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 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%)

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