Wednesday, May 17, 2006

Stocks Continue Correction On HUGE Volume; Seven Down Days In A Row For The Nasdaq.

It was pure carnage out there, today. Nothing escaped alive, or so it seemed, as stocks fell the whole day and did so on extremely heavy volume. The Nasdaq fell 1.5%, the SP 500 fell 1.7%, and the DJIA led the way on the downside with a 1.9% drop.

Volume exploded across the board, nailing every index with a distribution day. As IBD pointed out this makes it seven in last four weeks for the Nasdaq and five in the last four weeks for the NYSE. Breadth was extremely negative, once again, with decliners over advancers by a 4-to-1 margin on the NYSE and 3-to-1 on the Nasdaq.

So another down day on terrible breadth with no news to go along with it. That has been the theme since Thursday. There really hasn't been a real hardcore reason the media has given us for this fall. Do you want to hear the reason we are falling? Because big mutual, pension, endowment, and educational fund managers are dumping stocks across the board! There, that is it. If you need to know anything more than that you are wasting your time if you want to make money. Just knowing the facts IS good enough. The facts are the big boys are selling. Period.

The Nasdaq is now below the 200 dma and is officially in a short-term, sub-intermediate term, and intermediate term downtrend. This tells us that the next rally is probably not going to be one that starts a new long sustained rally. There is plenty of overhead resistance and after a three and a half year bull market it is time for a downtrend to start.

Unfortunately, the perma-bears kept most traders on the sidelines until it was too late. Thanks to the schmucks like Barry Ritholtz you missed out on some HUGE winners. At the same time, though, just when you realized how much of an intellectually brilliant moron he was, the market had already ran without you. So for you missing out on the bull market and then buying stocks at the top, you have once again no one else to blame but yourselves and the media.

The media does its best to talk down great economies like the one we have had since March 2003. Especially when a Republican is in office. The left-wing biased media just hates those guys and no matter how awesome the economy is they will always bad talk it. So when you finally realized that the economy was pretty good and that the media was wrong, you were too late.

That is history. It keeps repeating itself. It did this 120 years ago and if we are still around it will do it 120 years from now.

I believe a bounce could be around the corner with the put/call ratio staying so high and the breadth constantly being extremely negative. The oscillators are also reaching oversold territory. However, this bounce, probably will be nothing more than a chance to work off the oversold condition rather than a buyable rally that produces quality stocks that make big moves to the upside.

It was a rough day if you did not heed the warnings of the parabolic charts and the sell signals that almost every stock gave. If you gave up a lot of gains it is best to just take a moment and reflect on your strategy. If you find it too hard to make money now then just sit down and DO NOTHING. No one says you have to trade all the time. Having more money after the downtrend to put to work when the next rally starts is a lot better than trying to short or buy stocks that you don't know how to operate properly.

If you lose money just because you are trying to short since the market is going down and you can't even make money going long stocks you are shooting yourself in the face! Having more cash to use when the next bull market comes is better than losing money!!!!!!!!!! If you have not read "Reminiscences of a Stock Operator" by Edwin Lefebvre. DO IT NOW!

Take care and great luck. Don't play with knives.

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New Swing Shorts: ASA AMH TMO DIA EWY MRK GXP CLF WSM CE DB ILF SSL AMAT GGB IIF FCX CHN -- for more info on shorts go to Investors Paradise.

Longs Outperforming Market-number is % increase since purchase: FSTR MORN WIRE-175 TZOO WDHD CTXS-54 SNDK SMSI-53 SWW-36 PMTR-36 RBAK-213 FVE MGLN IT ILA SNTO-34 MEND TFR-108 GISX

Shorts Outperforming Market: JOYG USG BPFH SWC CRXL SIVB ELY

Shorts I Missed: VTI TNT

Stocks On Radar Screen: CXW

Locking In Rest Of Gains: CIB SIM PEIX


Y.Y. said...

nasdaq now down more days then during the 2000-02 bear market and after the september 11 attacks
can you spell fire sale?

Anonymous said...