Sunday, September 16, 2007

Stocks Ticked Higher Ending A Very Quiet Yet Bullish Week For Stocks; Here Comes The Fed

Another excellent and bullish intraday reversal followed what was a very weak opening. This continues a pattern in the stock market since the August 16 lows, where a lower gap before the opening bell is bought by investors and bid higher almost all day long. Ugly beginnings of the trading day that end like this are a sign of a healthy market, not a bearish market. Even though volume remains completely absent, the price action speaks for itself as it is the final TRUTH in the stock market–not your opinions.

The light volume this week was blamed on Rosh Hashana but somehow I doubt Rosh Hash had anything to do with the low volume this week as that has been all that we have seen the past month. Despite the low volume, the Dow led the way, jumping 2.5% for the week. The NYSE composite ramped up 2%. The S&P 500 climbed 2.1% and the Nasdaq 1.4%.

This low volume rally has left MANY people on the sidelines scratching their head as they watch new breakout move higher and higher and watch leading stocks continue to hit all-time highs. This goes back to the same argument I have been making since I can remember. The trend is your friend. Rather on low volume or high volume, if you get stocks breaking out of sound bases on high volume, you need to just ignore the low volume overall in the market and take your signals. By passing on your signals, I AM SURE, a lot of you have missed out on some big gains.

Now, at the same time of saying this, it is true that low volume rallies are bad and usually are met by heavy volume selling. But, how do you know it is going to happen this time, fortune tellers?? You don’t. So stop trying to predict where in the hell the top is. That is all I keep hearing about–the top. Therefore, wouldn’t you feel quite stupid that instead of heavy volume selling hitting the market, instead heavy volume accumulation comes in due to the fact that the big boys are feeling pain by underperforming the market? Well, to the addicted top callers, I am sure you don’t care. Your memories are about as solid as water. So you will not remember this top call or the other 100 you made.

So, while some decide to play that game-and it appears almost all are as the Fed meeting is right around the corner-I will continue to just listen to the only thing that I ever listen to. Price and volume. That is it. If a stock breaks out or bounces off the 50 or 200 day moving average, on strong volume, I want to be long. If the stock breaks down or bouncing off the 50 and 200 day moving average to the downside, I want to be short. All the predicting BS will never make you money like just playing the trend will do. If you do what I just typed in this paragraph, you will do a lot better than your “smart” friends who are telling you when this rally will fail.

There continues to also be a ton of subprime and mortgage talk out there. That is the PERFECT wall-of-worry for us to continue to climb. The more we continue to worry about the fallout from the subprime business, the further this rally has to go. We have to wait for all the talking morons on CNBC to finally stop freaking out and tell us the worst is behind us before ANY top can happen. Our wall-of-worry is strong and continues to be there to ride higher.

Reports that the Bank of England provided emergency funding to the U.K.’s third largest mortgage lender, only confirms that the trouble in this sector will continue to be magnified and blown out of proportion.

What if everyone is right and we do go into a recession? Are you kidding me? If they are, then we will act accordingly. We do NOT marry our positions. When our leading longs give us clear sell signals, we do not argue with them, we simply obey them and get out. Then if the market does tumble, we can move our now free cash to shorts. It is simply that simple. Too simple for most to believe it works. And that is fine with me. Continue to quant your way to the poorhouse or the house of mediocre returns, fundamentalist.

Everyone, right now, seems focused on the upcoming FOMC meeting this Tuesday where the Fed is expected to lower rates from the current 5.25% that they have been at since June 2006. A lot expect .5 and some expect .25. Either way, you shouldn’t pay too much attention to all of this NOISE and instead should be focusing your time on the longs and shorts that show up on your scan. Make money here; don’t become a Fed watcher. Do you really want your life to be like that? Isn’t it more fun finding stocks like VMW, instead of watching Ben bitch about the economy?

Stocks like SXE, GME, CMED, TBSI, YHOO, and OMTR are ALL much more exciting than anything you will ever get out of watching Ben. Trading off of Ben will also NEVER get you the returns a strong investment in a top stock like OMTR will.

The good news is that there are still many stocks out there that are setting up and breaking out of bases with the kind of possible potential gains that OMTR has had. What makes it even better is that most people seem to be completely unaware or uninterested in it. I saw more than one or two times this week where professionals made comments somewhere along the lines that this market is not fun and they are burned out. Burned out from what? All the strong chart patterns showing up? Their pain is my gain!

All of this could change at any time and the Fed may in fact mark a top in the market. However, like I said before, by being involved in the longs at the right time we would still be able to get out with SOME gains and then have enough time to turn around and go short. Bear markets don’t only last for a few days. Real bear markets last years and years.

Speaking of bear markets, I want everyone to do me a favor and look at the Russell 2000 index. On a daily chart, since late July, I want you to count how many days on the chart where you either see a bullish intraday reversal (they look like tails and are called “hammer” patterns) or days where the price opens at or near the lows and then closes either near or at the HOD. You will notice that there are a lot. Then check out the weekly chart of the Russell 2000. After the week of July 26, you will notice that EVERY week has seen a selloff and every week has then seen price come back from the lows and close either near the highs of the week or actually come back and close above the open of the week. This week was just another example of a strong opening week, turn into some selling, and then turn into a well supported market that closes near the highs of the week. That is bullish, until it ends. And as long as patterns in this index exist, there are going to be plenty of longs out there to make some money on.

Before I get out here I want to let everyone know that I have suffered yet another disturbing medical experience. I was supposed to run the marathon this Sunday, but, instead, sadly, I became VIOLENTLY ill the night before and for the first time in over ten years was forced to call an ambulance. During the ride to the hospital I suffered a twenty second “tonic” seizure. They do not know what the cause was or even why I got violently ill. It could have been food poisoning, the medication from my MS drug (I have Mutliple Sclerosis for those that don’t know), or dehydration. They simply don’t know. I just want to thank everyone for reading me and let you know that your readership is what helps keep me strong. Thank you very much, God bless, and Aloha. I will see you in the chatroom!!!!

WINNERS: OMTR 246% BCSI 92% ZNH 247% NVT 53% EDO 70% ICOC 80% WRLS 88% DECK 101% IMA 50% TTG 75%

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