The QQQQ is in the 41st day of its up-trend and the leaders are strong. There were 455 new 52 week highs in my universe of 4,000 stocks. The QQQQ and SPY have closed above their 10 week averages for ten straight weeks. Many stocks are strong and have broken out. Still, gloom and skepticism are abundant and many pundits do not embrace the current up-trend. This market is climbing the proverbial "wall of worry." Leaders like RIMM, AAPL and GOOG are rising. Many stocks are breaking out, especially energy stocks. One stock I noticed the other day is FTO, which rose ten fold between 2004-2006 and then consolidated for 10 months. FTO recently broke out to an all-time new high. (See monthly chart below.) I bought the stock and have written covered calls on it which are due a week from Friday. I am currently 100% long on stocks in my IRA. I have learned yet again the value of flying on instrument and not by my emotions. Each time the market appeared to be weakening, it has held the support levels I monitor.
I have found that posting daily takes too much time and is not really necessarily. I have a full-time job and have developed a trading strategy that aims for gains over weeks, not days. It is not necessary and is, perhaps, detrimental to take the pulse of the market too often. I have therefore decided to post less often and to post at a minimum whenever the GMI changes. A doctor can gain an idea of my health by checking my blood pressure or lipids, etc. on an infrequent basis. Imagine how many wrong decisions would be made if these measurements were taken minute by minute of even daily. For me, the larger trend of the market is what I need to know to trade successfully.
For example, the GMI has been 6 since April 3. During that period the Nasdaq 100 stock index has risen 6.5% and 69% of its component stocks have advanced; 45% are up 5% or more. By focusing on the GMI, I could have had a 69% chance of picking a winning stock–that is the odds I get from trading individual stocks when following the longer market trend. Roughly 70-80% of stocks follow the relevant market averages. The QLD, the Proshares Ultra QQQQ ETF that attempts to double the performance of the QQQQ, advanced 12.3% in this same period. By trading the QLD, I do not have to hope that I have picked a winning individual stock–during this period the QLD outperformed 76% of the Nasdaq 100 stocks. Thus, only 24 of the Nasdaq 100 stocks did better. I like the odds of trading the QLD, rather than individual stocks, in an up-trending market, as indicated by the GMI….
Because I am a boomer and have acquired a sizable trading capital in my IRA, I have become more conservative lately in trading growth stocks. I am now reluctant to pile into a break out stock and assume the risk of a sudden down-turn. I have therefore been training myself in the relatively conservative strategy of selling one month covered calls on stocks I own that are in an up-trend. Using this method I write a few calls in many different up-trending stocks so that I limit my risk. Applying this method in a rising market, I have been able to achieve returns of 2-4% each month–five to ten times the .4% monthly returns I get by leaving my money in a money market fund. On option expiration day most of my stocks are called away and I get to reassess the market trend and select individual stocks for new writes. If it is true that 70-90% of all options expire worthless each month, why not behave like the casino and take in the option buyers (bettors) money into our IRA’s? Like any trading strategy, this not the Holy Grail, and requires study and on the job training. Leave a comment if you want me to post more about this best kept secret.
See my prior post for my important disclaimers.
The GMI rose to 2+ and it looks like the market is on the verge of a turn. 53% (9/17) of the stocks that hit a new high 10 days ago closed higher yesterday than they did 10 days earlier, suggesting that stocks hitting new highs are holding their own. Since this stat is based on only 17 stocks, I hesitated to call this indicator positive. There were 113 new highs in my universe of 4,000 stocks, the most since February 26. The GMI-S has moved up to 25. My IBD mutual fund index also is very close to turning positive. We maybe getting the end of first quarter/new earnings release bounce I wrote about yesterday. While the QQQQ remains in a down-trend, I am buying selective growth stocks, rather than shorting the index. I am also writing covered calls for income in my IRA.