Sunday, September 09, 2007

Most Of The Major Market Indexes Fail Their 50 DMA’s And Reverse Down Through Their 200 DMA’s And Russell 2000 Fails At Death Cross; Volume Continues

A weak jobs report hit stocks early but after that there wasn’t much more selling. However, Friday was the third day in a row where we saw overall weak intraday or dead intraday price action but, once again, there was very little volume overall to the 50 day volume average which makes it hard to say that the sellers are in complete control at this area even though most major market indexes are making significant reversals and/or failures at key moving averages.

The fact that most indexes failed right at their 50 day moving averages and traded below their 200 day moving average shows that the market is suffering from some weakness and the fact that we had a second distribution day since the August 29 rally does have to throw caution on the rally. However, the leading stocks continue to hold well and stocks like AAPL that have seen three days of selling have really only seen one day of selling and then two days where the stock gapped lower and basically then traded in a tight range the rest of the day on big volume. To me that appears to be support to the selling that is happening in the morning.

Heck, if you just look at the indexes on Friday you can see that almost all of the selling happened before the market open. The fact that that was the case shows that the market makers just dropped the bids to find buyers. There was no real selling or capitulation by big investors as volume continues to constantly come in below the 50 day volume average. It doesn’t matter if it is on the upside or downside, there is still no volume that indicates the big institutions have done ANYTHING after August 16.

What I find odd about the lack of volume is how much people are still trying to figure out about the current action of the market. Well, folks, I hate to tell you, all of the prognosticating and prediction analysis all of you newbies seem to think is so important is clouding your judgement from the truth. Just like watching your biased national news on CBS, ABC, PBS, or NBC, you are only getting half the story. The network anchors and YOU can guess why the market is doing this and why it is doing that but bottom line is that NONE of that makes you money in the market.


The truth of the market is that the long term trend since 2003 is up and has been almost nothing but up since then. Until your big-cap growth leading stocks like RIMM AAPL BIDU GOOG GRMN etc…start selling off on huge volume, failing their rallies back to new highs and key moving averages, and then start selling off again, there is no way in hell anyone should be bearish on this market. And trust me I see a LOT of amateurs very bearish.

Listen, if we had a ton of volume on the reversals I would be very bearish too. However, without the increase in volume to very heavy levels over the 50 day volume average, it is impossible for me to either get bullish after the August 16 lows or bearish after we reverse here at the key moving averages. The proper play right now is to remain market neutral in your opinions, recognizing that the market is in a sub-intermediate term uptrend from the August 16 lows with some select CANSLIM quality stocks giving us buy signals and a market in a very short-term downtrend with the market moving lower the past three days. THAT IS IT!! Nothing more and nothing less. There is nothing profound to figure out here.

About the only thing I want to figure out is why in the hell everyone is so focused on a rate cut? The fact that everyone has already begun looking for the rate cut as far back as August 16 has to get me to thinking that this is in fact why the market has rallied since then. If this rally is based on a rate cut speculation, then we know why the big boys are not involved in this rally. They don’t buy rumors. When they make a decision to buy or sell a stock they are making long term moves that take months to play out. So the logical play by them is to probably let the market rise so they could do more selling.

That is, as long as they have more selling to do. There are some psycholgical market indicators that could suggest all the selling is done. Professional investment advisors are becoming more bearish as the 3 week average of bearish advisors has now risen back above the 35% level. Since the mid 1990’s each time the 3 week average of bearish advisors has exceeded 35% this has been followed by an eventual bottom within a few weeks followed by a strong rally. So taking all that bearishness along with the high put/call ratio of 1.05 now and the fact the put/call could not fall lower than .83 after the closing bell during this uptrend shows that many are still nervous.

And that is why many stocks are making gains, holding on to their gains from before the selloff, and/or are setting up in some nice patterns for potential gains. About the only thing that is bothersome so far is that I have found some very nice charts with top fundamentals. The funny thing is the stocks that have flaws have been doing very well and the stocks that are loaded with accumulation and green BOP all over them are not working, going sideways, or are making small gains. In very strong bull markets, this simply does not happen. The best charts always take off further and give me faster and bigger gains. Right now, as has been the case since the late 2006, few of my perfect charts are staying perfect. Recent examples of really really nice charts (not perfect) not working immediately are FALC, ROS, and BLL. All three of these, with the chart patterns they produced, should be running by now. So this is yet another key clue that tells us being bullish or being bearish is not the right play right here and being unbiased and neutral is the right play. If we were to be bearish, we wouldn’t even be getting these setups. If we were to be bullish, these stocks would be blasting higher already.

The point of this is to remember that you do not need to always be bullish or bearish. Sometimes it is the smart play to be just neutral. Dip your toes in on the long side if you find a pretty chart, dip your toes in on the short side if you find an ugly chart (they both must be setting up in perfect patterns, obviously), but continue to keep cash heavier than either your longs or shorts at this point. Without volume, we have absolutely NO clue as to what the true intentions of big funds are. The biggest point of all of this is that you simply do NOT have to trade/invest all the time.

I am still completely unsure as to why people feel they must trade all the time or “make money” all the time, especially when the market is chopping you up piece by piece after every trade you take. Doesn’t common sense take over and tell you to STOP trading? I am sometimes amazed at the lack of common sense newbie traders have and A LOT OF PROFESSIONALS have when it comes to the proper time to trade (uptrend or downtrend markets) and when it is not the proper time to trade (wild, choppy, and irrational markets).

Sentiment is pretty bearish out there, which would seem to be short term bullish. But we do have some overbought conditions on many different oscillators (10 dma of adv/dec line, DTS timing, McClellan, Arms) signaling that we might need to do some work on the downside before returning to the upside. In the middle of all of this is the constant talk amongst the market mouths is the fact that the Fed might need to act. That in itself is causing some paralysis amongst some players. So here you have some bullish, bearish, and neutral factors that are sure to influence this market in its usual choppy and wild manner. It should be fun.

Remember, if those pretty charts fail, cut your losses. Unless, you are in a bull market, pretty charts are going to be hit and miss. Right now, they are definitely hit or miss. Their is no clear uptrend in the major market indexes and now we have some key failures (though it was on low volume) of key moving averages. I just find it hard to believe our beautiful longs are going to continue to rip, unless some real accumulation gets into this market. And hopefully that happens for the bulls, as September is historically the worst month for stocks.

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