Some big misses by two heavyweights weighed heavily on the indexes as the stock market suffered its second distribution day in as many days. GOOG and CAT were both nailed with 8% losses before the opening bell, after both issued poor earnings that missed estimates. However, as the day wore on neither of these issues saw much more selling and both found solid support at their 50 day moving averages, giving some comfort to the bulls. But, for the day, the damage was done.
The DJIA fell 1.1%, the SP 500, Nassy, and NYSE fell 1.2%, and the SP 600 led the way down with a 1.7% loss. The great news was that leading stocks, in the form of the IBD 100 only lost 1.3%, outperforming the SP 600. However, the losses were a bit worse during the day, so the fact that the indexes closed off the lows is a slight positive. Combine that with Wednesday’s action where the Nassy actually closed higher than the open and you can see we have two distro days that aren’t very powerful.
The higher volume in the market combined with breadth 3-to-1 negative on the NYSE, 11-to-4 negative on the Nassy, and 27-to-3 negative on the DJIA gave the impression that things were really bad out there. However, despite there being 326 new lows there were also 216 new highs which shows that there were some decent pockets of strength out there. If today was really as bad as the indexes looked, trust me, there would have been a lot less new highs. So that gives some indication that the selling was not that bad.
And to go along with the data, two things occurred that really stick out after Friday’s losses. The put/call ratio jumped and closed over 1 at 1.02. That high reading shows that as stocks fell, traders decided to buy puts betting that prices are going to continue to go lower. That in of itself is not that impressive. But when you combine that the options crowd is bearish with the fact that the NYSE short interest ratio is at ANOTHER all-time high you have some real interesting developments. The NYSE short interest ratio is now at 8.25% which is an all-time high!!! That means 8% of trading on the NYSE is done in shorts. This DESPITE THE MARKET BEING ONLY 1% TO 2% BELOW ALL-TIME AND SIX-AND-A-HALF YEAR HIGHS.
When you take all of this combined with some leading stocks like AAPL and ISRG still making new highs and it becomes clear that Friday produced some panic. Markets do NOT top with panic. They top with euphoria. Even though BIDU and GOOG dropped and some are calling for a top via those two stocks, you have to remember that BIDU is still in a solid uptrend and GOOG had a very bullish intraday reversal off its 50 dma. So you are really grabbing at straws if you are calling a top here. Unless you only look at bank stocks and GOOG, there is no way you can agree with that argument.
The rest of the market seems OK. I had only a handful of complete sells and almost all of those were in very poor issues. The partial sales I had were made based on pure discipline. But when looking at their weekly and long term daily charts it is obvious there is nothing wrong with these stocks. Hell, look at one of the best sectors out there Transport-Shipping. ESEA, TBSI, DRYS, and DSX show NO signs of topping and all are still on fire and look ready for plenty of gains. Then you have the clear leader during this current bull market: Chemicals. CF, TRA, TNH, and the other stocks in this sector show no signs of topping. Until you see those two sectors top, along with stocks like MA RIMM AAPL FWLT CME ICE and CROX, you can be sure the market top is not here. You will need to see ALL of these leaders suffer some major distribution and fail there rallies before we can even THINK of a top forming.
For the week, it seems obvious that it was not that bad, with the Nassy losing only .7% and the DJIA losing only .4%. But the SP 500 lost 1.2%, the NYSE lost 1.4%, and the SP 600 lost 1.6%. However, none of these losses were severe considering the run that they have been on this year. It was a wild week with a good Tuesday, bad Wednesday (but great close), great Thursday, and a terrible Friday. But that is what makes this market fun.
The one topic dejour this week was subprime loans. And if you don’t think it is going to get worse, I would love to bring your attention to the bank stocks. If you are an experienced chartist and you know what stocks look like when they top after multi-year runs then you are certainly taking notice at the banks. SINCE ALL OF THEM HAVE THE EXACT SAME CHART!! They are topping. Rather it is MER, C, BAC, USB, JPM, UBS, BBT, GS, LEG, LEH, BSC, WB, or SBNY it doesn’t matter. These stocks are rolling over on MASSIVE distribution that has been playing itself out ALL YEAR LONG. That is why you see ALL of those big tall red bars where volume is during 2007 in ALL of these stocks. That is why ALL of them are rolling over. Unless these stocks get a HUGE bid right here, these charts are setup for some shorts to make a lot of money. These daily or weekly charts going back to late 2002 is just what ALL classic tops look like. This is some massive distribution in the whole sector.
The best thing about this that confirms my charts is that earnings that are being reported are great. Last quarters and the few banks that have released this quarter are releasing some great fantastic learning earnings. However, as all of us experienced investors know, the fundamentals ALWAYS!!! look the best at the top. The current charts are telling us that the subprime and housing market is about ready to start to show up in the books of the financials. What even makes this better is that all of you who read me and do not subscribe to me can watch me RIGHT NOW either help you not lose money or make you money by shorting the financials.
While this is happening, all of your brilliant MBA analyst and big money traders like Joe Capone and Scott Rothbort are telling you that they are bargains on this selloff and that you must buy. Until the “smart” fundamentalist and analyst start issuing sells in this sector, you can guarantee these stock aren’t going to stop falling. When they start issuing sells, that is when you should cover. These dummies just don’t get it and they never will. Yet, you will probably give them your money since they sound oh so smart and have one of those fancy degrees on their walls. These “higher educated” fundamental morons are going to lose their clients some money on the short term. While this “dumb surfer” either helps mine make money or not lose money. If you are long ANY stock in the bank sector and it is below the 50 and 200 day moving average, get the hell out!!!! While you are losing money, you are missing out on stocks like PRGX which make 7% gains on days where the market is down 1.5%. Which stocks are you in? If you are a subscriber to my service I know which stocks you are in.
Back to the market: Despite the ugliness in the financials, I have to say that my leading stocks continue to look great. Even though the DJIA did the 14k breakout and trap (which I eluded that it was going to do that last week) it still remains a strong market in an uptrend with all indexes still above their 50 day moving averages. Earnings season is always a rough one and many stocks are either punished HARD or rewarded handsomely. But with the trend still up, even bad earnings can turn into good so it is not smart to panic if your stock sells off a little after a miss. However, if the indexes cut their 50 day moving averages, leading stock falter, all your new buys start sucking up the joint, and good earnings are treated like bad earnings, then you will have a reason to get defensive.
The possibility out there is for anything right now as it always is in earnings season. This upcoming week we have AXP KLAC MRK X MMM NFLX T DD PEP AMZN GLW and XOM set to report. As it is now we have a lot more disappointments than we are used to seeing but like I have said now 100 times, unless we start to actually selloff and fail rally attempts there is no reason to worry about anything.
Two more points I want to hit before I am finished: The amount of new lows that kept expanding while stock prices kept hitting new highs did hint that Friday was coming. On Wednesday we had a TON of new lows which clearly showed that their was weakness in the market building up to the losses on Friday. So, honestly, this selling should have caught NO ONE off guard. Especially my subscribers. And the last thing is BX. How about that scam stock. What is it now? Down 30%. Can anyone say Refco. This is why you must ALWAYS wait for a stock to trade long enough to create a base. Buying stocks before a proper breakout put you into things like Refco, BX, and IBKR. I use IBKR as my broker. I LOVE THEIR SOFTWARE!!!!! Did you see me buy the stock because of that? Did I buy it because my emotions told me to since I love the company so much? No. Do you know why? Because I am a professional.
If you buy ANY stock for ANY other reason than due to historical analysis and fundamental and technical actions, you are nothing but a gambler. And my suggestion to you is to get your act together or go find a new hobby. People like me are going to take ALL of your money. Why gamble when their is one book out there that can teach you how to fish for yourself? How To Make Money In Stocks by William J ONeil. I know one thing, I sure would not want to feel like the loser down the street that can only invest off of tips. How powerless are you when you make investment decisions off of tips? I know one thing: I LOVE BEING IN COMPLETE CONTROL. And the first step in becoming completely in control is admitting you control nothing. Especially the market. The stock market does not care about YOU or your opinions. Which is, sadly, about all I hear out there in the free chat rooms and on this island.
Aloha and I will see you in the chat room.
PS: This is the last weekend post for the free blog for two weeks. I will be on vacation. For paid subscribers you will still see plenty of me, don’t worry.
top current holdings up this week - purchase date
TRCR 536% - 1/12
MA 241% - 8/2
OMTR 192% - 9/15
IHS 155% - 12/21/05
CKSW 148% - 10/11
ULTR 147% - 10/27
KHD 140% - 5/30/06
DECK 124% - 9/13
PRGX 123% - 1/12
TTEC 120% - 8/25
HRZ 117% - 9/27
CNH 114% - 11/2
EVEP 114% - 11/16
CPA 105% - 9/15
FTEK 99% - 10/6
HURN 99% - 9/13
VDSI 98% - 1/14
IGLD 93% - 10/26
VSR 87% - 6/15
CXW 86% - 5/19/06
NAVI 79% - 12/18
APLX 77% - 9/28
INNO 74% - 6/4
HURC 73% - 12/18
FSLR 72% - 5/22
TESO 70% - 2/16
LFL 66% - 12/13
AFSI 65% - 4/12
TASR 64% - 6/6
CRNT 63% - 5/21
SNDA 55% - 12/26
NTLS 55% - 1/30
IMA 55% - 8/2
XRA 50% - 5/24
Market Commentary At Big Wave Trading Bronze Level One
New Swing Longs: Silver Level Two
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
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