Where Have We Been

Where are we going? What a difference a couple of weeks make – the Q’s have rolled over and are on a strong decline while the small caps as represented by the IWM are rising every day. The Standard and Poors 500 as reflected in the SPY ETF is sliding sideways/up while the Dow Industrials represented by the DIA are in decline.



To be fair to the Dow the index has taken a couple of real shots lately – it hit a new all time record and that always requires rest, and at least two of its heavy components – PFE and GM have had some severe hits. And this doesn’t take into consideration that the tech portion as a whole is declining (see Q’s above). If the Q’s go down then the tech portion of the Dow goes down also.

But, as the following figure shows the Q’s appear to be a bit oversold at the moment and are looking like they are getting ready to turn around again. The jagged blue line is the non-averaged initial data point. (Not the raw data - that is the price itself).



I use multiple methods to keep track of these kinds of things since I’m really into timing. In fact that will be the subject of an even longer post someday I’m sure. But for now the method I use is so scientific that if I were to divulge it the world might come to an immediate --- never mind – what I do is look at the number of tech stocks below their 20-day simple moving average. I use a simple moving average in this case because it links to Bollinger’s amazing innovation – The Bands. I.E. it is what Excel’s standard deviation algorithm uses. Consequently since that is what everyone else looks at – in this instance why shouldn’t I?

Of course I should. Anyway - survey says - 26 days ago there were about 408 tech stocks below their 20-day moving average, 15 days ago there were 186 below, and 6 days ago there were 362. Currently there are 321. Are you starting to see a pattern emerging? I hope so. Especially since I told you once that the market cycle seems to be 20 days.

The converse of this (those above the 20-day moving average) is indeed that - the converse - small number to large number back to small number. I hope you understand that I’m not going to give you everything - you really need to go find these numbers on your own. Why? Because if you do it on your own you will believe them, they will make more sense to you, they will no longer be abstracts on a computer screen – whereas if you just get them from me you probably won’t.

(sermon on) - If you want to be successful at this business you have to accept the fact at the outset that there is no easy answer, no pre-packaged, pre-paid solution. You either do the work or you don't. If you do you might win, if you don't you won't win - it is truly that simple. (sermon off)

Now go do some work.