It was another low volume Christmas holiday week. One that happens ever year and this one, like the last, was no different with the bullish sentiment throughout the week. However, the only real action came on a day when the market fell on higher volume giving all the indexes a distribution day. Basically, we had the same situation happen this week as has been happening all year: the market rallies on lower volume, sells off on clear heavy distribution, but then somehow rallies again on lower volume.
It is a very odd pattern but it is the pattern we have to continue to deal with until this market finally decides to give it up. Which every day seems more and more likely as I continue to see stock after stock priced over $70 put in lower and lower highs. Eventually this will translate to lower and lower lows and the way a lot of high priced stocks are looking my faith that this market rallies from here is very low. To me it seems like it is inevitable that we are going lower. If I am wrong, heck, you all know me by now. I will wait till the best charts setup and breakout and I will go long. But a lot of you like predictions so I am predicting that this doesn't end well in the intermediate term.
As each day goes by the news seems to get worse and worse, yet according to my indicators the crowd that actually puts money to work in the market are not bearish at all. The put/call fell to below 1.00 again to .88, the investors intelligence survey still shows bulls over 50% at 54.9% and bears below 25% at 23.1%, and the VIX is at 20.74 which as anyone who lived through the early 2000 period will tell you is a joke. So this is bearish? I don't think so. To go along with that I see this NYSE short-interest ratio breaking out to all-time highs of 9.86--it would take ten days to cover all the shorts at the current volume--which indicates that if this market starts moving up they will be forced to cover which would send stocks higher. But maybe it can be bearish as the smart money is shorting the heck out of stocks. If that is the case and the NYSE short-interest is the smart money, this market is going to get real ugly.
That ugliness is already showing up in my charts. I ask any of you to find me one stock that has solid fundies, max green BOP recently for a long period of time, is setting up in a nice base, trades over 100,000 shares daily, and is showing proper accumulation and distribution in the base. I scan over 1000 charts a night. Trust me, if there were any I would have found them by now. I am always working. The only stock out there that was a candidate was ARL. If you look at that chart on TC2007 with my settings you will see until that "spinning top" formed a few days ago, this stock was looking great. Too bad it averages 10k shares a day, is under $12 a share, and has crap for fundamentals. This is not quality. Stocks that look like NNDS and DAR are the best we have. Those charts are "semi-hot." But sadly they are not looking great either. DAR still doesn't have max green BOP and NNDS is almost testing the 50 day moving average and is now showing me a loss on the trade. To be honest, if that chart pattern fails, that will just be one more confirmation that this market is F * * * E D.
As for the leaders...have you seen their charts? Have you taken a look at GRMN recently. Doesn't it look like it is rolling over? Do you see all the big red volume bars compared to only one green one? This is a former leader under distribution and is in the process of rolling over. And it could be forming the chart pattern EVERYONE loves to talk about that you rarely will hear me talk about BECAUSE I KNOW THAT THEY DO NOT WORK IN BULL MARKETS. We are not in a bull market...so I would like to point your attention to the possible head and shoulders top pattern forming in GRMN. The volume is right, the price is right, and the resistance ceilings are all in alignment for a possible H&S top.
Now take a look at GOOG and RIMM. Both are failing to get to new highs but have been trying for quite a while now (if I have time I will post a chart but I don't charge enough here to do all this extra work). When you are looking at that price action, take a look at the volume. Notice how it is non existent on the rallies except for the day RIMM topped recently? The big boys are not buying up here any more. Soon without their support, these stocks are going to rollover. And if you don't believe me, try looking at your RS and MS lines on the lower pane of your TC2007 charts that I set up. You will see negative divergences not only in these two indicators but in many others.
What about the other two leaders hitting new highs? Ah, yes, AAPL and BIDU. The two invincible warriors. Well first lets look at the one not related to China. AAPL is probably in the best position as for a stock you want to continue to hold but the volume into these new high grounds is completely absent. And on a weekly it is clear that the selling in early November still trumps any volume on any rally. The RS line is confirming this stocks strength which means if you are long AAPL you should stay long. However, there is no way you can buy it up here. And that brings me to my point.
Everyone on CNBC is saying to buy AAPL. Everyone is saying that this stock is cheap and is worth paying for up here. Well, when I look at a long term arithmetic daily chart of AAPL going back to 2002, I can tell you that if you buy AAPL here you will be are risking a LOT of pain here. The chances of this extended stock rallying in this market environment is very small. The most intelligent investors will be best off just to completely avoid AAPL.
This now brings us to our last leader which has the almighty (is it really anymore now that we KNOW the GDP is overblown by at least 40%! They are only 10% of world GDP, not the 25% the doom-and-gloomers said they were) China factor caked into it. BIDU is another champ and another stock that if you are long you must continue to stay long. However, there are some clear signs that buying BIDU here would be a big mistake.
First off the price action has been very odd since November with the stock basing in December with more prominent down days than up days. And during the base, volume was quite noisy actually compared to the breakout. The breakout was on lower volume which is always a bearish development and is the first for this stock in such a magnitude. The juices seem to have been squeezed. Not only is the price and volume action all wrong, but the RS and MS lines are confirming the weakness in the stock compared to the overall market which just confirms that the stock will probably not survive this rally.
Obviously, all of my analysis is wrong if they continue to rally but something tells me that this probably will not happen. If it does happen, I will continue to declare this the most F-d up market in the history of my trading. It is just so random and can shake you out of positions so easily and I have no idea why that is.
However, I still have had a few great ones from the 2006 summer downtrend, despite the lower volume rallies in the indexes. Those beauties (HRZ AFSI TESO APPY OIIM etc...) aren't producing 200% gains in six months but that is because the VIX is at 20. If this was back in 1999 they would be much bigger. Just go and look at my past big winners in my longs section. When we get back to 2003 you are going to see 1000% gainers but even before we get there there were plenty of beautiful max green BOP filled charts that produced 100% to 500% gains during the worst bear market ever.
What is really depressing is that the worst bear market ever had much better long candidates than this one has produced so far. Stocks like NNDS might be up 5% already back in 2000 at this time. Even with the market down 50%. Take a look at some of the 2000-2000/2001 winners I am posting now. There are another six or so that have nice patterns and it will prove to you that even in bad markets there are some beautiful charts. Too bad our choppy maximum down 11% market can't produce anything other than RICK. And even then do you think RICK was screaming for the truck to back up and "load it up." It was extremely hot on October 10th I will admit but it was still a sub $12 stock so it is not like it was a for sure thing in a raging bull market where the indexes are making constant 2% gains on heavy volume. If that was the case I would have said back the truck up. It is all up to the market.
And this market just doesn't want to make anything easy which is why I believe we will be in a more 68-82 market environment than a 2000-2002 one. I see a lot of bulls and I see some hard core bears but something tells me the commodities and oil stocks are going to hold this market up for a while (I don't know how long so don't ask me, please; mahalo) and the NYSE will probably do much better than the Nassy and SP600 and 400 if this economy does break open. The bad news continues to come in.
Just today the new home sales dropped to its lowest level in 12 years which was back in April 1995. That sure is a long time and if you have signed up for the forums and have access you can see a chart of new home sales the past few years and see the huge hill that number is rolling over. The ECRI also said their LI fell 5.2% which hints at a higher chance of a recession soon. If that is the case, then the stock market is looking ahead and projecting it with all the REITs, hotel, bank, brokerage, mortgage, insurance-housing, homebuilders, and anything else related to subprimes and housing charts just looking like pure death. Have you seen SLM or ETFC lately? There are a ton of stocks that look like that. Just scan for the worst 50 stocks of 2007. You will see the damage that has been done.
But at the same time if you are going long oil stocks, natural gas stocks, and the ever home-run stocks (look at ASTIZ today) solar stocks, you are sitting pretty. I am still long FSLR but not nearly what I still should be. I hope I am not the reason a subscriber sold out of FSLR. If it is, let me know, and I will send you a gift. If you are not a plat member and your handle doesn't start with A, it IS NOT you. I continue to be long FSLR, ASTI, and SLH and I still wish I was long JASO. Oh well, 3 out of 4 is very good. But if anyone has seen a weekly chart on an arithmetic scale of FSLR, the only thing that can come to your mind is "when is this thing going to crash?"
The parabolic rise is getting quite ridiculous and the recent price action has been a bit odd with the wedging. If you draw a trendline along the lows of the September to December period, you can probably take some of your profit with a close below there but if you are not long these stocks I would not buy them here. Just like the five horseman of tech that I have talked about today, this stock has become a favorite. You might be able to buy it off the 50 dma with a low volume pullback but if you are like me and have a gain over 300% in seven months, you might want to consider locking in some profits. It sounds and feels wise. And I am sure if the stock breaks down you will wish you sold some. So make sure if you have a huge gain but you still have all of your original buy that you take some off. As Jesse Livermore said, “The big money in booms is always first made by the public – on paper… and on paper it remains.” I saw this in 2000. Please, don't let me see it again in 2008.
I just want everyone to remember that if you think you are having a hard time with this market, you need to know that you are supposed to. I know a few traders who have done exceptionally well and have been congratulated accordingly. For the newbies out there, this market is too hard to make money right now. And you have to remember even some of the best took a long time before they started to make a lot of money. One more time, Jesse Livermore said, “it took me five years to learn to play the game intelligently enough to make big money when I was right.”
If it took Jesse Livermore five years before he learned how to make the big money when he was right. What makes you think a year of casual part-time stock trading is going to produce a superior super-trader. It isn't. Please, stay realistic. You have to or else you are going to go crazy in stupid and irrational markets like this.
Besides the market, the world is a crazy place more so now due to the weaponology that exist out there making it a very dangerous place. The media constantly overblowing everything doesn't help either, but there constant negativity still hasn't affected the bullish stock investing public. When it comes to their finances they fell alright. But when it comes to what they think about everyone else, they are for sure we are going into a recession. This is one crazy market. I am just going to wait and pray for my beautiful max green charts and maybe, just maybe, another LMLP, NEWP, MRVC (from 99), TASR, FMDAY (from 03) or HRZ (06) will show up. All I can do is be patient or wait or else I am going to get myself into a lot of trouble. Now is not the time to bottom fish.
It is getting late here on Maui and I need to get some rest. I will add some more to this blog when I wake up...hopefully to some college football bowl games.
Saturday's thoughts:
-I just talked to someone in my family who is very intelligent and knows someone really close who is in the real estate industry in Miami. I have to admit that I could have sworn that these lenders were smart enough to realize that they were hurting borrowers. But from what I take of it all the real estate agents and lenders really were that stupid and ignorant to think that housing prices were going to rise forever. I know that I knew one RA here that thought the same thing but I thought he was the exception. Turned out he was the rule. It seems to me there is a LOT more pain to come.
-I have been looking over a lot of my past winners even from 2001-2003 and realize just how ugly our current market is. It is hard to remember (even though it was only four years ago) how well ALL of the chart patterns you see me buy worked then and how hard it is now. I know it is a correlation to the VIX and just have to admit that it is going to be harder to make a lot of money. But when you look below at these gains it is hard to complain I guess. I just wish it was easier to hold through the pullbacks. They don't happen as much (which is what creates a high VIX) but when they do happen they are faster and way more vicious (which is why the VIX is not at zero and we still have stocks that move).
-If there is one thing I have learned is how important it is to keep in contact with all family members. There was an incident when I was younger that happened where someone hurt themselves but complained that I punched them. It was a 4 year old girl and it caused my half-brother to charge me and create all hell that has lasted to this day. Well I just found out that 4 yr old girl is no longer a young girl and has now been diagnosed as a schizophrenic and can not even get a license to drive an automobile. That closed a book that lasted too long and healed a wound that was so unexplainable and odd that I have to share it. I am not sure why I am bringing it up but I see it correlating with stocks I seems to me that sometimes when we don't understand why a stock is moving higher or lower, but we want to know why it is doing this or that NOW. However, all of us know that it will be revealed later on but we still want to know why now. Many did not know why Enron was collapsing, many stood by when Adelphia went under, and so on. Most people watch their stock go from $60 to $5 without ever thinking of cutting their losses. Instead they just ask why? This happens all the time, no matter what year we are in.
Along the way all anyone did was ask why it was doing this and why it was falling. Just like in Tyco most did not know what was going on and had no clue why the stock was crashing and burning. This goes for any stock. But sometimes, in life and in stocks, things happen that do not make sense, are sad (when you lose money), and bring mass confusion. When you have a plan, however, none of this can effect you. You cut your losses, avoid the pain, save a lot of money, and move on to better opportunities. There are always other stocks out there and there are always other family members who are not crazy that you can share your love with. But that isn't as much the point as the question of "why?" Why is this happening? Why did she say that?? Why would they do this? It is the same thing in life and in the stock market. The best see the insanity and move on. This market is kind of like that with it not treating our stocks too well. It would be stupid to give the market all of our money when we know the market is insane and does not know what it is doing. If the stock market is flopping everywhere and we are hitting below .500, it is obvious that it is best to not have anything to do with that market
When this situation happened, in my teen years, I realized something was very wrong and no matter how messed up it was that it was just best to never speak to the cute and sweet niece again. Something was wrong with a 4 yr old!!!! and I knew at the time that it was best to cut my loss of this sweet person and leave it alone because, like a market that is crashing, something was very wrong. A niece that I loved was in fact crazy and nobody knew until much later when the diagnosis was made.
But just like in the stock market, I had to cut my losses and move on to better opportunities (other loving family members), like I said. It is just a tragic situation and I am such a chartaholic that when something like INXI, BLL, SNDA, or possibly DAR and NNDS fails, I want to know why. And maybe I will know why. But maybe, just maybe, later on I will find out that it was a crazy company with no real direction in its own little life. I know it sounds funny but this scenario matches up with the way we trade so much. There is too much to learn about this story and I wish I could explain it to really allow you to understand the insanity about it but it is sad but if you knew the full details of the story you would probably be too saddened. However, it is just another example of life imitating art. That is the art of the stock market.
Rather you realize it or not, if you do not remove yourself from bad situations (buying penny stocks in a bear market) and move on to new situations (CANSLIM stocks in bull markets), you not only help yourself but help others. You now have money that you can spend at other places of business that help those people and the cycle repeats itself. I know it is nothing profound but it is so important to realize your life impacts your trading and your trading impacts your life.
Just ask Jesse Livermore.
Trust me, you don't want the market and some of the greedy heartless Wall Street guys to take your money when you don't have to give it to them. Let the crazies play with the crazies. If you are crazy and enjoy painting the virgin Marry giving birth to Jesus in poo, go right ahead and do it. Just realize, I am never buying your $.01, 10k share a day, down trending, max red BOP filled chart. Where are all the max green BOP charts?
They are not around and that signals that we are around a bunch of crazies. Until the good guys come back, we have to avoid this niece.
I know this might sound odd to some of the regular readers but I wanted to put together this story in such a way that it was sort of goofy so as to not intensify the SERIOUS TRAGEDY this story really is. The great news is that my sister and her kids are doing wonderful, my life is really great, and most of my friends though they are all seeming to be going through rough time are all alive and have great jobs. If they weren't so lazy, maybe they could realize how great they have. Thankfully, I think they already know.
God bless you all, it has been a crazy year, and I am very happy it is coming to an end. No year was as ugly for the charts, since 2002, than this year was. This year being over only moves us one step closer to the time that we get our charts that we see in the 'past big winners' and the market treats us better. Because right now it sure isn't treating us well.
-Isn't college football great. I think this is my most favorite part of the New Year is all the College football bowl games. Which also correlates with last year's New Year's resolution: No more sports betting. Almost 365 days later: SUCCESS! Sports betting took over 1/2 of my mini-fortune that I built up investing in the market. And I am not going to let that happen again. God knows if I could I would probably destroy it all on sports. How sad is that? Pretty sad if you ask me.
top current holdings: MELI 57% ASTI 180% RICK 138% CCC 97% FCN 59% KOP 52% CNH 144% MTL 89% EBIX 114% MOS 433% AMZN 50% OMTR 335% NTLS 63% MA 325%(COH 27% CLP 31% PVH 21% SHOO 25% MI 21% ESI 20% RNT 23%)
Saturday, December 29, 2007
Saturday, December 22, 2007
I Told You Santa Claus Was Coming To Town; Big Gains On Much Higher Volume Put Stock Indexes Back In A Confirmed Rally
If there was any way you want a week to end, if you are a bull, this week was it, as the whole market closed higher on much higher volume thanks to options expiration. Santa Claus definitely came to town and wall street was very happy he decided to drop by the exchanges.
There were two ends of impressive action. The first being that the stocks that we want to see rally (small caps and tech stocks) did with the SP 600 and Russell 2000 up 2.35% and 2.37% respectively and the Nasdaq and Nasdaq 100 up 1.95% and 2.03% respectively. This kind of strong action is made even better because the Nasdaq, SP 600, Russell 2000, and all the big cap indexes tested their November lows and passed the test. Now all the indexes have reclaimed an important moving average, minus the SP 600, making this move ever the more important.
What was even more impressive about the rally is that the volume on the DJIA and SP 500 exploded over 50% above average and Nasdaq volume was 25% higher. That volume was definitely heavier due to options expiration but it seems to me that if this was strictly options expiration we would not have been up over 2% on some index. I know we did gap up and put in most of the gains in the morning. But even after that the Nasdaq and SP 600 clearly trended higher into the close showing that there was something more there than options expiration. However, how we act in the next few weeks will obviously show us if today was a day for the bulls or a day marked up to cause the most pain in the options market. No matter what though, if we lived under a rock and never heard of a CNBC but only knew the CANSLIM system, today was an accumulation day and a powerful one at that.
This rally has caught a lot of people by surprise but I want to remind everyone, that once again, we got this rally by simply doing one simple thing: following the trend. Had we not been trend followers of our stocks and instead believed the stagflation talking heads and economic doom and gloomers we may have missed a nice rally. And it is possible we could miss more. There is no doubt that there is much gathered skepticism on these gains. But fear did rise today on the put/call from .49 to .71 which shows that some people decided to buy puts on this rally instead of looking to "call" the market in higher. So, once again, I am going to say it again that this market is a tad oversold on the short term and there are a lot of stocks that are starting to look like RICK (chart at the end of commentary; this is one of my best winners and I am selling into this rally) and when you see these charts start to show up the best thing to do is join in on the fun while it last. The list of "pretty" stocks can be seen in the forums in the 'stocks I am selling and watching' section.
If you go here you will see that I am long quite a few stocks that have setup and broken out or bounced off of great patterns with a lot of green BOP and strong accumulation in their charts the past two months. This has been a quick and sudden change of the trend where just a week ago I only had a handful of stocks that were impressive and really green. Now after just one week a lot of charts that were looking OK now look great. When that happens, you have to play them. If the market fails and we rollover, the cut loss areas are so close that we will barely lose anything. But if these stocks run away and I miss out on the possible big gains that you can see in my top current holdings below I will be very upset and it will have a very negative psychological impact on my trading psyche.
However, before SOME OF YOU start to think that I am "calling a bottom" here, I want to make one thing clear. I work on many time frames. They usually comprise of a long-term, intermediate, sub-intermediate, and short-term trends. I like to work from weekly charts to daily charts to intraday charts (which I almost NEVER look at) so that I can see the forest instead of just the trees. This allows me to see the best setups that have taken a long time to develop. When those stocks finally breakout from those bases, those stocks usually will fly as long as their fundamentals are good to great. If they are not, then any rally in any weak stock could fail at any time. Which brings me to the most important thing that you need to always remember in the stock market. ANYTHING CAN HAPPEN AT ANY TIME.
There is nothing "for sure" ever! There is no "golden grail." The closest thing to a golden grail is a great trading methodology that takes all signals all the time and uses tight cut losses to prevent big losses. If you use this with a great money management program, trading can work out. However, too many traders do not want to do this. When you do not do this it becomes impossible to see the forest from the trees.
Right now, I think a lot of traders can not get a handle on this market because the majority of traders out there have absolutely no clue how to distinguish from one time frame to another. Just because I have been going long stocks right does not make me think that this market is going to keep rallying for the next year. The truth is I have absolutely no clue where the market is ever going to go. I just use the charts. What my charts tell me right now is that on the short-term the market wants to go up and that is obvious by all the green charts that are now showing up.
Even though all those charts are green, that still does not mean that all is clear. If that was the case the indexes would obviously be in a strong uptrend. That is CLEARLY not the case with not a single index above the 50 day moving average. Until they can do that there is no way I can think the coast is clear. Confirming that is also the amount of shorts that are still showing up in my scan, along with my 55 shorts still looking extremely weak like they can roll right over and start another leg down after a low volume rally. This resistance in the indexes and the stocks in the sectors that have taken a beating just seems a bit too much for the market to rally.
If you are at least a silver subscriber you can go look at the longs and notice that they all look great and that they all have solid fundamentals. But at the same time you will notice that most of these hot looking stocks are all in defensive sectors. So if the market rallies, these stocks will do very well but I do not think you are going to see any 500% gains in six months in this group. At the same time, even if the market rolls over as all of you are about ready to learn, a lot of stocks still go higher and the same chart patterns keep showing up year after year.
If you have been reading and studying those charts in the longs 'past big winners' section, you will be LONG on your way to know what to exactly see in your stock before you go long. As you will see shortly (because we are done with my 99-00 bull market winners) even during the bear market from March 2000-October 2002 there were plenty of stocks that produced 100% gains in one month to twelve months time. So just because the market is in a sub-intermediate and intermediate downtrend doesn't mean that we are not going to have any stocks rally. There is always a bull market somewhere. You just have to work a little bit if you wan to find them.
At the same time, with the market falling and some stocks giving us very green charts to go long, we will get our fill of shorts. Before this week, shorts were starting to act like magic with everything I touched going lower. However, this week, a lot of my shorts put in moves that make it appear that they could have trouble making moves lower on the short term. But like I just said earlier, ANYTHING CAN HAPPEN.
If I woke up on Monday morning and I saw the market (DJIA) up 200 or down 200, I would not be surprised at all. This market, if you look at it from July to the October highs on the Nasdaq, show that the market is basically unchanged since the July highs. What is funny is that during that time plenty of stocks have made big gains on the downside and some have made solid gains to the upside. Those who have been reading this site for a while know that our August to November rally brought us only one near-perfect to perfect chart (APPY) that was loaded with max green BOP. That is a signal of a market possibly running out of breath. I am sorry to say it to those who are "just now" getting interested in the market but...where were you in 2003 when this started? You are a bit late.
Even if the markets take off and hit new highs here, not only will I make good money in my stocks with nice charts but I will also be waiting for the moment to short it. The fact is that the leaders, minus BIDU, are all cracked (RIMM GOOG GRMN AAPL) and the best way to see the proof is to go to a long-term daily arithmetic chart going back to at least 2003. You will clearly see that at no other time were the stocks so wild. EVERY OTHER base on all of these charts look calm and "chillaxed" as the stock would breakout from them and rally. However, now we have stocks setting up in bases that look all wrong. I am looking at GOOG now and can not only see the TA negative divergences on a range of indicators but can almost feel the weight of the stock. They don't look like they want to stay up. RIMM gapped up over the night on Friday to put in big gains BUT the top tick was at the open. After that the stock sold off the rest of the day, finding support late in the day.
With RIMM being so close to new highs yet so many negative divergences showing like on GOOG, it is just hard to think it can hold up here. Then when I look at AAPL I see a stock that for the first time ever since its uptrend started a selloff on heavy distribution (November), rallied on lower volume (Nov-Dec), threw in another distribution day, and then hit new highs on lower volume below the 50 day volume average. About the only indicator in AAPL's favor is the RS line which is going to new highs with the price. If I was still long AAPL I would stay long but if you are not long AAPL there is no way you should even think of buying it up here.
The last leader I am watching is not FSLR--solar stocks live in a different universe and have gov momo behind them--is GRMN. If you look at an arithmetic chart going back to 2005 you can CLEARLY see the mess GRMN has become. Compare this former leader's chart to RICK's chart (which is getting very extended on the short which is why I am selling some now) on tcnet and you can see this nasty red beast is horrible looking compared to RICK or any of the pretty stocks listed in the forums. GRMN first cracked on huge distro in October, then did it again at the end of October, and then for fun gapped up in November officially putting this stock on short sellers radar screens. The stock did manage to get back above the 50 day moving average but has now failed it again and is moving right back to it on lower volume. If ever there was a time to short GRMN, I would guess now would be right. The distribution and lack of accumulation makes it seem that it has finally fallen out of favor with the funds.
However, looking for new shorts isn't really where I am at. Yes there were two stocks in my scans creating what I would consider great reward to risk ratios. So I took them. But until this market sells off on heavier volume, there is no way I am loading up. And now that the market has moved up on huge volume I can not be afraid to load up on longs UNTIL THE MARKET PROVES ITSELF WRONG. There have been a few gems recently and as long as they don't fail I will not be afraid to step into longs more aggressively as long as they are loaded with accumulation and max green BOP. If those don't show up, then I will continue to take it easy until a trend becomes clear. And right now no trend is clear.
Everything in my head and heart tells me to be bearish. With higher oil prices, higher inflation, and lower wages everyone has me believing we are moments away from the sky falling. History tells me to be bullish when that scenario happens but when I look at the VIX, put/call, and investors intelligence surveys all I want to do is laugh and sell stocks short thinking the crowd is too bullish. But then I go and see the green charts start to pop up again and start another nice move like HRBN and know that being long FOR NOW is right.
So my charts say one thing while a lot of people see another. If the cranks who live on Maui, who work out at my gym, believe a recession is happening RIGHT NOW, then it is probably safe buy stocks for the next six months. Because these guys have a track record of a dung beetle. Not only do they not TRULY follow politics but do you think they know what a "25 point basis cut" means? I doubt it. So I am not quite sure how to take this as my charts are working for now but do appear that after a rally that the remaining shorts I have will be ready to resume their downtrends.
However, at the same time, it is very possible, that I am not only in the right stocks to be long but that I am also in the right stocks to be short. You have to remember, if something doesn't work after I buy it, I don't stick around to see what it is going to do. I cut it immediately. The same thing if I go long, I do not sell it for a quick profit. Like the big gains you see below, like the 400% gain in MOS, I ride the trend till it ends. I have sound rules that I have had in place for the last eight years (been doing this for over 11--it takes a while to perfect your method). So for those that are mad that you are not making money, maybe you should take a good look in the mirror come back study my current top holdings and my past big winners. If you can't see the same patterns in all of those stocks, then maybe it is best to take a step back and reevaluate your trading.
The bottom line is you should be ready for anything and everything. You should be ready for the market next week to end flat, up 500, or down 500 and you should react the same to all outcomes. The only thing you should not let happen EVER is losses run. There was a recent example with ASYS that I posted for everyone to learn from. If you did not read it, you definitely did yourself a disservice as I not only snapped out of the zone and stepped back in the zone. By doing that I saved my ass by not losing a lot of money based on a trading mistake and instead of curling up in a ball and wetting myself, I went long and short the right combo of stocks that did exactly what their chart patterns said to do.
This is how master traders trade. I suggest that you learn what time frames you are in and learn to understand that it is possible to be bullish, bearish, and neutral all at the same time. You just have to ask what time frame you are discussing. Sometimes newbies aren't clear and us professionals operate on a different level and we assume you know things that are second nature to us. That is our faults and I know that I apologize for that.
However, almost ALL newbie mistakes can be fixed by reading all the books I have listed on my website. Heck, just reading a few of them will do you good. In the stock market, if you do not read, you will not succeed. If you are not reading those books and are not reading the articles printed in the forums, you fail and when you do you must realize it is not my fault; it is yours.
In the stock market, there is only one way to live. That is to always take personal responsibility for your mistakes and to own up for those bad decisions. This is something a lot of new traders and old alike have problems doing. I want to wish everyone a Merry Christmas and I want everyone to know that I will be posting market commentary after Wednesday's trading session but am going to take the half-day of trading off on Christmas Eve. I hope I have left you enough to read. But if I haven't, please check back and I will insert more points in there relevant places and label them for you as it is needed.
Aloha and I will see you in the chat room where right now it is very much a bull market.
PS: Remember all the talk of finishing with back-to-back negative months? There is no way I will lose my gains by the end of this week, since history shows that not much happens during this time (go ahead and look for yourself). So the streak continues. I love being a trend follower. It means NEVER having to say your sorry to someone who has gone broke. In twelve years I have NEVER met anyone I taught this to THAT STUCK WITH IT that failed. NOT ONE. Aloha!!
top holdings (shorts): MOS 405% OMTR 341% FSLR 310% KOP 55% MTL 90% EBIX 110% FCN 52% DECK 247% MA 324% YGE 101% GMO 50% CCC 95% CNH 140% CSIQ 58% RICK 131% (COH 27% CLP 33% FAF 26% RNT 23% SHOO 22% PVH 21% MI 20%)
RICK says, "what bear market?"
CHART AT BIGWAVETRADING.
There were two ends of impressive action. The first being that the stocks that we want to see rally (small caps and tech stocks) did with the SP 600 and Russell 2000 up 2.35% and 2.37% respectively and the Nasdaq and Nasdaq 100 up 1.95% and 2.03% respectively. This kind of strong action is made even better because the Nasdaq, SP 600, Russell 2000, and all the big cap indexes tested their November lows and passed the test. Now all the indexes have reclaimed an important moving average, minus the SP 600, making this move ever the more important.
What was even more impressive about the rally is that the volume on the DJIA and SP 500 exploded over 50% above average and Nasdaq volume was 25% higher. That volume was definitely heavier due to options expiration but it seems to me that if this was strictly options expiration we would not have been up over 2% on some index. I know we did gap up and put in most of the gains in the morning. But even after that the Nasdaq and SP 600 clearly trended higher into the close showing that there was something more there than options expiration. However, how we act in the next few weeks will obviously show us if today was a day for the bulls or a day marked up to cause the most pain in the options market. No matter what though, if we lived under a rock and never heard of a CNBC but only knew the CANSLIM system, today was an accumulation day and a powerful one at that.
This rally has caught a lot of people by surprise but I want to remind everyone, that once again, we got this rally by simply doing one simple thing: following the trend. Had we not been trend followers of our stocks and instead believed the stagflation talking heads and economic doom and gloomers we may have missed a nice rally. And it is possible we could miss more. There is no doubt that there is much gathered skepticism on these gains. But fear did rise today on the put/call from .49 to .71 which shows that some people decided to buy puts on this rally instead of looking to "call" the market in higher. So, once again, I am going to say it again that this market is a tad oversold on the short term and there are a lot of stocks that are starting to look like RICK (chart at the end of commentary; this is one of my best winners and I am selling into this rally) and when you see these charts start to show up the best thing to do is join in on the fun while it last. The list of "pretty" stocks can be seen in the forums in the 'stocks I am selling and watching' section.
If you go here you will see that I am long quite a few stocks that have setup and broken out or bounced off of great patterns with a lot of green BOP and strong accumulation in their charts the past two months. This has been a quick and sudden change of the trend where just a week ago I only had a handful of stocks that were impressive and really green. Now after just one week a lot of charts that were looking OK now look great. When that happens, you have to play them. If the market fails and we rollover, the cut loss areas are so close that we will barely lose anything. But if these stocks run away and I miss out on the possible big gains that you can see in my top current holdings below I will be very upset and it will have a very negative psychological impact on my trading psyche.
However, before SOME OF YOU start to think that I am "calling a bottom" here, I want to make one thing clear. I work on many time frames. They usually comprise of a long-term, intermediate, sub-intermediate, and short-term trends. I like to work from weekly charts to daily charts to intraday charts (which I almost NEVER look at) so that I can see the forest instead of just the trees. This allows me to see the best setups that have taken a long time to develop. When those stocks finally breakout from those bases, those stocks usually will fly as long as their fundamentals are good to great. If they are not, then any rally in any weak stock could fail at any time. Which brings me to the most important thing that you need to always remember in the stock market. ANYTHING CAN HAPPEN AT ANY TIME.
There is nothing "for sure" ever! There is no "golden grail." The closest thing to a golden grail is a great trading methodology that takes all signals all the time and uses tight cut losses to prevent big losses. If you use this with a great money management program, trading can work out. However, too many traders do not want to do this. When you do not do this it becomes impossible to see the forest from the trees.
Right now, I think a lot of traders can not get a handle on this market because the majority of traders out there have absolutely no clue how to distinguish from one time frame to another. Just because I have been going long stocks right does not make me think that this market is going to keep rallying for the next year. The truth is I have absolutely no clue where the market is ever going to go. I just use the charts. What my charts tell me right now is that on the short-term the market wants to go up and that is obvious by all the green charts that are now showing up.
Even though all those charts are green, that still does not mean that all is clear. If that was the case the indexes would obviously be in a strong uptrend. That is CLEARLY not the case with not a single index above the 50 day moving average. Until they can do that there is no way I can think the coast is clear. Confirming that is also the amount of shorts that are still showing up in my scan, along with my 55 shorts still looking extremely weak like they can roll right over and start another leg down after a low volume rally. This resistance in the indexes and the stocks in the sectors that have taken a beating just seems a bit too much for the market to rally.
If you are at least a silver subscriber you can go look at the longs and notice that they all look great and that they all have solid fundamentals. But at the same time you will notice that most of these hot looking stocks are all in defensive sectors. So if the market rallies, these stocks will do very well but I do not think you are going to see any 500% gains in six months in this group. At the same time, even if the market rolls over as all of you are about ready to learn, a lot of stocks still go higher and the same chart patterns keep showing up year after year.
If you have been reading and studying those charts in the longs 'past big winners' section, you will be LONG on your way to know what to exactly see in your stock before you go long. As you will see shortly (because we are done with my 99-00 bull market winners) even during the bear market from March 2000-October 2002 there were plenty of stocks that produced 100% gains in one month to twelve months time. So just because the market is in a sub-intermediate and intermediate downtrend doesn't mean that we are not going to have any stocks rally. There is always a bull market somewhere. You just have to work a little bit if you wan to find them.
At the same time, with the market falling and some stocks giving us very green charts to go long, we will get our fill of shorts. Before this week, shorts were starting to act like magic with everything I touched going lower. However, this week, a lot of my shorts put in moves that make it appear that they could have trouble making moves lower on the short term. But like I just said earlier, ANYTHING CAN HAPPEN.
If I woke up on Monday morning and I saw the market (DJIA) up 200 or down 200, I would not be surprised at all. This market, if you look at it from July to the October highs on the Nasdaq, show that the market is basically unchanged since the July highs. What is funny is that during that time plenty of stocks have made big gains on the downside and some have made solid gains to the upside. Those who have been reading this site for a while know that our August to November rally brought us only one near-perfect to perfect chart (APPY) that was loaded with max green BOP. That is a signal of a market possibly running out of breath. I am sorry to say it to those who are "just now" getting interested in the market but...where were you in 2003 when this started? You are a bit late.
Even if the markets take off and hit new highs here, not only will I make good money in my stocks with nice charts but I will also be waiting for the moment to short it. The fact is that the leaders, minus BIDU, are all cracked (RIMM GOOG GRMN AAPL) and the best way to see the proof is to go to a long-term daily arithmetic chart going back to at least 2003. You will clearly see that at no other time were the stocks so wild. EVERY OTHER base on all of these charts look calm and "chillaxed" as the stock would breakout from them and rally. However, now we have stocks setting up in bases that look all wrong. I am looking at GOOG now and can not only see the TA negative divergences on a range of indicators but can almost feel the weight of the stock. They don't look like they want to stay up. RIMM gapped up over the night on Friday to put in big gains BUT the top tick was at the open. After that the stock sold off the rest of the day, finding support late in the day.
With RIMM being so close to new highs yet so many negative divergences showing like on GOOG, it is just hard to think it can hold up here. Then when I look at AAPL I see a stock that for the first time ever since its uptrend started a selloff on heavy distribution (November), rallied on lower volume (Nov-Dec), threw in another distribution day, and then hit new highs on lower volume below the 50 day volume average. About the only indicator in AAPL's favor is the RS line which is going to new highs with the price. If I was still long AAPL I would stay long but if you are not long AAPL there is no way you should even think of buying it up here.
The last leader I am watching is not FSLR--solar stocks live in a different universe and have gov momo behind them--is GRMN. If you look at an arithmetic chart going back to 2005 you can CLEARLY see the mess GRMN has become. Compare this former leader's chart to RICK's chart (which is getting very extended on the short which is why I am selling some now) on tcnet and you can see this nasty red beast is horrible looking compared to RICK or any of the pretty stocks listed in the forums. GRMN first cracked on huge distro in October, then did it again at the end of October, and then for fun gapped up in November officially putting this stock on short sellers radar screens. The stock did manage to get back above the 50 day moving average but has now failed it again and is moving right back to it on lower volume. If ever there was a time to short GRMN, I would guess now would be right. The distribution and lack of accumulation makes it seem that it has finally fallen out of favor with the funds.
However, looking for new shorts isn't really where I am at. Yes there were two stocks in my scans creating what I would consider great reward to risk ratios. So I took them. But until this market sells off on heavier volume, there is no way I am loading up. And now that the market has moved up on huge volume I can not be afraid to load up on longs UNTIL THE MARKET PROVES ITSELF WRONG. There have been a few gems recently and as long as they don't fail I will not be afraid to step into longs more aggressively as long as they are loaded with accumulation and max green BOP. If those don't show up, then I will continue to take it easy until a trend becomes clear. And right now no trend is clear.
Everything in my head and heart tells me to be bearish. With higher oil prices, higher inflation, and lower wages everyone has me believing we are moments away from the sky falling. History tells me to be bullish when that scenario happens but when I look at the VIX, put/call, and investors intelligence surveys all I want to do is laugh and sell stocks short thinking the crowd is too bullish. But then I go and see the green charts start to pop up again and start another nice move like HRBN and know that being long FOR NOW is right.
So my charts say one thing while a lot of people see another. If the cranks who live on Maui, who work out at my gym, believe a recession is happening RIGHT NOW, then it is probably safe buy stocks for the next six months. Because these guys have a track record of a dung beetle. Not only do they not TRULY follow politics but do you think they know what a "25 point basis cut" means? I doubt it. So I am not quite sure how to take this as my charts are working for now but do appear that after a rally that the remaining shorts I have will be ready to resume their downtrends.
However, at the same time, it is very possible, that I am not only in the right stocks to be long but that I am also in the right stocks to be short. You have to remember, if something doesn't work after I buy it, I don't stick around to see what it is going to do. I cut it immediately. The same thing if I go long, I do not sell it for a quick profit. Like the big gains you see below, like the 400% gain in MOS, I ride the trend till it ends. I have sound rules that I have had in place for the last eight years (been doing this for over 11--it takes a while to perfect your method). So for those that are mad that you are not making money, maybe you should take a good look in the mirror come back study my current top holdings and my past big winners. If you can't see the same patterns in all of those stocks, then maybe it is best to take a step back and reevaluate your trading.
The bottom line is you should be ready for anything and everything. You should be ready for the market next week to end flat, up 500, or down 500 and you should react the same to all outcomes. The only thing you should not let happen EVER is losses run. There was a recent example with ASYS that I posted for everyone to learn from. If you did not read it, you definitely did yourself a disservice as I not only snapped out of the zone and stepped back in the zone. By doing that I saved my ass by not losing a lot of money based on a trading mistake and instead of curling up in a ball and wetting myself, I went long and short the right combo of stocks that did exactly what their chart patterns said to do.
This is how master traders trade. I suggest that you learn what time frames you are in and learn to understand that it is possible to be bullish, bearish, and neutral all at the same time. You just have to ask what time frame you are discussing. Sometimes newbies aren't clear and us professionals operate on a different level and we assume you know things that are second nature to us. That is our faults and I know that I apologize for that.
However, almost ALL newbie mistakes can be fixed by reading all the books I have listed on my website. Heck, just reading a few of them will do you good. In the stock market, if you do not read, you will not succeed. If you are not reading those books and are not reading the articles printed in the forums, you fail and when you do you must realize it is not my fault; it is yours.
In the stock market, there is only one way to live. That is to always take personal responsibility for your mistakes and to own up for those bad decisions. This is something a lot of new traders and old alike have problems doing. I want to wish everyone a Merry Christmas and I want everyone to know that I will be posting market commentary after Wednesday's trading session but am going to take the half-day of trading off on Christmas Eve. I hope I have left you enough to read. But if I haven't, please check back and I will insert more points in there relevant places and label them for you as it is needed.
Aloha and I will see you in the chat room where right now it is very much a bull market.
PS: Remember all the talk of finishing with back-to-back negative months? There is no way I will lose my gains by the end of this week, since history shows that not much happens during this time (go ahead and look for yourself). So the streak continues. I love being a trend follower. It means NEVER having to say your sorry to someone who has gone broke. In twelve years I have NEVER met anyone I taught this to THAT STUCK WITH IT that failed. NOT ONE. Aloha!!
top holdings (shorts): MOS 405% OMTR 341% FSLR 310% KOP 55% MTL 90% EBIX 110% FCN 52% DECK 247% MA 324% YGE 101% GMO 50% CCC 95% CNH 140% CSIQ 58% RICK 131% (COH 27% CLP 33% FAF 26% RNT 23% SHOO 22% PVH 21% MI 20%)
RICK says, "what bear market?"
CHART AT BIGWAVETRADING.
Sunday, December 16, 2007
The Selling Continues With Stock Market Indexes Closing Near Their LOD; Charts Can Definitely Make A Difference!
The Selling Continues With Stock Market Indexes Closing Near Their LOD; Charts Can Definitely Make A Difference!
December 15, 2007
Friday’s selling came on lower volume but one thing was very clear by the end of the day. The bulls have absolutely no juice and if a gigantic multi-Fed driven liquid injection in the market can’t keep the market up, I am not sure what people think will keep it up. Everyone knows that I only follow the charts to make my trades. And you better believe that is the truth. But sometimes you can look at the macro economy and combine what you see with charts to give you even more conviction than you normally would have with just the charts.
Recently it has become clear that the individual charts that have been showing up in my long scans are deteriorating to the point where there are no perfect charts, only a few green charts, and those that are looking strong are all in defensive industries. When I combine what I see in the long scans to what I see in the short scans, I can see that the numbers on the short scans are growing and growing and the ugliness of the charts are getting pretty nasty. This can be seen on the forums by looking in the area where I post all of my sells. If you notice a lot of stocks are showing up on the ‘nasty’ list.
These charts combined with the downtrends in all the indexes since the November top makes it pretty clear that we are going to be in a rough spot for quite a while. Now, I know some of you do not want to believe that and think that I am crazy. But I am telling you that I have been through enough good and bad and sideways market to have seen it all in the charts. I have also studied the market indexes in TCNet going back to the early 1900’s on the DJIA. So I have learned what bull markets look like, bear markets look like, consolidating markets look like, and even what it looks like when a bottom or top is forming.
From what I see now, we have a real top forming here. If I am wrong and the market has put in a real meaningful low on 11/28… then I am wrong, I admit it and I will change my current outlook. However, if we rally here and I do not find any charts at all that look like the ‘past big winners’ that I have been posting recently, there is no way I will believe that the rally will succeed.
We could easily start to rally here and have a lot of stocks put in small (thanks to the low VIX) gains early but not see any stocks blastoff from long solid bases. If this scenario happens I just find it hard to believe that we could hold on. So many of the leaders that continue to rally (in the non-commodity related areas of the market) like RIMM GOOG BIDU and AAPL have serious problems with them and are all coming from lows from 2002-2005. The point there is that these leaders have been running for such a long time EVERYONE knows about them and all the negative divergences are hinting that these stocks are going to reverse and not succeed in this current run. So far my short in GOOG has picked up 24 points to the downside resulting in a nice little gain very quickly.
Besides having the same big cap tech leaders trying to lead now, we have the same commodity stocks running. When you go looking for brand new exciting companies that are breaking out of long well structured bases, you can not find anything. If you go back to 1996, 1997, 1998, 1999, and 2003, you can see after every bearish phase in the market (which all last at least two months minimum) there were always at least a handful of stocks setting up in solid bases with the whole base being green to max green and there were always at least two handfuls of high quality CANSLIM stocks. This proved that the rally was ready to rock-and-roll. Right now, I can’t find anything except DAR EGN HRBN TRUE RICK and a few others. If you think these are these stocks have the ability to fly, you are wrong. They are all part of defensive sectors which historically produce less gains that CANSLIM quality or momentum stocks. All of these have good numbers and nice charts but none of them are LOADED with green to max green BOP except somewhat TRUE and RICK. If you look at some of my past winners you can see the best stocks look much better. Until they show up, I just can not get bullish.
Earlier this year we had AFSI and TESO, which came right after HRZ, making late 2006 and early 2007 pretty good considering how long this rally has lasted. Which always makes it harder to make money. The biggest gains are made in the early stages of a bull market. Without the NYSE falling more than 10% from the 2003 rally till now, we have not had any chance what so ever to nail huge winners. There wasn’t a single 1000% winner in my port since selling TASR in 2003. Since then only a one 500% gain and a few 400% gains have been produced in some of my best looking charts. The 550% winner’s chart sucked me out of half of it within the first few weeks when it hit one of my cut loss points. All of the lack of huge gains and hot charts are completely due to the market not having a 10% pullback until July of this year. And the fact we have seen no hot charts since that 10% drop that has worked is not a good sign.
The most green charts, since then has been AGX. Of course, as soon as it gives a buy signal with its beautiful chart, it immediately fails the next day. That is a clear sign of a bad market. The other sign is the fact that all the nice charts are either defensive stocks, oil stocks, illiquid stocks with very low average daily volume, or ETF’s in closed end funds. This market looks just like the crap markets of August 2000-October 2002. Since it is just now starting to look like this, I don’t think that bodes well for the immediate future of the stock market.
Now when I take this and combine with everything I see on CNBC it becomes clear that we have some real problems. Back when the market was rising and everyone was crying about the subprime problem, I was listening but still taking the longs that showed up. While I was doing that, I guess a lot of people thought it was wiser to scare people away from stocks. Whatever, to each there own. Now that the market is falling and that stocks are moving down in force, only now do I care about the subprime issue which I can see taking its toll on the markets in the insuarnce, mortgage, REITS, homebuilder, banks, and brokerage stocks.
Then on top of that we have the worst thing possible that stock markets historically have never liked. And that is uncertainty. When the Fed lowered rates 25 basis points, wall street was pissed as everyone expected a surprise 50 basis points because the guys who are closest to all of this paper know that it is beyond ugly and is going to get extremely bad as a lot of these ARM reset. It is going to be real bad. But now you have the Fed not cooperating and instead cut 25 basis points. OK, that was foolish enough, I will give them that (at the time). But then they go and do something completely out of character that the market was just stunned.
They decided with the help of many banks around the world to inject liquidity into a stock market in a nasty downtrend full of major selling. nice gesture, but all you did was allow futures to fly allowing shorts to open positions in the market at tremendous prices. This allowed me to get excellent fills on ALL 13 shorts and as the day went on the markets sold off and closed near the lows. This was a complete slap in the face to the Fed and clearly shows that the market has no real confidence in Ben at all. Why? Because the market top ticked at the open and since then we are almost 5% off on the SP 600 which was the leading index on the way up in 2003-2006 and is now leading the way down in 2007. Not only is the SP 600 in trouble with it trending below its downtreinding 50 day moving average with the soon to be rolling over of the 200 day moving average, but Ben is in a lot of trouble with some big boys on the street that want the man out.
With all of this it just too hard for me to be bullish. Not only that, I saw that the Investors Intelligence survey came out with bulls rising to 53% and bears falling to 25%. However, on the realmoney.com poll it is the other way around. Normally, that means that on the short term we can expect a rally but in the intermediate to long term since the crowd is bullish, we should turn lower. Also the put/call is above 1.00 at 1.02 which is considered high and bullish since more puts are being bought than sold. But recently this indicator has really stunk it up and readings above 1.2 to 1.3 are needed, imo. The Investors Intelligence is the one I watch.
So even though the market is very ugly out there and ever day after the gap up I have been bearish and expecting lower prices (even with some subscribers being bullish and trying to convince me why), I do expect a bit of a low volume rally I guess back to the moving averages where then I expect the big downtrend to continue. This market is sick and I don’t believe a doctor can help it any time soon. When I see a lot of green charts with nice round bases full of accumulation in that base which is then followed by a breakout on huge volume, then and only then will I be bullish.
I hope everyone has a great weekend. Have fun and be careful out there. Newbies please stay cash heavy and watch and learn in this market. This is not the market to be going all-in on margin. There are going to be a lot of whipsaw so being safe is the best way to be right now. Aloha and I will see you in the chat room!!
top current holdings: YGE 88% FSLR 287% DECK 225% IHS 243% CNH 132% DECK 236% ICOC 93% MOS 360% EBIX 85% SXC 51% OMTR 309% MA 349% RICK 114% SXE 98% TDG 50% ZIXI 158% APPY 80% (RNT 23% FAF 26% SHOO 20% FTEK 28% CLP 27%)
December 15, 2007
Friday’s selling came on lower volume but one thing was very clear by the end of the day. The bulls have absolutely no juice and if a gigantic multi-Fed driven liquid injection in the market can’t keep the market up, I am not sure what people think will keep it up. Everyone knows that I only follow the charts to make my trades. And you better believe that is the truth. But sometimes you can look at the macro economy and combine what you see with charts to give you even more conviction than you normally would have with just the charts.
Recently it has become clear that the individual charts that have been showing up in my long scans are deteriorating to the point where there are no perfect charts, only a few green charts, and those that are looking strong are all in defensive industries. When I combine what I see in the long scans to what I see in the short scans, I can see that the numbers on the short scans are growing and growing and the ugliness of the charts are getting pretty nasty. This can be seen on the forums by looking in the area where I post all of my sells. If you notice a lot of stocks are showing up on the ‘nasty’ list.
These charts combined with the downtrends in all the indexes since the November top makes it pretty clear that we are going to be in a rough spot for quite a while. Now, I know some of you do not want to believe that and think that I am crazy. But I am telling you that I have been through enough good and bad and sideways market to have seen it all in the charts. I have also studied the market indexes in TCNet going back to the early 1900’s on the DJIA. So I have learned what bull markets look like, bear markets look like, consolidating markets look like, and even what it looks like when a bottom or top is forming.
From what I see now, we have a real top forming here. If I am wrong and the market has put in a real meaningful low on 11/28… then I am wrong, I admit it and I will change my current outlook. However, if we rally here and I do not find any charts at all that look like the ‘past big winners’ that I have been posting recently, there is no way I will believe that the rally will succeed.
We could easily start to rally here and have a lot of stocks put in small (thanks to the low VIX) gains early but not see any stocks blastoff from long solid bases. If this scenario happens I just find it hard to believe that we could hold on. So many of the leaders that continue to rally (in the non-commodity related areas of the market) like RIMM GOOG BIDU and AAPL have serious problems with them and are all coming from lows from 2002-2005. The point there is that these leaders have been running for such a long time EVERYONE knows about them and all the negative divergences are hinting that these stocks are going to reverse and not succeed in this current run. So far my short in GOOG has picked up 24 points to the downside resulting in a nice little gain very quickly.
Besides having the same big cap tech leaders trying to lead now, we have the same commodity stocks running. When you go looking for brand new exciting companies that are breaking out of long well structured bases, you can not find anything. If you go back to 1996, 1997, 1998, 1999, and 2003, you can see after every bearish phase in the market (which all last at least two months minimum) there were always at least a handful of stocks setting up in solid bases with the whole base being green to max green and there were always at least two handfuls of high quality CANSLIM stocks. This proved that the rally was ready to rock-and-roll. Right now, I can’t find anything except DAR EGN HRBN TRUE RICK and a few others. If you think these are these stocks have the ability to fly, you are wrong. They are all part of defensive sectors which historically produce less gains that CANSLIM quality or momentum stocks. All of these have good numbers and nice charts but none of them are LOADED with green to max green BOP except somewhat TRUE and RICK. If you look at some of my past winners you can see the best stocks look much better. Until they show up, I just can not get bullish.
Earlier this year we had AFSI and TESO, which came right after HRZ, making late 2006 and early 2007 pretty good considering how long this rally has lasted. Which always makes it harder to make money. The biggest gains are made in the early stages of a bull market. Without the NYSE falling more than 10% from the 2003 rally till now, we have not had any chance what so ever to nail huge winners. There wasn’t a single 1000% winner in my port since selling TASR in 2003. Since then only a one 500% gain and a few 400% gains have been produced in some of my best looking charts. The 550% winner’s chart sucked me out of half of it within the first few weeks when it hit one of my cut loss points. All of the lack of huge gains and hot charts are completely due to the market not having a 10% pullback until July of this year. And the fact we have seen no hot charts since that 10% drop that has worked is not a good sign.
The most green charts, since then has been AGX. Of course, as soon as it gives a buy signal with its beautiful chart, it immediately fails the next day. That is a clear sign of a bad market. The other sign is the fact that all the nice charts are either defensive stocks, oil stocks, illiquid stocks with very low average daily volume, or ETF’s in closed end funds. This market looks just like the crap markets of August 2000-October 2002. Since it is just now starting to look like this, I don’t think that bodes well for the immediate future of the stock market.
Now when I take this and combine with everything I see on CNBC it becomes clear that we have some real problems. Back when the market was rising and everyone was crying about the subprime problem, I was listening but still taking the longs that showed up. While I was doing that, I guess a lot of people thought it was wiser to scare people away from stocks. Whatever, to each there own. Now that the market is falling and that stocks are moving down in force, only now do I care about the subprime issue which I can see taking its toll on the markets in the insuarnce, mortgage, REITS, homebuilder, banks, and brokerage stocks.
Then on top of that we have the worst thing possible that stock markets historically have never liked. And that is uncertainty. When the Fed lowered rates 25 basis points, wall street was pissed as everyone expected a surprise 50 basis points because the guys who are closest to all of this paper know that it is beyond ugly and is going to get extremely bad as a lot of these ARM reset. It is going to be real bad. But now you have the Fed not cooperating and instead cut 25 basis points. OK, that was foolish enough, I will give them that (at the time). But then they go and do something completely out of character that the market was just stunned.
They decided with the help of many banks around the world to inject liquidity into a stock market in a nasty downtrend full of major selling. nice gesture, but all you did was allow futures to fly allowing shorts to open positions in the market at tremendous prices. This allowed me to get excellent fills on ALL 13 shorts and as the day went on the markets sold off and closed near the lows. This was a complete slap in the face to the Fed and clearly shows that the market has no real confidence in Ben at all. Why? Because the market top ticked at the open and since then we are almost 5% off on the SP 600 which was the leading index on the way up in 2003-2006 and is now leading the way down in 2007. Not only is the SP 600 in trouble with it trending below its downtreinding 50 day moving average with the soon to be rolling over of the 200 day moving average, but Ben is in a lot of trouble with some big boys on the street that want the man out.
With all of this it just too hard for me to be bullish. Not only that, I saw that the Investors Intelligence survey came out with bulls rising to 53% and bears falling to 25%. However, on the realmoney.com poll it is the other way around. Normally, that means that on the short term we can expect a rally but in the intermediate to long term since the crowd is bullish, we should turn lower. Also the put/call is above 1.00 at 1.02 which is considered high and bullish since more puts are being bought than sold. But recently this indicator has really stunk it up and readings above 1.2 to 1.3 are needed, imo. The Investors Intelligence is the one I watch.
So even though the market is very ugly out there and ever day after the gap up I have been bearish and expecting lower prices (even with some subscribers being bullish and trying to convince me why), I do expect a bit of a low volume rally I guess back to the moving averages where then I expect the big downtrend to continue. This market is sick and I don’t believe a doctor can help it any time soon. When I see a lot of green charts with nice round bases full of accumulation in that base which is then followed by a breakout on huge volume, then and only then will I be bullish.
I hope everyone has a great weekend. Have fun and be careful out there. Newbies please stay cash heavy and watch and learn in this market. This is not the market to be going all-in on margin. There are going to be a lot of whipsaw so being safe is the best way to be right now. Aloha and I will see you in the chat room!!
top current holdings: YGE 88% FSLR 287% DECK 225% IHS 243% CNH 132% DECK 236% ICOC 93% MOS 360% EBIX 85% SXC 51% OMTR 309% MA 349% RICK 114% SXE 98% TDG 50% ZIXI 158% APPY 80% (RNT 23% FAF 26% SHOO 20% FTEK 28% CLP 27%)
Saturday, December 08, 2007
SP 500 And Nasdaq Pullback In A Calm Fashion On Lower Volume, While The DJIA And IBD Indexes Continue To Rally
SP 500 And Nasdaq Pullback In A Calm Fashion On Lower Volume, While The DJIA And IBD Indexes Continue To Rally; Where Is The Volume And Where Are The New Leading Stocks?
December 7, 2007
Overall, it was a pretty choppy and inconsistent day on Friday, but it was still a good day when we take it and consider that we continue to hold well in the face of all the bad news from the subprime area of the economy.
I heard many complain that we did not finish higher today on the Nasdaq. I, however, disagree with them and find it more bullish that we finished a tad lower. That shows me that we are consolidating the gains, since the November 28th follow-through day from the IBD indexes, quite well. If we would have sold off today on heavier volume, then I wouldn’t consider the days action bullish. But the fact the we sold off a little and the volume was lower is exactly how you want to see the market pullback after adding on some solid gains.
Don’t forget that the DJIA finished higher, even though volume was extremely low, and that the IBD 100 and IBD 85-85 indexes finished higher. The big caps and leading stocks seemed to hold up well on a day of profit taking. So the people that were not happy with the Nasdaq do not have to look too far to find some other positives in the market.
The fact that we have not sold off at all since the follow-through day has to be taken as a great sign for the bulls, considering that the market was starting to look like it was read to fall apart. Even though we have not had an up day where volume was just simply huge, the market is still offering up enough stocks with solid fundamentals that the rally is working. Obviously, if there was more volume, the gains would be bigger and the longs would be more interesting. Right now, there are very few longs that look beautiful. Instead most only bring a little smile to my face. I still do not see anything out there that makes me want to jump up and down full of joy.
This market, this year, has taught us all something very important that I am not sure many appreciate. The market this year has looked like it is going to top multiple times and every time that it looks like the market is about ready to break wide open it almost always goes on to rally. During the years of 2004-2006 I had to convince people over and over that the market was not done rallying. Every time we would start to selloff, everyone would tell me that “this is it, it is all over.” But every time we would selloff, I would see many new top stocks with pretty bases setup.
That continued until this year. When stocks started selling off in February, very few fresh new longs showed up. Instead it took a while but eventually the market got its legs together and then some new longs showed up. The exact same thing happened in August except the lows in August were decently easy to spot since sentiment got so poor and there were a lot of charts holding up well into the selling. The rally that came off those lows, as many subscribers know, produced many quick big gains from top stocks that took off immediately. All the laggards however were quick to rollover.
So when the selling started in November it appeared that the top was finally in as all our leading four-horseman stocks started selling off on heavy volume for the first time. There was no time before when all these leaders sold off on heavy volume. However, as soon as these stocks started selling off, the stocks that were breaking down started to hammer out short-term lows putting a floor in this market which then turned the leaders around and now have them back into high ground or near high ground. If this hasn’t just been amazing to everyone, then it is obvious you have not been watching the market close enough.
Those that have been watching this market know that the constant rallies in the face of this strong distribution is just amazing. However, the new highs in the leading stocks are coming this time without something: volume. Where is the volume? Where is the accumulation? There is none. What we have instead is a market that seems to have been so oversold that a rally had to happen.
The past few weeks I went out of my way to show you the sentiment in the market on almost a daily basis. Well I do that during bad markets because it is very important to follow. When a real bottom is put in there are a lot of sentiment indicators that hit certain levels that confirm the price and volume that a market has probably put in a low. Well if we use the August lows as the bottom, then the market is still in a period to continue to rally. But if we count the selloff from November as negating the August rally, which is what I believe we have to do when you look at the SP 600 and Russell 2000, then we simply have not had the bearish or fear needed to put in a bottom.
Instead we have put in a short-term bottom due to the market being extremely oversold. If that is the case, then the low volume on this rally makes perfect sense. If this rally was on huge volume, I am sure I would have a lot of pretty green BOP filled charts that work (like RICK) instead of charts that are working but that don’t look at hot (like ELMG and its yellow BOP). So the fact that there are so few hot charts and new leaders breaking out from sound bases and that the current leaders off the 2003 lows (GOOG RIMM BIDU AAPL AMZN) that are now hitting new highs with negative divergences in almost every technical indicator including overall volume.
The first stock we can look at is GOOG. If you notice that GOOG is very close to its November highs but look at the bottom part of your charts. Where is the volume on this rally? Now look at the RS. Do you notice that it is well below the old highs? Then look at the moneystream. Notice its negative divergence. Now look at the BOP. Notice the negative divergence? This is just one example.
The next weak past winner I am watching is RIMM. I technically should be short a little of this stock but my luck on the short side has been iffy recently and almost all of my nicer looking longs have been producing solid gains during the market’s uptrend. As long as the market continues to drift higher, I have to stay away from shorting RIMM until it sets up in a picture perfect historically high odd trade.
Right now, the stock is weaker than all the others as it put in a lower high at the end of November with the RS line coming in well below the old high in early November. That high came with four days of distribution that has been followed by a few days of a low volume rally. If the stock fails again, I might begin to poke a little and try another round of shorting this former leader. However, it would probably be wiser to wait for the 200 day moving average to catch up more to price before getting too big on a short in this stock. If you look at the moneystream you can see that it is making new lows well below the early November s lows. This, despite the price being above the November lows. Also the BOP is red and ugly still just like it was when it started selling off. So it is obvious there is not a lot of accumulating interest in this stock anymore. A weekly chart shows three weeks of distribution the past four which clearly tells you what is going on with RIMM.
BIDU is another leader that is at the old highs in early November but yet nothing else about the stock is. There are negative divergences in almost every indicator with the RS well below the early November highs and moneystream is even in worse shape. The only thing going for it is that BOP is turning green but with the rally coming on lower and lower volume BIDU appears to be headed the same fate RIMM and GOOG are headed for soon.
The strongest leader relative to the market is AAPL with its RS line well into new high ground. While the RS line is deeper into new high ground than price it isn’t by much and then the moneystream is still no where near new highs. That line is still well below the old highs in November. The BOP has also turned negative to where it was still dancing around the zero line early in November.
The point of this is to show you that the leaders that everyone is still talking about as the for sure thing that is a safe haven in any market are all starting to weaken. This is the first time they have sold off on heavy volume and rallied on lower volume to such extremes with all the technical divergence. This action in the leading stocks along with the weak rally in the market with few hot new longs is what continues to keep my mind cautious on the rally. However, even though I am cautious and I expect this thing to fail it sure doesn’t mean that I am just going to ignore the long side and miss gains in stocks that can rally fast in a short period of time.
Sure there are not a lot of RICK stocks out there but there are plenty of EGN stocks out there. And being long EGN is a lot safer than being short stocks that are not moving down. I know a lot of people shorting banks, home builders, and mortgage stocks down here. It is just shocking because most of these stocks have been destroyed and have no chance of going to zero. However, what is obvious to everyone usually no longer works and I think those short sellers are in that situation. Not only are they in that situation but those that continue to believe that AAPL, RIMM, BIDU, and GOOG will always be a safe place to put money to continue to rack up gains are also in that situation.
The best bet is to keep bets small, keep them focused on the long side in the top stocks in leading industries until we get some real distribution in this market, cut your losses fast if they don’t move up immediately, and do not focus on the short side just yet. There are markets that are meant to be traded and then there are market that can be traded but shouldn’t. That is what this market is to newbies. This is not the market where we are going to get a TASR or TZOO. We are not going to get those until we have a serious selloff in equities.
I know some think that we have had a real selloff already. But no real selloff is under 20% and no real selloff comes with a bottom without fear. Where is the fear? It sure seems pretty darn complacent to me. As long as the complacency continues to reward the longs I will be complacent and ride the trend up with my friends like EGN RICK FFH and OTEX. Now if only the speculative former max green stocks like AGX would move like the other slow safe Utilities, Telco, Soap, and Insurance stocks. Then we could have some fun. Instead we must be happy with a 25% gain in all the stocks that give us that. We will not be getting many 100% to 300% gains in this choppy market. Enjoy what you can get when you can get it. This is not the type of market to be on full margin. The 2005 lows was the last one that had enough fear to produce a gain like 550% in six months in ERS. Since then, there has been nothing.
Aloha and I will see you in the chat room where I will do my best to find the next TASR. Just don’t expect me to find it until after we have a real bear market. ALOHA!!!
top current holdings: ICOC 88% YGE 70% FSLR 262% MTL 92% MA 322% MOS 343% ATRO 55% CNH 138% ZIXI 181% RICK 97%
December 7, 2007
Overall, it was a pretty choppy and inconsistent day on Friday, but it was still a good day when we take it and consider that we continue to hold well in the face of all the bad news from the subprime area of the economy.
I heard many complain that we did not finish higher today on the Nasdaq. I, however, disagree with them and find it more bullish that we finished a tad lower. That shows me that we are consolidating the gains, since the November 28th follow-through day from the IBD indexes, quite well. If we would have sold off today on heavier volume, then I wouldn’t consider the days action bullish. But the fact the we sold off a little and the volume was lower is exactly how you want to see the market pullback after adding on some solid gains.
Don’t forget that the DJIA finished higher, even though volume was extremely low, and that the IBD 100 and IBD 85-85 indexes finished higher. The big caps and leading stocks seemed to hold up well on a day of profit taking. So the people that were not happy with the Nasdaq do not have to look too far to find some other positives in the market.
The fact that we have not sold off at all since the follow-through day has to be taken as a great sign for the bulls, considering that the market was starting to look like it was read to fall apart. Even though we have not had an up day where volume was just simply huge, the market is still offering up enough stocks with solid fundamentals that the rally is working. Obviously, if there was more volume, the gains would be bigger and the longs would be more interesting. Right now, there are very few longs that look beautiful. Instead most only bring a little smile to my face. I still do not see anything out there that makes me want to jump up and down full of joy.
This market, this year, has taught us all something very important that I am not sure many appreciate. The market this year has looked like it is going to top multiple times and every time that it looks like the market is about ready to break wide open it almost always goes on to rally. During the years of 2004-2006 I had to convince people over and over that the market was not done rallying. Every time we would start to selloff, everyone would tell me that “this is it, it is all over.” But every time we would selloff, I would see many new top stocks with pretty bases setup.
That continued until this year. When stocks started selling off in February, very few fresh new longs showed up. Instead it took a while but eventually the market got its legs together and then some new longs showed up. The exact same thing happened in August except the lows in August were decently easy to spot since sentiment got so poor and there were a lot of charts holding up well into the selling. The rally that came off those lows, as many subscribers know, produced many quick big gains from top stocks that took off immediately. All the laggards however were quick to rollover.
So when the selling started in November it appeared that the top was finally in as all our leading four-horseman stocks started selling off on heavy volume for the first time. There was no time before when all these leaders sold off on heavy volume. However, as soon as these stocks started selling off, the stocks that were breaking down started to hammer out short-term lows putting a floor in this market which then turned the leaders around and now have them back into high ground or near high ground. If this hasn’t just been amazing to everyone, then it is obvious you have not been watching the market close enough.
Those that have been watching this market know that the constant rallies in the face of this strong distribution is just amazing. However, the new highs in the leading stocks are coming this time without something: volume. Where is the volume? Where is the accumulation? There is none. What we have instead is a market that seems to have been so oversold that a rally had to happen.
The past few weeks I went out of my way to show you the sentiment in the market on almost a daily basis. Well I do that during bad markets because it is very important to follow. When a real bottom is put in there are a lot of sentiment indicators that hit certain levels that confirm the price and volume that a market has probably put in a low. Well if we use the August lows as the bottom, then the market is still in a period to continue to rally. But if we count the selloff from November as negating the August rally, which is what I believe we have to do when you look at the SP 600 and Russell 2000, then we simply have not had the bearish or fear needed to put in a bottom.
Instead we have put in a short-term bottom due to the market being extremely oversold. If that is the case, then the low volume on this rally makes perfect sense. If this rally was on huge volume, I am sure I would have a lot of pretty green BOP filled charts that work (like RICK) instead of charts that are working but that don’t look at hot (like ELMG and its yellow BOP). So the fact that there are so few hot charts and new leaders breaking out from sound bases and that the current leaders off the 2003 lows (GOOG RIMM BIDU AAPL AMZN) that are now hitting new highs with negative divergences in almost every technical indicator including overall volume.
The first stock we can look at is GOOG. If you notice that GOOG is very close to its November highs but look at the bottom part of your charts. Where is the volume on this rally? Now look at the RS. Do you notice that it is well below the old highs? Then look at the moneystream. Notice its negative divergence. Now look at the BOP. Notice the negative divergence? This is just one example.
The next weak past winner I am watching is RIMM. I technically should be short a little of this stock but my luck on the short side has been iffy recently and almost all of my nicer looking longs have been producing solid gains during the market’s uptrend. As long as the market continues to drift higher, I have to stay away from shorting RIMM until it sets up in a picture perfect historically high odd trade.
Right now, the stock is weaker than all the others as it put in a lower high at the end of November with the RS line coming in well below the old high in early November. That high came with four days of distribution that has been followed by a few days of a low volume rally. If the stock fails again, I might begin to poke a little and try another round of shorting this former leader. However, it would probably be wiser to wait for the 200 day moving average to catch up more to price before getting too big on a short in this stock. If you look at the moneystream you can see that it is making new lows well below the early November s lows. This, despite the price being above the November lows. Also the BOP is red and ugly still just like it was when it started selling off. So it is obvious there is not a lot of accumulating interest in this stock anymore. A weekly chart shows three weeks of distribution the past four which clearly tells you what is going on with RIMM.
BIDU is another leader that is at the old highs in early November but yet nothing else about the stock is. There are negative divergences in almost every indicator with the RS well below the early November highs and moneystream is even in worse shape. The only thing going for it is that BOP is turning green but with the rally coming on lower and lower volume BIDU appears to be headed the same fate RIMM and GOOG are headed for soon.
The strongest leader relative to the market is AAPL with its RS line well into new high ground. While the RS line is deeper into new high ground than price it isn’t by much and then the moneystream is still no where near new highs. That line is still well below the old highs in November. The BOP has also turned negative to where it was still dancing around the zero line early in November.
The point of this is to show you that the leaders that everyone is still talking about as the for sure thing that is a safe haven in any market are all starting to weaken. This is the first time they have sold off on heavy volume and rallied on lower volume to such extremes with all the technical divergence. This action in the leading stocks along with the weak rally in the market with few hot new longs is what continues to keep my mind cautious on the rally. However, even though I am cautious and I expect this thing to fail it sure doesn’t mean that I am just going to ignore the long side and miss gains in stocks that can rally fast in a short period of time.
Sure there are not a lot of RICK stocks out there but there are plenty of EGN stocks out there. And being long EGN is a lot safer than being short stocks that are not moving down. I know a lot of people shorting banks, home builders, and mortgage stocks down here. It is just shocking because most of these stocks have been destroyed and have no chance of going to zero. However, what is obvious to everyone usually no longer works and I think those short sellers are in that situation. Not only are they in that situation but those that continue to believe that AAPL, RIMM, BIDU, and GOOG will always be a safe place to put money to continue to rack up gains are also in that situation.
The best bet is to keep bets small, keep them focused on the long side in the top stocks in leading industries until we get some real distribution in this market, cut your losses fast if they don’t move up immediately, and do not focus on the short side just yet. There are markets that are meant to be traded and then there are market that can be traded but shouldn’t. That is what this market is to newbies. This is not the market where we are going to get a TASR or TZOO. We are not going to get those until we have a serious selloff in equities.
I know some think that we have had a real selloff already. But no real selloff is under 20% and no real selloff comes with a bottom without fear. Where is the fear? It sure seems pretty darn complacent to me. As long as the complacency continues to reward the longs I will be complacent and ride the trend up with my friends like EGN RICK FFH and OTEX. Now if only the speculative former max green stocks like AGX would move like the other slow safe Utilities, Telco, Soap, and Insurance stocks. Then we could have some fun. Instead we must be happy with a 25% gain in all the stocks that give us that. We will not be getting many 100% to 300% gains in this choppy market. Enjoy what you can get when you can get it. This is not the type of market to be on full margin. The 2005 lows was the last one that had enough fear to produce a gain like 550% in six months in ERS. Since then, there has been nothing.
Aloha and I will see you in the chat room where I will do my best to find the next TASR. Just don’t expect me to find it until after we have a real bear market. ALOHA!!!
top current holdings: ICOC 88% YGE 70% FSLR 262% MTL 92% MA 322% MOS 343% ATRO 55% CNH 138% ZIXI 181% RICK 97%
Saturday, December 01, 2007
Stocks Hold On To Gains To End A Very Bullish Week On A Positive Note; New Traders Should Understand That The Market Is Not Always Easy.
F***!!! The damn site switched servers now I don't know what i was writing So I am starting over with whatever I have left in my mind. I am very upset!
The market started the week off on a very bearish note which made it look like the market was going to continue to selloff very hard. But proving that it is never a smart idea to short a market that is breaking down below support, rather than short low volume rallies to resistance, the market snapped back producing a very strong bottom in the short term.
Many traders were caught off guard by the quick snap back but the market is never easy and those that do not subscribe to IBD, it is possible they will miss this rally if it continues.
Most traders are waiting for a follow-through day on the NYSE, Nasdaq, SP 500, or the DJIA. However, those that have IBD know that the IBD 100, 85-85, and New America index have confirmed that we are officially in a "confirmed rally."
When the stock market sold off on Monday and sent the major market indexes to new lows, a peculiar thing happened on the IBD indexes. None of them hit lower lows which meant that there attempted rally with the gains on Friday were still alive. After the up day on Tuesday (day three of the rally attempt) we then were looking for a gain of 1.5% on higher volume the next seven sessions. The very next day the IBD New America jumped 3.3% and the IBD 100 and IBD 85-85 both lept over 4% on higher volume, officially ending the "correction."
I know some traders that are hard-core about the follow-through happening on the major market indexes and if you are one of those people you are currently on day four of your rally attempt and day five will be tomorrow. The best rallies that have the highest chance of succeeding come with follow-through days between day four and day ten. Anything after ten is riskier and the chances of the rally succeeding are lowered dramaticaly. For those that do not adhere to the IBD indexes, I would reconsider and think about changing your bearish bias on the short term. If you don't you risk missing some good gains in some nice stocks as three out of four stocks follow the general trend of the market.
Speaking of the general trend, a lot of people are confused as to what trend we are in. I do not blame them, if I was not a seasoned professional there is an almost 100% certainty that today's market would be driving me crazy as there are very few chances to hit huge winners with such a low VIX and a lot of stocks are very volatile on the short term making buying right ever more important in this market--something new investors almost never do correctly.
The key to markets like this is to not trade them. The smartest traders of all-time like Jesse Livermore would not be trading markets like this. If they were, they would be trading like I am. That entails keeping longs very small, keeping shorts very small, keeping tight cut losses, and making sure to only enter in the direction of the trend of the market. This is what has many confused because the trend of the market seems so choppy. That is your clear tell to stay out of the market, when you feel like you do not have an edge.
I think the proper way to look at this market right now, except the Russell 2000 and SP 600 which are both very ugly, is that on the short term we are bullish, on the sub-intermediate term we are flat, on the intermediate term we are bearish, and on the long term using the 200 dma as my guide we are bullish. So it is clear we are in a veyr mixed enviro.
When all trends are down, it is easy to short and make money (very rarely happens) and when the trends are all up, it is very easy to go long (not as rare but 1999 and 2003 are the only two periods I can say were easy). Most of the time the market is not in these positions which makes it very important to be very vigilant with cutting your losses.
When you do this, you enable yourself to cut the bleeding in the stocks that are not working--and there will be plenty in choppy markets. This then enables you to continue to keep cash on hand for those perfect or near-perfect setups. It is these setups that must always be taken, even if you take small hits every once in a while.
I know that some think it is very important to be in cash in periods like this. But my argument is what if we have seen the bottom and stocks are not going to pullback again. If that is the case, I sure wouldn't want to be out of all the longs like FSLR, MA, and IHS which act like there is ONLY a bull market and nothing else. This is why it is important to always be trading. You should never stop taking your signals. The day you decide to stop taking your signals, I guarantee, will be the day that your longs or shorts breakout/breakdown and run producing huge gains.
RIght now in this choppy market, I continue to find both longs and shorts. However, it is becoming clear that I am finding more longs and that my current holdings of longs are doing very well. Comparing this to the new shorts I find and their recent performance leads me to believe that it would be foolish, for now, to pass up on stocks like EGN, ELMG, PEG, SHEN, DAR, and some others that are offering such great reward to risk ratios.
If all of these fail, what, I lose 5-7% most on any of them. If they succeed I am expecting minimum 25% moves in this environment. So the odds are well in my favor. Especially with longs working right at this moment. If my shorts were still moving lower and all of my new longs were not moving higher with green BOP with the current trend, then obviously I would be more focused on the short side.
Instead, my last four shorts have all had poor outcomes as two have immediately needed most of it covered as it hit cut loss areas. If this market was really that bad, my new longs would ALL act like SIRT did and all of my shorts would act like XLNX has acted since I went short.
This is why I feel like even though this market has a high chance of failing in the near future, that it is foolish to not play the oversold bounce in case that is all this is. No matter if it is a start of a new bull market or an oversold bounce, it always pays to invest with the trend. Do you think that just because I was FOR SURE that we topped in March 2000 (that is when I moved to Maui, remember, since I knew it was over) that I did not play the long side from April 2000-August 2000 which is when the REAL selling started? Of course I did. One of my better longs during that time that still exist was EXTR. From July 20 to Oct 16 it produced a 66% gain. This long was held despite me knowing that the real top was in for good and that the market was rolling over in September before my final October sell.
If this doesn't prove that it is smart to play the stocks and not the market, I don't know what will. There are stocks like MA hitting all-time highs that have given me a 300% gain. Do you think that if I would have believed everything Doug Kass or Barry Ritholtz would have told I would still be long this stock? Of course not. That is why I can not stress enough to NEVER marry a side of the market and that you should ALWAYS be flexible and even if you were bullish one day there is ABSOLUTELY NOTHING wrong about being bearish the next day if in fact that is what the market is doing. Going with the trend is how every single one of the greatest traders traded. Why would you want to do anything different? Are you smarter than the greatest? I didn't think so.
So while the market continues to act in this choppy fashion, I believe it is smart for all traders to either keep all longs/shorts very small or just not even trade at all. There are simply too many whippy stocks that are breaking down then coming right back or are breaking out then falling right back down. That is a clear sign that traders should not be involved in the market.
I continue to trade because I believe I have an advantage as I clearly understand which stocks look better than the others and then can judge exactly how much I want in this market environment. If you still have trouble distinguishing between a bull market or a bear market, then you definitely should not be trading a heavy amount here. Smart traders know when to keep the trading small and then when to press the margin. Right now is not the time to press the margin. It is simply too risky and there are too many stock not acting right.
Some encouraging technical signs that are showing up now is that the amount of new highs are starting to slowly expand again and on the NYSE are now beating the amount of new lows. This is a big change since the top in November. The other clearly bullish development is that the ACC/DIS rating on all the indexes were D to E's. Now every index has a B, except the Nasdaq which has a C. The point is, however, that the trend of the accumulation is in the right direction. This market could have rallied and the ACC/DIS could have stayed below a B or even C, as long as the rally had no volume. So the fact that the ACC/DIS has changed proves that buyers are back in control for now.
The million dollar question though is for how long? Obviously, no one knows that answer but to answer it we have to look at the market from two different areas. One is that if the August lows was a significant bottom then yes the market will indeed continue to rally. If however the November highs were a significant top then there is no way we will get above those highs and instead we should see the August lows again. Why? Because there is always fear at major market bottoms. There was ABSOLUTELY no fear off the November 28 follow-through.
The VIX never got above the August highs, much less the 30 level, on this trip down. The put/call ratio never touched 1.2 during the entire pullback and the bears never crossed the bulls in the investors intelligence survey. Considering that the VIX almost always gets over 35, the put/call hits 1.2, and the bears beat the bulls in the II on every bottom, it makes sense that we did not see one.
Even if the August lows were a bottom the chances of it being a real one are very low in and of itself considering that the bears NEVER crossed the bulls. This has always led to a market rally and the last time I can remember this happening was in Oct 05 right before the rally to the highs in April 06. Since then we simply have NOT seen the level of fear in this market that is typical of bottoms.
I am not sure how we can rally much more from here, considering this insane goldilocks bull market has lasted since October 2002, but eventually it has to come to an end. So while I continue to operate from both the long side and small on the short side, I believe that eventually this short-term rally will fail too.
We simply have laggard sectors leading and former three year plus bull market leaders selling off. When we look at all of the biggest winners from the 02 lows to the 07 highs, you can see that all of the leaders are showing signs of major distribution. Until a new batch of leading stocks with excellent CANSLIM traits show up, there is no way I can believe that this bull has much less.
For now, I continue to believe we saw a high in November, but if all of these indexes can retake their 50 day moving averages and the RUT and SML can retake the 200 dma, then I will obviously fully embrace the bull side. For now I feel like I am riding a bear market rally to eventual resistance, where most of these new longs will fail but some will succeed. Stocks like EGN and PEG in the utilities sector should continue to rally when this market decides it is done.
If I can think of anything else to add, I will. If you have any comments or questions feel free to leave them below in the comment area (comments only received at bigwavetrading.com). Aloha and I will see you in the chat room!!! ALOHA!!!!!
The market started the week off on a very bearish note which made it look like the market was going to continue to selloff very hard. But proving that it is never a smart idea to short a market that is breaking down below support, rather than short low volume rallies to resistance, the market snapped back producing a very strong bottom in the short term.
Many traders were caught off guard by the quick snap back but the market is never easy and those that do not subscribe to IBD, it is possible they will miss this rally if it continues.
Most traders are waiting for a follow-through day on the NYSE, Nasdaq, SP 500, or the DJIA. However, those that have IBD know that the IBD 100, 85-85, and New America index have confirmed that we are officially in a "confirmed rally."
When the stock market sold off on Monday and sent the major market indexes to new lows, a peculiar thing happened on the IBD indexes. None of them hit lower lows which meant that there attempted rally with the gains on Friday were still alive. After the up day on Tuesday (day three of the rally attempt) we then were looking for a gain of 1.5% on higher volume the next seven sessions. The very next day the IBD New America jumped 3.3% and the IBD 100 and IBD 85-85 both lept over 4% on higher volume, officially ending the "correction."
I know some traders that are hard-core about the follow-through happening on the major market indexes and if you are one of those people you are currently on day four of your rally attempt and day five will be tomorrow. The best rallies that have the highest chance of succeeding come with follow-through days between day four and day ten. Anything after ten is riskier and the chances of the rally succeeding are lowered dramaticaly. For those that do not adhere to the IBD indexes, I would reconsider and think about changing your bearish bias on the short term. If you don't you risk missing some good gains in some nice stocks as three out of four stocks follow the general trend of the market.
Speaking of the general trend, a lot of people are confused as to what trend we are in. I do not blame them, if I was not a seasoned professional there is an almost 100% certainty that today's market would be driving me crazy as there are very few chances to hit huge winners with such a low VIX and a lot of stocks are very volatile on the short term making buying right ever more important in this market--something new investors almost never do correctly.
The key to markets like this is to not trade them. The smartest traders of all-time like Jesse Livermore would not be trading markets like this. If they were, they would be trading like I am. That entails keeping longs very small, keeping shorts very small, keeping tight cut losses, and making sure to only enter in the direction of the trend of the market. This is what has many confused because the trend of the market seems so choppy. That is your clear tell to stay out of the market, when you feel like you do not have an edge.
I think the proper way to look at this market right now, except the Russell 2000 and SP 600 which are both very ugly, is that on the short term we are bullish, on the sub-intermediate term we are flat, on the intermediate term we are bearish, and on the long term using the 200 dma as my guide we are bullish. So it is clear we are in a veyr mixed enviro.
When all trends are down, it is easy to short and make money (very rarely happens) and when the trends are all up, it is very easy to go long (not as rare but 1999 and 2003 are the only two periods I can say were easy). Most of the time the market is not in these positions which makes it very important to be very vigilant with cutting your losses.
When you do this, you enable yourself to cut the bleeding in the stocks that are not working--and there will be plenty in choppy markets. This then enables you to continue to keep cash on hand for those perfect or near-perfect setups. It is these setups that must always be taken, even if you take small hits every once in a while.
I know that some think it is very important to be in cash in periods like this. But my argument is what if we have seen the bottom and stocks are not going to pullback again. If that is the case, I sure wouldn't want to be out of all the longs like FSLR, MA, and IHS which act like there is ONLY a bull market and nothing else. This is why it is important to always be trading. You should never stop taking your signals. The day you decide to stop taking your signals, I guarantee, will be the day that your longs or shorts breakout/breakdown and run producing huge gains.
RIght now in this choppy market, I continue to find both longs and shorts. However, it is becoming clear that I am finding more longs and that my current holdings of longs are doing very well. Comparing this to the new shorts I find and their recent performance leads me to believe that it would be foolish, for now, to pass up on stocks like EGN, ELMG, PEG, SHEN, DAR, and some others that are offering such great reward to risk ratios.
If all of these fail, what, I lose 5-7% most on any of them. If they succeed I am expecting minimum 25% moves in this environment. So the odds are well in my favor. Especially with longs working right at this moment. If my shorts were still moving lower and all of my new longs were not moving higher with green BOP with the current trend, then obviously I would be more focused on the short side.
Instead, my last four shorts have all had poor outcomes as two have immediately needed most of it covered as it hit cut loss areas. If this market was really that bad, my new longs would ALL act like SIRT did and all of my shorts would act like XLNX has acted since I went short.
This is why I feel like even though this market has a high chance of failing in the near future, that it is foolish to not play the oversold bounce in case that is all this is. No matter if it is a start of a new bull market or an oversold bounce, it always pays to invest with the trend. Do you think that just because I was FOR SURE that we topped in March 2000 (that is when I moved to Maui, remember, since I knew it was over) that I did not play the long side from April 2000-August 2000 which is when the REAL selling started? Of course I did. One of my better longs during that time that still exist was EXTR. From July 20 to Oct 16 it produced a 66% gain. This long was held despite me knowing that the real top was in for good and that the market was rolling over in September before my final October sell.
If this doesn't prove that it is smart to play the stocks and not the market, I don't know what will. There are stocks like MA hitting all-time highs that have given me a 300% gain. Do you think that if I would have believed everything Doug Kass or Barry Ritholtz would have told I would still be long this stock? Of course not. That is why I can not stress enough to NEVER marry a side of the market and that you should ALWAYS be flexible and even if you were bullish one day there is ABSOLUTELY NOTHING wrong about being bearish the next day if in fact that is what the market is doing. Going with the trend is how every single one of the greatest traders traded. Why would you want to do anything different? Are you smarter than the greatest? I didn't think so.
So while the market continues to act in this choppy fashion, I believe it is smart for all traders to either keep all longs/shorts very small or just not even trade at all. There are simply too many whippy stocks that are breaking down then coming right back or are breaking out then falling right back down. That is a clear sign that traders should not be involved in the market.
I continue to trade because I believe I have an advantage as I clearly understand which stocks look better than the others and then can judge exactly how much I want in this market environment. If you still have trouble distinguishing between a bull market or a bear market, then you definitely should not be trading a heavy amount here. Smart traders know when to keep the trading small and then when to press the margin. Right now is not the time to press the margin. It is simply too risky and there are too many stock not acting right.
Some encouraging technical signs that are showing up now is that the amount of new highs are starting to slowly expand again and on the NYSE are now beating the amount of new lows. This is a big change since the top in November. The other clearly bullish development is that the ACC/DIS rating on all the indexes were D to E's. Now every index has a B, except the Nasdaq which has a C. The point is, however, that the trend of the accumulation is in the right direction. This market could have rallied and the ACC/DIS could have stayed below a B or even C, as long as the rally had no volume. So the fact that the ACC/DIS has changed proves that buyers are back in control for now.
The million dollar question though is for how long? Obviously, no one knows that answer but to answer it we have to look at the market from two different areas. One is that if the August lows was a significant bottom then yes the market will indeed continue to rally. If however the November highs were a significant top then there is no way we will get above those highs and instead we should see the August lows again. Why? Because there is always fear at major market bottoms. There was ABSOLUTELY no fear off the November 28 follow-through.
The VIX never got above the August highs, much less the 30 level, on this trip down. The put/call ratio never touched 1.2 during the entire pullback and the bears never crossed the bulls in the investors intelligence survey. Considering that the VIX almost always gets over 35, the put/call hits 1.2, and the bears beat the bulls in the II on every bottom, it makes sense that we did not see one.
Even if the August lows were a bottom the chances of it being a real one are very low in and of itself considering that the bears NEVER crossed the bulls. This has always led to a market rally and the last time I can remember this happening was in Oct 05 right before the rally to the highs in April 06. Since then we simply have NOT seen the level of fear in this market that is typical of bottoms.
I am not sure how we can rally much more from here, considering this insane goldilocks bull market has lasted since October 2002, but eventually it has to come to an end. So while I continue to operate from both the long side and small on the short side, I believe that eventually this short-term rally will fail too.
We simply have laggard sectors leading and former three year plus bull market leaders selling off. When we look at all of the biggest winners from the 02 lows to the 07 highs, you can see that all of the leaders are showing signs of major distribution. Until a new batch of leading stocks with excellent CANSLIM traits show up, there is no way I can believe that this bull has much less.
For now, I continue to believe we saw a high in November, but if all of these indexes can retake their 50 day moving averages and the RUT and SML can retake the 200 dma, then I will obviously fully embrace the bull side. For now I feel like I am riding a bear market rally to eventual resistance, where most of these new longs will fail but some will succeed. Stocks like EGN and PEG in the utilities sector should continue to rally when this market decides it is done.
If I can think of anything else to add, I will. If you have any comments or questions feel free to leave them below in the comment area (comments only received at bigwavetrading.com). Aloha and I will see you in the chat room!!! ALOHA!!!!!
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