Saturday, March 17, 2007

A Choppy Day With A Downside Bias Ends With Stocks Slightly Lower; Quadruple Witching = Quadruple Boring

Market Commentary At Big Wave Trading Bronze Level One.

To view the market commentary from the top on 2/27 top, click here.

Preview of current "Daily Market Analysis" Posting:

It was a weird sluggish session, today, but in the end it was another typical quadruple-witching Friday. However, there was plenty of data for Wall Street to go through, despite this once a month event. The CPI rose a little over .4%, a bit higher than the .3% estimate. But the core prices came in line rising .2% for a year over year change of 2.7%. Industrial production jumped 1% in February, over the readings for a .3% increase and its largest increase since November. Michigan consumer confidence fell (are you surprised there?) to 88.8. Add the fact that oil fell below $58 and might have thought it would have been a more exciting day. Nope. Quadruple-witching ruled the day.

At the close, the SP 400 led to the downside with a .55% loss, the DJIA, SP 500 and SP 600 closed .4% lower, the Nasdaq fell .3%, and the NYSE held up the best only falling .2%. The IBD 100 fell .6%, leading all the indexes lower. There is really nothing to read of that, however, as this was just that kind of day where you really can not draw any conclusions about underlying weakness or strength amongst the indexes.

Volume was higher on the NYSE by about 35% and higher on the Nasdaq by 20%. Breadth was negative on the NYSE, with decliners over advancers by a 5-to-3 margin. On the Nasdaq, losers beat winners by a 3-to-2 margin. New highs beat new lows by a 114 to 96. But the Nasdaq still has more lows to new highs; 64 new lows - 34 new highs.

All of the increase in the volume can be directed completely to the quadruple-witching action. The higher volume, with the price declines over .2% would normally be a clear distribution day. That would send a warning signal up that this rally has a much higher chance of failing. But I find it hard to draw conclusions on days like today so I will continue to watch for further selling on much heavier volume.

Don’t forget, right now, we are now looking for a follow-through day within the next seven days (ten is OK too) of a gain of 1.7% on higher volume. To be honest, I wouldn’t be looking too hard for this to happen. I am pretty sure….like by 100%….that there would be a ton of more stocks setting up in beautiful green sound chart patterns in sectors moving up the list. Guess what? That is not happening.

For the week, the DJIA led to the downside with a 1.4% haircut, the NYSE fell 1.2%, the SP 500 fell 1.1%, and the Nasdaq and SP 600 held up well only losing .6%. The IBD 100 managed to not swoon either, only falling .8%, in what was a wild and confusing week overall for the majority of market players. To me, the week, can be wrapped up in one word: failure. A failure for the market to produce a follow-through and a failure on the markets part to show me that it really wants to resume its four year bull market.

All the talk this week was of the subprime market. And who can blame everyone? The fact that stocks like AHM NDE NEW LEND and many many other stocks with subprime problems got killed is just stunning. But what I find more stunning is the action in LEND. That must of have been a daytraders dream (too bad that is all it normally is for that sub-group) as the stock fell 80% in seven days and then rallied 170% the next three days. Obviously, the intraday players, did not nail all these gains. But the few smart swift traders out there that were able to play these moves correctly made a mint. And when I mean a few, I mean a few. I monitor over 30 chat rooms and I saw the majority of the trades. They were not winning trades. I am still stunned that newbies try to play this stuff without the basic rudimentary knowledge of this stupid game.

The only good part about all of this is the fact that TA worked well, once again, in saving your behind from huge losses. The only way not to lose 99% (like in NEW) is to cut your losses short. Cutting a loss with a 5% to 10% loss is the ONLY insurance you have against stocks like NEW AHM NDE and the bunch. The even more wonderful ability of TA comes in the form of Homebuilding stocks. These stocks topped last year at the beginning of 2006 and ALL rolled over on heavy volume during the summer of 2006. Now we have all this horrible news in the homebuilding market with the DHI CEO going so far as to say his business is going to “suck.” TA, you are the greatest thing EVER for the individual investor in the stock market; thank you (yes that was rhetorical and a bit nutty).

The trend is still in place, after this week. The pattern of higher volume sell-offs and lower volume rallies continued this week and that pattern has created a very negative picture. To look at it this way, just think, the Nasdaq is the only index with a Acc/Dist rating of D+ or better, with a C-. All other indexes are in the D range. Real strong powerful market bottoms do not occur when this grade is a D in so many indexes. It appears more time is still needed before anything exciting is to happen. This market is still ugly.

The ugliness comes in the form of all the red on my charts, the nasty acc/dist patterns in the index and stocks, the few new longs that appear on my scan, the NO new CANSLIM longs on my scans, the increase in shorts in my short scan, the nasty breakdowns in all of the old leaders, and the fact that one of the top two indexes the past three months has been the US Defense index. This is the best chart out there and it has gained 4.81% the past three months. This leadership shows that the market is in clear defensive mode and that this is not the time to be looking to go 200% all-in.

But I must say the possibility that a bottom could occur still exist. I am still long around 170 stocks and even though I am not finding much new that often there are still gems out there like FALC and TESOF that are as pretty as can be. I would think that if this market was about ready to really breakdown and crash that I would not still be long 170 stocks. The number would be under 100. Maybe the number will fall under 100 soon. But for now the fact that I am long 170 stocks means that I am long 170 stocks in clear uptrends that have NOT violated my complete cut loss or complete profit taking rules. So we must be ready for anything. However, I am leaning heavily, very heavily, for lower prices. I expect to be selling off more longs in the near term. But if we rally, I will be ready to make more money.

Especially with the FOMC meeting coming up. I am sure this will be market moving news, as it typically is, but everyone is pretty much for sure that rates will be left the same at 5.25%. The one fact I am sure of is that we will not see the Fed lower rates. The inflation number and worries are still too prevalent in this market for them to be taking such action. The CPI is still growing too fast for the Fed to make that decision. But hopefully, after Wednesday, we can get a better trend going and actually get some real follow-through to the downside or upside. The choppy action is not the best market for me to make money in.

The most important thing to remember, this weekend, when you are getting wasted, is that ALL bear and consolidating markets eventually turn into bull markets. Even in severe bear markets, there will be many rallies of 10-20% on the indexes where you can get some handful of stocks that produce 50%-100% gains. This is because the VIX will be up and every downtrend always overshoots itself.

Patience and hard work = success. Patience and a little bit of hand sitting in this market = success. Trust me, the majority of people will flip and burn their account here. The best and most sound advice right now is to be cash heavy. CASH IS KING!!!

Aloha, enjoy your St. Patrick’s Day, and I will see you in the chat room.

New Swing Shorts: Silver Level Two

Stocks On My Watchlist: Gold Level Three

Complete Profits/Losses: Gold Level Three

Partial Profits/Losses: Gold Level Three

MauiTrader Forums: Gold Level Three

MauiTrader Chat Room: Gold Level Three

Longs Up On The Day: Gold Level Three

Shorts Up On The Day: Gold Level Three

Top performing holdings - date of signal (entry next morning)

PTT 405% - 11/16
KNOL 273% - 1/12/06
SVNT 142% - 8/24
TTEC 131% - 8/25
AOB 123% - 9/12
LTS 119% - 1/11
CCOI 117% - 9/27
ICE 115% - 9/21
CPA 110% - 9/15
CHINA 105% - 8/16
HMSY 103% - 6/23
IHS 103% - 12/21/05
CLEC 99% - 9/25
OMTR 96% - 9/15
ACP 92% - 11/13
IGLD 90% - 10/26
GVP 79% - 11/20
BAM 78% - 11/17/05
ULTR 77% - 10/27
IMKTA 76% - 8/28
HRT 76% - 10/23
NEXC 72% - 10/25
ACY 70% - 2/5
JST 70% - 10/13
TNH 69% - 10/26
BMA 68% - 10/24
HURN 68% - 9/13
FTEK 67% - 10/6
BONT 66% - 10/3
AOI 65% - 11/19
DA 64% - 1/25/06
XIDE 60% - 1/29
CXW 59% - 5/19
IIVI 59% - 8/30
MEMY 59% - 12/21
AMAG 49% - 11/7
CCBL 46% - 10/26
GLDN 45% - 11/21
ORBC 47% - 1/4
SNCR 50% - 12/13
BMTI 56% - 10/25
FTGX 52% - 12/4
PSPT 49% - 8/14
PCCC 60% - 10/26
MOS 48% - 10/12
IMMU 51% - 12/19
TYL 49% - 2/1/06
ECGI 50% - 10/20

No comments: