Stocks Fall Again, On Heavy Volume; Didn't Your Mom Tell You Not To Play With Knives?

Stocks continued the trend that they established on Thursday, with the SP 600 leading the way down again with a 1.89% cut. The NYSE fell 1.4%, the Nasdaq fell 1.3%, and the Dow Jones Industrial Average fell 1%.

Volume was higher on the NYSE, giving it two distribution days in a row. The Nasdaq's volume was lower but still well above average. So it is hard to find anything positive about the index just because the volume was lower than yesterday. It was still an ugly day.

Breadth was bad all around, with the NYSE decliners leading advancers by a 4-to-1 margin; the Nasdaq was 3-to-1 negative. Like I said on Thursday, this kind of negative breadth by such a large margin is indicative of a market being near the end of a selloff. However, for breadth to be this bad just when the indexes start their selloff is very odd indeed. I wish I had historical data on that. I know it is out there I am just not going looking for it now.

Something to support that argument might also be the put/call ratio. It spiked to 1.12 intraday, on Friday. This is another side-indicator that signals we are near the bottom not the beginning of a downtrned.

Now take that info and then listen to this. It is obvious the markets are just NOW starting their correction (Thursday) and that NOW is the time to get defensive. All the parabolic charts, laggards breaking out and failing, and lack of quality stocks showing up all signals this is the start not the end. Also without any high quality stocks holding up--IBD 100 fell 3.8% on Friday--and no new CANSLIM stocks setting up it is a sign that the downtrend is just beginning not ending.

Therefore we have conflicting signals. So you would think! But price and volume takes the top priority. The signals via individual charts and the indexes indicate it is time to take a defensive measure, not try to GUESS at when we are going to bottom, and keep cash on hand for when we ACTUALLY bottom. Does the term grabbing a falling knife ring a bell. If it doesn't: it means don't try to bottom pick stocks. WE DON'T DO THAT! We buy strength in bullish markets. We don't buy "bargains" when the markets are rolling over. Period! I will not answer any questions on any stock having a pullback as a new long. I don't recommend buying in down markets, period.

It was a wild week indeed. It was the worst week for the markets since the week before the rally began in October. Back then everyone was bearish including someone who I know who thought then that the markets were done for good. Right after that, we experienced a very lucrative rally. I had many stocks up over 100% during that rally that was supposed to be the beginning of the end!

What I am trying to say is don't believe the hype that all is going to break loose to the downside. A 10% correction wouldn't be out of line but a crash isn't going to happen. We had one in 2000, remember?

In saying that, however, there is still no safe place to hide your money. Remember, that short term parabolic move in ERS TIE and other metals and all that gold chatter I was talking about last week where it seemed everyone loved commodities. That group of bulls found no comfort in holding some of those stocks on Friday. Those stocks are done for now. It is time to realize that and move on.

This doesn't mean all are in bad shape. It is just the group I am talking about.

Now with the market acting the way it is, I still find myself holding a lot of stocks that still have beautiful chart patterns. Nothing says they can't get worse but the fundamental backdrop for them supports holding them if they only correct a small amount or on very low volume. This would just be a base setting period for them. They should be some of the first stocks to move again, when the pullback ends.

Stay positive, take some profits, cut your losses, don't buy falling knifes, and avoid new buys unless the fundamentals are beautiful.

Have a great weekend. Aloha!





New Swing Longs: HSR WLT USEG

New Swing Shorts: SIVB ELY NVT

Longs Outperforming Market: TGC-200 SMDI-135 KNOL-146 IIP-93 NTO-98 IFO-54 JOBS-26 GPIC ATHR-82 SHFL IHS-29 LTM LEAP EFII BWP AOB RBY PMTR-35 DIL-34 UVN DRH-25 PKE ISV-49

Shorts Outperforming Market: NONE

Stocks On Radar Screen: AZPN HCR ININ

Take Some More Profits, If You Haven't Yet: RAIL TXCO VTS NVDA IVAC HOM EMKR TGB SIM LNUX

Taking Rest Of Profits: NGPS ESLR TRAD CDE EVST LONG ZEUS STEL FC RCNI

Cutting My Loss: CPST ANO EXFO FCSE

Disaster Cut Losses: GLBC (sold first half on Fri, selling rest at open)