IBD

GMI back to +5; Chart of GMI performance; BTU

@ 11:11 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.

The GMI bounced back today to +5 with the QQQQ weekly index turning positive again.Gmi613 There were 189 new 52 week highs in my universe of 4,000 stocks and only 24 new lows.  All three market indexes were in harmony with 60-67% of the stocks in the Nasdaq 100, the S&P 500 and the Dow 30 rising today. Today is day 26 in the up trend (U-26).

I thought it might be informative to show you how the GMI has performed since I began posting it in April (click on graph to enlarge). Gmiperformance2 During the last part of April, as the QQQQ was bottoming, the GMI was steady at zero.  On May 4, the GMI turned 1 and varied between 1 and 3 over the next few days as the QQQQ strengthened.  Since May 18, the GMI has consistently registered 3 or above. …………………………..

I bought some BTU today.  It came up in a market scan I did over the weekend that focused on stocks hitting new highs that day.  Btu On Friday, BTU gapped up and closed at a new high of 52.71.  I placed a stop order Sunday night to buy the stock if it traded above Friday’s intraday high price of 52.91.  After the buy stop was executed around 53.10 on Monday, I placed a sell stop in just below Friday’s low around 49.90.  I reasoned that if the stock was weak enough to close Friday’s gap, I wanted to be sold out.  BTU closed at 54.77 today up $2.06.

Why did I buy BTU?  The metals and mining industry is strong and has had a number of stocks hitting highs.  The stock had formed a long base since topping out in March.  The stock seems to follow its 10 day average (dotted line).  Look at how the stock consistently remained above its 10 day average last February and March during its big rise, and recently.  The rise on Friday occurred in above average volume (above the horizontal blue line indicating the 50 day moving average of volume).  The MoneyStream line (red line) was rising strongly.  The IBD check up gave BTU a grade of "A." And my TC2005 program showed the annual earnings up 162% with a PE of only 34. Yahoo finance shows that earnings estimates over the next few quarters are for triple digit increases.  So, putting this all together I was willing to place a bet, limit my potential loss and take my chances.  Of course, the only reason I am willing to make purchases is the fact that the GMI indicates a market in a confirmed up trend.

Send your feedback to 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.

GMI back to +4; Performance of my picks

@ 2:42 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.

The GMI lost another point today, to +4.Gmi610 The Weekly QQQQ Index dropped below positive and is too close to call.  If I strictly follow my rules, then it is a negative.  This does not mean that the up trend is over, as long as the QQQQ Daily Index remains positive. We are in the 25th day of the up trend and some prior up trends have gone into triple digits before the index turns negative.  The 10 day successful new high index is barely negative, at 90, and given that we had well over 100 daily new highs every day in the past 2 weeks, this index has a good chance of turning positive again. (It measures the number of stocks hitting new highs 10 days ago that closed today higher than their close on that day, see archive post–4/26).  New highs in my universe of 4,000 stocks totaled 150, with only 25 new lows.  In spite of this strength, only 17% of the Nasdaq 100 stocks advanced on Friday (the least since June 5), 39% of the S&P 500 stocks and 43% of the Dow 30.  The QQQQ remains below its 10 day average, and I will start becoming defensive with a CLOSE below 37.  On the other hand, a bounce at 37 would cause me to get bullish.

A lot of my stocks are consolidating or are still advancing.  I just relax and let my sell stop orders and put options (see yesterday’s post about using puts for insurance) watch the market for me.  If I can hang on until the last week of June and the calendar quarter, I think they will close strong. I do expect some volatility through option expiration this week.

I have been writing this blog since mid April. I thought it would be informative for me to examine the performance of the stocks that I have been highlighting during this rally. Performance610_1   I computed two analyses.  The first (Part A in the table–click on it to enlarge.) contains all stocks that I wrote about positively, with an accompanying chart. The second shows the performance of all of the stocks I published in a table containing the results of a scan of the market for potential rockets I did on May 18.  (While, I checked my list and the computations, please let me know if you detect any errors or omissions.)

I was surprised by the results.  All of the 8 stocks that I had posted as being bullish and for which I posted a chart (Part A) rose in the period since the original post and  Friday’s close. GOOG and NDAQ did the best, climbing more than 20%.  PROP and PTRY rose the least, 2-3%.  Since the time  (5/6-5/10) when I posted NDAQ, NSI and GOOG, the QQQQ rose between 4-5%, so these 3 stocks rose about 5  times more than the general Nasdaq tech stocks. The last 3 stocks listed (ORCT, MW, CME) actually rose during a period when the Nasdaq index-QQQQ, declined.

Part B shows the performance of the 15 stocks that survived a scan for rockets that I posted on 5/18.  During this period, the QQQQ rose just 1%, but 13 of these stocks rose, 6 by more than 10%.  If you want to know more about how I find rockets, check out my strategy posts in the archive on 4/23 and 4/30, and the scan on 5/18.

I am not showing you these results to receive your accolades or to recommend these stocks.  I am trying to show you that someone with no accounting background and with limited understanding of the intricacies of the economy can use technical analysis along with tools like IBD, TC2005 and free internet research tools to select possible winners.  Most important, one can do this while working full-time and without the need to be glued to a monitor all day.  But you must do your homework first.  In addition to reading this blog, you should check out www.thekirkreport.com daily to keep up on important business news and market topics.  You  should also read the writings of the successful stock market traders; most of the gurus who have really educated me are described in John Boik’s new book.  In addition, you should read Stan Weinstein’s book to learn some simple technical charting techniques. (All I use is the very simplest tools.)………………………………………..

I am becoming accustomed to writing this blog–my first post was on 4/17.  I try to post by midnight during trading days.  During the weekend I have more time to reflect on the market and to write.  I read all of your emails and greatly appreciate them, but I often must wait until the weekend to reply. (If I ever fail to respond, please remind me.) Writing this blog has actually helped my trading performance.  It has helped me to systematize my rules and to have the discipline to follow them–thank you.  My largest losses have occurred when I have deviated from my rules.  Keep sending me your questions and comments.   Send your feedback to 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.

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.)