Sunday, August 26, 2007

Very Boring But Bullish Week Comes To An End With Volume Completely Absent; Negative Divergence In Price And Volume On Indexes Developing

Well if you wanted the opposite of last week, you definitely got it this week. The complete opposite happened as stocks rallied on extremely low volume. Even though the rally was powerful and the Nasdaq almost climbed 3%, the volume was almost 1/2 of what it was last week when the index was making new lows and the Fed was injecting money into the system to prevent a crisis.

Now, even though last week looked well and it appears stocks have bottomed, I still can not enter that camp when two things have not happened. There is no surge in volume showing accumulation by big funds; the low volume last week CLEARLY showed that the smart money was COMPLETELY absent. You simply do not have volume that low and have any real accumulation take place. The other thing that has not happened is that we still have not had a follow-through day off the 8/16 lows. Monday will be day seven of the rally attempt from those lows and all experienced investors know that the greatest follow-through that lead to real rallies happen between the fourth and seventh day. Anything earlier and especially anything later and you really lessen your chances of a successful follow-through.

The other thing that continues to also keep me out of the bottom camp is the fact that I still continue to not have that many new exciting longs breaking out and/or forming fresh bases for a strong rally. The fact is, in real uptrend, I WILL ALWAYS have a handful of stocks that are forming nice to near perfect charts. Right now I have very few stocks appearing in my scans that catch these early and the stocks making it into my long scans do not have sound bases and/or have serious flaws with their fundamentals. There are a few exceptions like FALC and ROS that have very very nice patterns. But the fact is they are not perfect. Also, there is nothing new showing up with outstanding EPS and RS ratings. That is yet another sign that this just continues to be part of the cycle that started in 2003 and not a start of an exciting new uptrend.

And adding yet another topic to argue against the bottom is the fact that the amount of 52-week new lows continues to beat 52-week highs. There was only way day this week (Wednesday) where new highs beat new lows. Even on Friday, there were 63 new lows to 55 new highs. Now, I have to be honest, I know for a fact that “the moment” in late 1999 did come with more new lows than new highs. However, after the late 2002 low going into the real bottom in 2003, there were more new highs than new lows. To go along with that the Nasdaq’s ACC/DIS was an A-; right now it is a very poor D+. So obviously, this current rally has NO resemblance to ANY rally that has produced HUGE gains throughout the history of the stock market.

Saying all of this, there are signs that, if the market maybe has not bottomed for good, it has at least bottomed “for now.” The problem is that the indicators and internals that are showing a possible bottom are only SECONDARY indicators. The first I want to look at is the VIX. The VIX was able to successfully enter the 30 area and come very close to the 40 area. The last time that happened was in 2003. Now, when I first saw this I became bullish because that indicates a lot of volatility and when the VIX is high breakouts can make you a TON of money. However, the difference between a VIX at 40 here and at 40 in 2003 is HUGE. The VIX entered 40 AFTER being around 50 in 2002, setting up a TON of big big big winners. This time VIX is coming from the low teens. And the fact that the VIX has ALREADY come back down to the 20 area shows that the crowd is ALREADY, ONCE AGAIN, becoming complacent with the rally after ONLY one week.

Second is the put/call ratio. This ratio continues to remain very high, despite the rally last week, indicating that the crowd, even thought the VIX says they are getting complacent, is getting complacent with puts. The put/call is at .99 which is obviously very near the 1.0 level where “fear” is in the market. The steady pervasiveness with the put/call ratio at this level shows that traders are still making bearish bets betting on a lower market. History shows that these people are RARELY right. So further upside is supported by this high number. Until it comes back down to the .7 area, I am sure we can still move higher. Will the move higher continue to place fear in the hearts and minds of traders, if the rally continues? I doubt it. And if it does I still doubt this is a bottom UNTIL I GET MY GREEN ACCUMULATION-FILLED CHARTS BREAKING OUT OF SOUND PATTERNS WITH GREAT FUNDAMENTALS.

The third and final secondary indicator that suggest we COULD have bottomed is the Investors Intelligence survey. The new numbers, this week, came with 40% bulls and 37% bears. While this number is not a cross, it is darn close. When the bears outnumber the bulls in this survey (which rarely happens) you almost always have a bottom. However, as you can see we did NOT cross yet. So there could be further bearishness needed before these numbers cross. Therefore, it is hard to call a bottom here. Especially, with the indexes not having any 2% or higher up days on heavier volume. Until we get a follow-through day, this Investors Intelligence number is nothing but a number. An important one to watch, mind you. But not the end all to end all.

Now, with all the information I have just given you, the most important out of all of this is this. YOU DO NOT HAVE TO BE TRADING ALL THE TIME TO MAKE MONEY. DUH!!!!!!!!!! UNFORTUNATELY, A TON OF YOU AMATEURS JUST DO NOT GET IT (this is not meant to be mean but if it insults you obviously you have some things to think about). The greatest traders of ALL-TIME knew that to make the BIG money you must sit on your hands A LOT!!! As Jesse Livermore said, it wasn’t his active trading that made him his money but his sitting. Sitting and holding winners on the way up and shorting the old winners on the way down and staying on the sidelines when the market was giving no clear direction. Right now, the market is giving no clear direction.

How do I know this? Easily! How are those investing in longs doing? How are those investing in shorts doing, unless you shorted the stocks in the AHM group? Probably not too well by looking at the returns of the top mutual funds and traders that I know. The fact remains that a TON of stocks have been decimated but the leaders in the big-cap tech group continue to act well. While we have BIDU AAPL GOOG RIMM FWLT WYNN BCSI and the other leading stocks still making new highs or holding above their 50 and 200 day moving averages, there is no way in hell we have a real market top. This is why, despite there being NO reason to be bullish here, that I am not bearish. I simply can not be bearish on the market while the leaders continue to make new highs or are holding key support. Once these leaders breakdown and fail there rallies, not only will I be short on full margin but I will be very bearish on this market. For now, I am agnostic. And I believe that is how the greatest traders of all-time would be here too. In fact, according to IBD that is where they are at so I am sure I am on the right side.

Now, unlike the other psychic market commentators, I can not predict the future. However, I do know one saying very well: “never short a dull market.” So if volume continues to be this low, I would continue to maintain a bullish short-term view and enjoy the trading opportunities that show. Just don’t overstay your welcome and I definitely advise taking some profits on any stock that makes a 25% move in this market. Even if it makes the move in a few weeks, I would still sell some off (20-25% or so).

About the only thing that I can think of that I would do during this low volume market-if it stays a low volume market ONLY-is to read the book by Mark Douglas called “Trading In The Zone.” I know I have recommended it before but I am still not sure if those who did not read it get it. YOU MUST READ THIS BOOK, IF YOU ARE STILL TRYING TO FIGURE WHY THE MARKET IS DOING THIS OR WHY THE MARKET IS DOING THAT. IT DOESN’T MATTER AND IN FACT YOU WILL MAKE MORE MONEY BY NOT TRYING TO FIGURE OUT WHAT THE MARKET IS GOING TO NEXT. INSTEAD, PREPARE FOR EITHER OUTCOME AND STUDY HISTORY TO PUT THE ODDS IN YOUR FAVOR. JUST LIKE THE CASINO AND PROFESSIONAL GAMBLER DOES. You can make a lot of money in a random market environment with improbable outcomes. You just need to learn how to reprogram yourself to master the ART of active investing.

Sunday, August 19, 2007

What A Wild Week It Has Been; Stocks End The Week On A Bright Note, Sending Chills Down The Spines Of The Johny-Come-Lately Shorts

This was by far one of my most favorites week, since 2004, by far. The amount of emotion with fear, greed, and confusion was by far the most I have seen probably since the downturn in 2005. So, obviously, I must have been pulling my hair out. Right? Wrong.

The great thing about having discipline and game plans is that you are prepared for everything. When all of my new longs started failing and I noticed that all my short recommendations were working out better than longs, it became obvious something was starting to change.

Not only that but remember how I kept harping on the amount of 52-week lows were beating the 52-week highs BEFORE we sold off. I warned how that might be a problem. And walla it became a problem.

As the selloff started, I advised going to cash and those that did that were able to sit back and enjoy this wild action. Because, I have to be honest, neither bulls or bears made a lot of money. If you look at your charts you will clearly see how wild and choppy they are.

What is funny is that the shorts I mentioned before the selloff did very well. However, during the selloff, my short recommendations did very mixed if not not too well. Do you know what that means? It means it is not the correct time to short this market on full margin.

How do I know that? Well, considering that EVERY fast and long selloff in every bear market starts AFTER the top stocks have topped is the first and fast rule. The second is that my shorts are not working. I have been through enough bear moments and one nasty bear market to know when things are right. You know they are right by your shorts working immediately after you short them. With my current shorts a mixed batch with most going the wrong way the market is clearly telling us it is not time to be full hardcore bears just yet.

As long as RIMM, AAPL, BIDU, GOOG, and other leading stocks like TNH and MA not only hold their 200 day moving averages but stay in long term uptrends, there is no way a major top is going to happen right this moment. But my longs are also acting very poorly in this market so it must also be said it is no where near the right time to be full margin with longs at this juncture.

It is a waste land out there of red and wild charts. The biggest and best winners I have ever owned have NEVER came out of these kind of patterns. Take that along with there being 83 new 52-week highs to 236 new 52-week lows it is hard to get excited about a rally here when leadership is this weak. It was weak before the selloff and it continues to be weak.

During the market on Thursday I noticed that it was getting way too bearish out there with the put/call hitting 1.5 intraday and the members of my room excited by all of our shorts working so well (by the end of the day, there was no rejoicing). It was at that moment that I recommending covering 25% of all shorts across the board and that the market has probably seen the lows for the current trend.

Chris “Mahket/Market Speculator” Maye was even earlier in sensing it coming hours before me. The fact was that when you are in tune with the market it is pretty easy to get the feel for extreme moments. Before this selloff ever got started I was warning to all the parabolic and semi-parabolic charts out there. Well most have them have been cut down. But now they must fail this rally on higher volume before stocks like MA or TNH can even be thought of shorts.

Heck, did you see RIMM on Thursday and Friday. That is one of our “tells” (our leader). Does it look like it is topping? Of course it doesn’t. This will be one of the big boys I short when we enter a real bear market. For now, it doesn’t seem like that time. If this is 1998 again, like so many on CNBCrap have been saying, then you should know how the market acted to 2000.

Well, that really isn’t a good example because God knows we are not going to see a market like that again in my lifetime. But the facts remain until the leaders top, do not count your chickens before they are hatched and don’t “put your carriage before your horses.”

At the same time, until we see and pretty green charts with nice round shaped bases in stocks that have great fundamentals I see no reason to feel like you have missed the move, by missing the bottom on Thursday and 2% plus move Friday. I bet you wouldn’t miss it if we gave up all those gains. And also remember even though I am off margin and am only 10% short, 40% long, and 50% cash, I am still holding 98 different stocks that are holding key support areas, 50 and/or 200 day moving averages, or key uptrend lines.

That clearly tells you this is not that horrible of a market to be shorting. If this market was in serious trouble I would probably be only long 50 or so stocks. TRUST ME THEY WOULD PROBABLY BE IN THE LEADING INDUSTRIES DURING THE DOWNTREND. THEIR IS ALWAYS 1 OUT OF 4 STOCKS THAT BUCK THE TREND. OBVIOUSLY, IF I AM LONG, I AM IN ONE OF THOSE AND NOT HOLDING ON TO LOSERS AND RACKING UP LOSSES.

So the best advise I can give everyone right now is to continue to be patient and in cash for an established uptrend or downtrend. For an uptrend we will get a follow-through here in the next seven to ten days. For a downtrend we will start getting clear distribution days and failures at key moving averages and resistance areas. So that is what you must wait for and not be too overanxious to jump into this wild and nutty market that is making some people put on some stupid and ignorant trades OR START TO PRETEND LIKE YOU KNOW WHAT THE HELL IS GOING ON.

For all of those of you out there trying to figure why the market did this and why the market did that, I want you to know you are playing the game as amateurs and suckers. It doesn’t matter why the hell it does anything. All that matters is that it does. You need to make money off the move. NOT KNOW WHY IT HAPPENED. That isn’t EVER going to help you make money as NO TWO SITUATIONS ARE EVER THE SAME IN THE MARKET. EVER!!!! History repeats itself….but the outcome does NOT.

Sunday, August 12, 2007

Why Are People Trading/Investing In This Market Environment?; Stocks Suffer Worse Week Of Volatility On The Heaviest Volume I Have Ever Seen

As this week went on and on, I started to wonder why I even returned from my vacation. I could have easily have dealt with all this volatility, small longs and shorts, and loss cuts while away from my main screens. However, I am very glad to be back and to finally be posting long post. Now with me back at home I can clearly get all my analysis done. And what I have found after going over everything this week is that most professionals that thousands of investors listen to have overanalyzed this market to death and would be much better off if they advised what they should be advising. Going to cash and letting the market play out.

These guys do not get paid to do that and that is why they are always recommending some stock here or there. However, as a professional that completely understands that there are only a few times every ten years to make HUGE money, I also know when it is best to keep your cash heavy. Times like now is definitely one of them. I hear a lot of investors and commentators advising traders to pick up their favorites at these discounted levels. What bothers me more than anything about this crap advise is that these stocks can stick around these discounted levels for a long time. Go back and see how some of the favorites of 1998-2000 are doing today. They have not come back and some never will. This is what is going to happen to many of the stocks that have come well off their highs during this pullback. Some stocks are broken bad enough that there is no hope for them any time soon.

However, there are a lot of stocks holding up during this downtrend which hints to me that things may not get too much worse from here. Too bad that is the last words of so many traders that do not cut losses, in case they are wrong. I have to admit that I will never be one of those traders. I literally feel that I am in the zone and even watching my gains of 64% fall to 47% the past two weeks did nothing to shake my confidence. Had I not cut losses and instead would have “hoped” (dangerous in the stock market) that some would have returned I believe I would be under 35% by now.

Some traders, including some subscribers, are just so upset that they have lost money and that great patterns like JDAS AFSI and ESEA failed so miserably. I hate to tell everyone this, but 3 out of 4 stocks follow the general trend of the market and no matter how nice they are the chances of them following the market are 75% in favor of them to do so. If patterns like JDAS AFSI ESEA and HUB.A would have showed up right after the March 2003 follow-through you can guarantee they would have done as well as those stocks did too. And how about two very pretty charts that are both now ugly as can be: VSR and SMTX. If those stocks would have shown up with those patterns at the start of a bull market we would have made at least 3x as much as we did. You have to understand that you can NOT just make a lot of money any time and any where. Some people can that use options. But trust me this is not easy. In case you do not remember and/or do not care to do some real work, I will tell you that over 18% of the stock market made 100% or more moves from March 2003 to January 2004. Since the July/August lows we have only 4% of all stocks up 100% or more.

If you scan through my free blog and look at all of my top stocks, you can safely say that at the start of a bull market these gains would have been much higher. So why am I talking about all of this performance in a bull market to performance in a bear market? Because, so many people are not doing well right now and some traders are losing a LOT more than they should be. They are overtrading. I know some people that are buying dips in this market like they were two months ago. The market has changed and most of these traders are going to wash out. My job, imo, is to make sure you do not get discouraged and wash out. The smartest and most prudent thing you must do right now is preserve cash. You must sell your laggards, raise cash, keep new buys or shorts small until there is a clear trend, but continue to hold your longs that show absolutely no signs of problems like HUB.A.

If you do not get discouraged and do cut your losses you are going to have more money to invest when the market does give you that “perfect moment.” Remember, you only get those 3 to 4 times every 10 years. Trust me, you can make good consistent money during the rest of the time (USUALLY NOT TIMES LIKE THE PAST TWO WEEKS). However, you can ONLY get rich with a very high reward to low risk ratio after the end of a bear market, following a follow-through day. This market has only been pulling back for three weeks and we have not even lost 10% so I find it really hard to believe that if we put in a bottom here that it will lead to a “moment.” However, if we can get more pain in this market by moving lower from here, one thing will be clearly certain: the volatility will be high enough to make those that find the next TASR very rich.

The VIX has risen to 28.30 after hitting 29.84 intraday. There is a direct correlation between market bottoms and a high VIX reading leading to some huge gains. And you can be sure of many things, when this moment happens, people will be too worried about A) a recession B) AHM and BSC or C) that you will lose more money because the market has been so bad. I seriously do not think we are at this point. There are still too many people who believe that the market is going to rise that the fear is not thick enough for a real strong bottom to occur. A tradeable bottom? Sure, that definitely can setup here. However, I sure am void of very pretty and very green charts. I just simply do not have may HUB.A type stocks out there. If we get a follow-through day and hold the recent lows, as the weeks go on, we should have more charts setting up with heavy accumulation, max green BOP, and sound chart patterns. If we don’t get these setups, you can be sure that the market probably has much longer to work on its downtrend.

I am seriously hoping that this is a start of a downtrend. I would love to see the market bottom with the VIX around 40. The stocks that setup in proper-green-accumulation-filled charts will be making us a lot of money. And we are going to need that money to get these stocks, so it is best to keep cash heavy when there is no edge. And this weeks volatility clearly shows that there is no edge for the bulls or the bears.

All of my recent short recommendations have been doing very well for the bears. But right when I decide that the uptrend is pretty much in trouble and start my small testing of the shorts the market starts getting whippy. This signals to me that it is not the best time to short then, despite the extreme weakness in the finance and bank stocks (which I got by the way, if you study my “new shorts” section on the gold site at When I start to see my favorite high priced leading stocks like RIMM AAPL CROX GOOG FWLT BIDU TNH (starting to crack; now needs to fail its upcoming rallY) and MA start to top, you can guarantee the market will be extremely weak and I will have my opportunity to short. I plan on not only shorting those eventual former-leaders when they top but I will be buying some long-term in-the-money puts. But almost NONE of these stocks, except TNH, have the appearance of them definitely topping. So right now it is PERFECTLY CLEAR to me that neither bulls (longs) or bears (shorts) have a clear smooth edge. The downtrend and uptrend will be both sloppy and choppy for a while. The extreme uptick in VIX is your proof that things have changed. The slow but steady uptrend has given way to a choppy and irrational market. These are the kind of markets professionals know to keep trades either small or none at all.

Now to go back and focus solely on the market, on Friday, there is no doubt that the fact that the Fed is injecting $38 billion after injecting $24 billion is not a bullish scenario. It makes me wonder if we are just waiting for the inevitable. But if that is the case, EVERYONE who actually listens to me should be making money by not losing money. Even if this market bottoms here, you will have PLENTY of time to get long the best stocks. The best stocks do not all show up the day of the follow-through. Some may show up that day but the next three weeks is key. That is when the best of the best should show up and breakout. However, I am not sure how you get that happening when the Fed is so nervous about the possible fallout that it injects money into the system. Something seems a bit fishy.

Another thing that happened on Friday was that the rally attempt in the DJIA failed veyr quickly and when the market flashes a distribution day within three days of a follow-through, its rally almost always fails. That happened on Thursday. When that happened IBD's Big Picture noted that when the market does in fact flash a distro day that fast, 13 out of 14 times since 1982 the rally has failed. Well you can make that 14 out of 15. And with the lack of pretty green charts I doubt that if we get another follow-through this week that that one would even work.

In this environment you must remember to keep all new longs and shorts small until a trend becomes clear. It is still not clear if this is the start of a correction or a dip before another leg of this bull starts. Even if it is another dip, there should be some good money to be made with the VIX around 30. But remember if the market can move lower, we could get the VIX to 40 and that is right around where it likes to be for a market to make a low.

Bottom line: it is up to my charts right now. All my pretty green charts are gone except for a gem like HUB.A and OMTR. I will get plenty of beautiful charts before a real rally starts. Before the March 2003 bottom, GRMN, SOHU, SINA, and SNDA all were making max green-heavy accumulation filled charts breaking out to new highs well before the March 2003 bottom occurred. And then remember, TASR then showed up four months AFTER the market bottomed. Just like market tops, the best stocks show up four to seven months AFTER a top or bottom. This works much better with tops as leading stocks breakout faster in bull markets. But many great stocks do show up three to four months after a bottom.

Remember to stay positive and even if this pullback last months and months (THIS WOULD BE A VERY VERY BULLISH DEVELOPMENT), there is always some areas to make moneys in a rough market. If you are a silver or gold member, watch and learn.

Aloha from Maui!! It is good to be home but YES I do miss Texas.