I have my stops in place just in case something ugly happens. So, for now, I will just watch the action from the sidelines…………………………….

The GMI remains at +5, but is getting close to a +6.  Gmi601 This is because there were 243 new 52 week highs in my universe of 4,000 stocks.  That means we will probably  get 100 successful 10 day highs soon. The Nasdaq 100 stocks (measured by the QQQQ) is now in the 18th day of the uptrend (U-18).  There were more than 10 times as many new highs today than new lows in my universe of stocks.  In addition, 81% of the Nasdaq 100 stocks rose, 80% of the S&P 500 stocks and 77% of the Dow 30 stocks.  There were 54 successful 10 day new highs and only 10 successful new lows.  (See my post on 4/26 in the archives for components of the GMI.)  The train has left the station.  The question remains as to where and when the train will stop and/or reverse. Right now, I remain comfortably long stocks with my stops in place just below suitable support levels.  I hope all of you are profiting from this uptrend and are not resisting it.

Send me your feedback at silentknight@wishingwealthblog.com

Please remember that the stock market is a risky place, especially now.  I am not providing recommendations for you to follow.  My goal is to share tools and methods that I have used over the past 40 years of trading, so that you may learn from them and adapt them to your trading style and needs.  While I do my best, I do not guarantee the accuracy of any statistics computed or any resources linked to my blog.  Please consult with your financial adviser and a mental health practitioner before you enter the stock market,  and please do not take unaffordable risks in the current market environment.  See the About section for more statements designed to protect you (and me) as you navigate this market. Past performance does not guarantee future results, but I would rather learn from a former winner than a loser.

A mixed day, trend-followers, GMI: +5

@ 10:00 pm

To my visitors: I am only one trader, not a guru, and not a financial advisor.  I am presenting my own opinions and my own experiences and people are welcome to decide for themselves what, if anything, on this site is of value to them.  Please refer to the additional comments, highlighted in red, at the end of this post.

Today was a mixed day, and the GMI remains at +5, as we complete day 17 of this QQQQ uptrend (U-17).  Gmi531 There were 35 successful 10 day new highs and only 11 "successful" new lows.  More than 70% of the 49 stocks that hit new highs 10 days ago, closed higher today than they closed 10 days ago.  There were 155 new 52 week highs in my universe of nearly 4,000 stocks, and only 23 new lows.  What is somewhat troubling is that only 36% of the Nasdaq 100 stocks rose today, 32% of the S&P 500 stocks and only 7% (2) of the 30 Dow stocks.  So, while there were a large number of new highs, most stocks did not rise today.

Still, some of the stocks I have been discussing hit new highs today, including GOOG, BOOM, NSI, MW, PNRA  (I own some of these).  A sign of a bull market top is weakness in the leaders.  We will therefore continue to monitor these stocks for any signs of weakness–clearly they are still very strong.  Moreover, given the strength of the GMI, I am not in a defensive mode yet.  It will be interesting to see whether the market can bounce back tomorrow……………………………………..

In my prior post, I said I was an orthodox agnostic when it came to believing in a rationale for market moves.  Since then I read an interview in Technical Analysis of Stocks & Commodities, June edition, with Michael W. Covel.  Mr. Covel recently published the book, Trend Following: How Great Traders Make Millions in Up or Down Markets. In the interview, Covel says, "A trend-follower doesn’t need to know the "why" of market behavior during trends.  They just need to know the price.  A lot of trend-followers don’t even want the name of the markets.  They just want the price data and they can tell you whether they can trade it by the price data alone.  I think this kind of mentality is odd to most people."(p. 55)

I guess Darvas, Livermore, O’Neil and a host of other gurus would be called trend-followers today.  I don’t feel so weird about my orthodox agnostic comment anymore.  I am in good company.  However, Covel is describing the most extreme case of trend following, someone who needs no fundamental information about a stock other than its price and volume–an approach we call in my field, blind empiricism.  Most of the successful gurus I admire wanted to trade with the trend, but also factored in other information about the company’s profitability and industry.  By the way, I was disappointed with Covel’s book.  It merely makes the case that specific trend-followers have been successful, without providing any details of how these people achieved their success. Borrow it from your local library.

Send me your feedback at silentknight@wishingwealthblog.com

Please remember that the stock market is a risky place, especially now.  I am not providing recommendations for you to follow.  My goal is to share tools and methods that I have used over the past 40 years of trading, so that you may learn from them and adapt them to your trading style and needs.  While I do my best, I do not guarantee the accuracy of any statistics computed or any resources linked to my blog.  Please consult with your financial adviser and a mental health practitioner before you enter the stock market,  and please do not take unaffordable risks in the current market environment.  See the About section for more statements designed to protect you (and me) as you navigate this market. Past performance does not guarantee future results, but I would rather learn from a former winner than a loser.