The morning got off to a good start as the indexes gapped higher and started off strong right out of the gate, with the Nasdaq leading the way higher with a 1% gain. After that, sadly for the bulls, it was nothing but a slightly choppy ride lower with the market selling off the entire way lower with the 1% gain in the Nassy turning into a .9% loss by the EOD. The DJIA closed near the session lows for the second straight session. This was not a bullish session, to say the least.
Despite the losses, there was one bit of good news that can be taken away from this session and that is that volume was lower across the board. In fact, Friday's volume was the lowest turnover of 2008 and shows that institutional investors who make up over 75% of the volume in the stock market were not active at all. Still, you can't get too excited about low volume pullbacks when they come after low volume rallies.
We did have one heavy volume rally on 3/20 when the DJIA had its follow-through day. However, since then we have been left with nothing but low volume volatile-intraday sessions that have left us at the same point we were at right before the two bullish days on 1/22 and 1/23. This is not good as it is not normal to see a market have a FTD and then not put out any big winners that are working right away or have any follow-through days to the follow-through day.
And at this point, that is what I must have before I can believe it is safe to get very long again. I must have a lot more HOT and very green charts setting up in proper bases in CANSLIM quality longs and I must see more volume to the upside in the leading indexes. Without the very big price gains on much heavier volume, there is simply not enough support in the market to justify buying stocks up here.
Especially when the DJIA has a P/E ratio of 62.2. Can you imagine what the P/E ratio might be if the bank stocks that are in the DJIA come out with HUGE misses thus sending the DJIA P/E ratio up to 80. Considering I know investors that have told me they only buy a market with a P/E ratio of 5-10 on the DJIA and I see SO MANY top rated mutual funds in cash I must say I am very worried about what might happen with this market. Things are not setting up right for a rally.
The worst part of it is that we have already seen a distribution day, though it was with volume below average, we have to remember that almost every day the past two months has come with volume below average. The key is that volume was clearly higher than the day before on the Nassy and the index almost lost 2% on that day. This is not good and brings the chances of this rally succeeding to less than 50% as any distribution day within 4 to 5 days of a follow-through day is normally a rally killer (this information was gathered from Ken Shreeve of IBD in today's 'Market Wrap' video).
Besides this poor day on Thursday, it was clear, this week, that the market is more-than-likely going to fail this rally. I would LOVE to be wrong and get long more stocks that look like N**, L**, B**, B***, and F*** but I can't do that when nothing out there looks like that and when the strong CANSLIM stocks do setup they sure have not been acting right. Just the past two days, we have seen HLF, WFR, WMS, ANF, APOL, DV, STRA, TITN, INFA, CPLA, and RBN breakdown and reverse a breakout. This is NOT how leading stocks act during bull markets. There is not ONE bull market that you can find leading stocks reversing solid setups and then see the market take off making massive gains. Not one; leading stocks always lead real bull markets. The market is going nowhere and will not go anywhere without leading stocks. That is just the way it always is.
I have been posting the current leading sectors and areas of the market recently that have been leading us recently. It is obvious by the quality of the sectors that this rally was suspect from the very beginning. However, as long as these sectors stay near the top of the list, I believe the market will be in a bit of trouble. Since most of the sectors that are now leading have come from such laggard bottom 20% spots, it could be a while before we cycle into a new true leader.
When we do, those leaders are inevitably from an innovative technology related sector. Recently I have noticed a couple of Semiconductor stocks making new highs (RMBS and RBCN) and that has gotten me a little excited that we could be getting ever closer to a tradeable rally sometime in the near future. Along with those two Semi stocks, a few Software stocks have shown up and even though two of the three are low quality the fact they are showing up is a good sign for those that think we may never see a bull again. LOL, eventually, with time and price and regular cycles, you HAVE to have a bull. We just have to be patient and wait for better quality than what showed up today. It should also be noted 2 of the 3 hitting new highs have been bought out. Only ERES is of any real quality and that stock is in such a lagging industry group that an investment in it would probably be a mistake.
Still though, the typical bear market stocks are leading now. Medical, auto manufacturers, oil&gas, chemical, food-meat, beverage, housewares, and the other usual suspects we have talked about are where it is at and if you are focusing on going long anywhere else in the market you are only decreasing your chances of succeeding which are already significantly reduced in this "I refuse to rally" market. I still believe it is smarter to completely stay away from longs and for newbies to stay out of shorts here. Professionals are more than welcome to short your favorite candidates on low volume rallies and heavy volume failures.
I believe it is going to be about time to start looking for shorts again, if this market stops moving sideways and starts falling. The IBD 100 and IBD 85-85 index both still have an Acc/Dis rating of D which shows that since the January rally NOTHING has shown up that has led this index higher. Even the few beauties that this index has produced has returned nothing and a lot of the stocks in here moving higher have a look of stocks that are not going to be able to produce to much more to the upside without volume coming into the indexes.
Without that volume we can expect to add to the losses already suffered this year. The best index is the NYSE which is down only 10% since January. What is funny is that I am running a small account for a friend where I am very aggressive and even with a 2 out of 12 record so far I have only sustained an 11% loss putting me on par with the NYSE. However, I started trading this account in November so the NYSE is down 15% during that time. So I am really beating the market in every account on all time-frames still and I would consider this my worst trading ever, not due to my ability, but due simply to the market.
Since November the Nasdaq is down 20% and is down 15% from January 1st. I am doing much better than this index. But the one I always focus on is the IBD indexes. There they are down 30% from the November top and 20% from January 1st. Clearly my 4% gain during that time from November to now and 0% return so far YTD is KILLING the IBD indexes. If I am up 4% on my biggest account and only down 11% in my friends small account, while the IBD indexes are down 30% from November, how do you think I am going to do in the next bull market when the IBD 100 is up 75% while the Nasdaq is up 45%? If I am outperforming the IBD 100 by nearly 35% in a bear, then I am going to crush the 75% return in the next bull. AND SO WILL YOU!!!
The only way to make sure that you will be able to do that however is if you get off your butt right now and start to take the necessary steps that will make sure you are ready for the next bull and will know what to look for. The first thing I would like you to do is study EVERY SINGLE ONE of my 'past big winners' in my silver longs section. Go to the very first post and work your way one by one through them all. By the time you get to the end you should basically be able to see the EXACT same similar thing in EVERY single one on the buy and on the uptrend. After that, reading 'Monster Stocks' and 'How Legendary Traders Made Millions' by John Boik is a REQUIRED REQUEST of mine to you. Both of those books will show you the best stocks from 1997 to 2007 (in detail) in the first book and the best stocks and active-investors from 1897!!!!!! to 2007 in the second book. You will see the same thing EVERY decade during every bullish uptrend and even sometimes during the flat and bearish market phases, just like you will with my own records with my 'past big winners' from 2000-2002 like CRUS and GNSS.
Some key measures I am watching is the put/call ratio which is still over the 1.00 level at 1.02 which says that the crowd is still a bit bearish as they continue to buy puts with no abandonment. However, it appears that it is possible that the crowd is actually right this time as the charts confirm that lower prices should come about. But we probably just will go nowhere, since the market almost never rewards the options players as 80% of all contracts expire worthless. NOT my kind of odds. I prefer the CANSLIM system where I am 25% to 33% in most bear markets which still produces gains for me since my winners do much better than my losers and 75 to 85% in most bull markets where some HUGE gains can be found in early bull markets along with some decent gains later on.
On Monday there sure were a lot of cocky bulls that swore we are going nothing but higher for the rest of the year. At least that is exactly what they made it sound like. Instead the DJIA fell four straight days after the impressive gains and the Nassy and SP 500 fell the last three in-a-row, killing the fantasy and dreams of the perma-bottom callers. By the end of the week, it was clear who is still basically in control, even though the short-term trend is up, because the DJIA fell 1.2%, the SP 500 fell 1.1%, the NYSE fell .5%, but the Nassy did manage to buck the trend did finish the week with a .1% gain. That obviously is nothing to get excited about. Especially when Friday produced an extremely low amount of new highs to a lot of new lows. There were 17 new 52-week highs to 118 new 52-week lows. That, with the overbought condition, in this market might not be very good at all.
Before I wrap this up, I want to remind everyone that you need to just forget about playing this stupid bottom-calling game. Leave that for Cramer. While he calls everything a bottom and then gets it right one time while breaking all his readers with the other 100 calls, I will just wait for the right time to get very long.
Don't forget that back in 2003, Cramer only produced six legitimate 100% winners: NT, Q, ATT WIRELESS, GLW, CNXT, SKYW. He also hit it big with three option plays producing some HUGE gains on small positions. So while you got six winners over 100% with the best one up 500% and the rest only up 150% or less, I produced over 50 stocks that produced 100% gains from 02-03. With that, there were four stocks that I LOADED UP on that each produced 300% plus gains. I was also long SINA, SOHU, NTES, and TASR which all produced over 1,000% gains. Not only am I outperforming Cramer now but so is the SP 500.
When the next bull market comes, hopefully we will have a VIX over 40 and a BUNCH of stocks that looked just like what you saw from my 'past big winners' from 1999-2003. I tell you what I can't wait till I can get that thing updated to RICK and APPY of late 2007. It should be the end of the year before that happens. That way I can stop being asked by all the newbies about stocks after 2003. I have gone over my past big winners from 2003-2007 many times in random post. If you missed it, you are just going to have to wait till I post them on the site. Just be patient.
The very last thing I want to end this one and make clear is that IF YOU GO LONG A STOCK IN THIS MARKET, AND IT DOES NOT IMMEDIATELY SHOW YOU GAINS, YOU NEED TO CONSIDER SELLING 25%, 33%, OR EVEN 50%. IN THIS MARKET, IF A STOCK DOES NOT FOLLOW-THROUGH RIGHT AWAY FROM YOUR DAILY BREAKOUT, YOU JUST CAN NOT WAIT FOR IT TO WORK OUT LIKE YOU CAN IN A BULL MARKET. Exercising intelligent common-sense judgment goes a long way in the stock market and it is obvious that in a bull market you can be patient and give your stock a few days after the breakout to get going. But in a bear, you need to see results IMMEDIATELY, especially you newbies!!, or else it is best to cut back on it so that if and when it does fail you don't end up suffering a major loss if something unexpected happens.
Be careful out there, keep your longs small, pros keep your shorts manageable, and remember everyone CASH IS KING! Enjoy your weekend of spring training baseball, NCAA college basketball March Madness, a little NHL hockey, and A LOT OF TIME WITH LOVED ONES! They are WAY MORE IMPORTANT than this stock market. ALOHA and I will see you in the chat room where I am always online.
current longs/(shorts) up today and their total return since purchase: EBIX 124% CMP 45% PTEC 98% (BA 23% FTEK 22% GOOG 33% SIGM 44% ATI 28% CMS 20% EEFT 26% ASF 33% SHOO 34% LVS 35% BEN 23% EEFT 26% SGMS 40% MI 32% GRMN 40%)
Saturday, March 29, 2008
Saturday, March 22, 2008
Problematic Follow-Through Day Is Not All It Appears To Be; We Have Gone NOWHERE In Two Months, Proving Cash Is King!
A lot of people have recently just gotten used to being in cash as the bear market has finally convinced some that the best side is the sidelines. But as soon as a lot of these people realize it is best to park their cash, all of a sudden we have the market following-through on its rally that started eight days ago on 3/11. That is when the DJIA made its lows, reversing off of them and closing higher at the HOD by the EOD. While every index undercut those lows on 3/17, the DJIA did not and instead held. This has now led to today's 2.16% rally on very strong volume. A weekly chart of the DJIA since 3/11 is very bullish. However, when we take a step back and look at where the index is coming from, it isn't that impressive yet.
But it is important to pay attention to the market right now as things are lining up for at least a powerful short-term rally. When we look at the put/call ratio we can see that on a huge up day that it jumped to 1.12 which is a very high level of fear on such a bullish day. That tells me that market players expect this market to move lower on the short-term. Too bad these guys are almost always wrong. Therefore, the extremely bearish bets on such a strong day is a bullish item short-term.
The investors intelligence survey shows more bears than bulls for the second straight week, with bears beating bulls 45% to 31%. This is a very wide margin and considering we have a high put/call and a follow-through I think it is very important to make sure you are not overextended to the bear side. Just on Thursday it appeared it was all over for the market. How amazing that on the VERY NEXT day all looks well. But such is the nature of this market.
And even though I have been pounding the table telling you that cash is king, it is time to start looking for potential setups in CANSLIM quality longs that are in well formed bases. Right now, there are not a lot out there but there are a few stocks out there that are starting to show up that I would like to get long if they could quiet down, move sideways on lower volume, and breakout on strong volume with BOP green to max green the past few months. Some are starting to show up but the few that are are NOT in your usual powerful bull market leading groups. They are in the small banks, savings & loan, medical, manufacturing, business services, auto/truck-parts, tobacco, and transportation-railroad stocks. These are not the exciting innovative groups that lead most long-term bull markets. These are the groups that normally show up in bear markets. However, during the bear market rallies, these stocks always do very well.
But how well these will do with a VIX at 26 is the question. I have a bad feeling I know how well they will do. During the last bear market we had in stocks, I still had no problem finding a few stocks here and there that produce good gains. But besides COIN which rallied 58% in three weeks, I have not had any big winners in this bear. This is unheard of. And it isn't me that is the problem. The problem is the market. I finally have a few really green charts that are looking good. But usually, even in bear markets, I will have a couple of stocks that have produced 75% or more by now. This market is simply THE WORST market in twelve years that I have been a part of.
Now, like I said, there finally are a couple of chart that have shown up that are full of accumulation and max green BOP. But the way the market is still acting it is very hard to "load-up" on these. So I am going to continue to keep it cautious but my first long position over $60,000 has finally been taken for the first time since September. That means that I am finally beginning to think that maybe we could sustain a rally here. The good news about my methodology is that if this trend reverses, I can be out with less than an 8% loss on both stocks. If they don't blast-off and make immediate big gains, there is no reason to be long and they will be cut.
I love being a bull and if this market can continue to build on these gains WITH HEAVY accumulation then I will embrace this rally with arms wide open. But for now, I am as skeptical as you can be. This is due to the constant flooding of emails from bottom callers (which oddly enough don't happen anymore) since the November top till about two weeks ago that we were bottoming. Now that the donkey losers that make up this group of emailers have stopped with their FACTLESS crap, I am ready for a bounce. But the fact that everyone is still looking for a bottom makes me believe that there is almost NO WAY that this is the bottom.
I have never seen a prolonged selloff where everyone is bottom calling actually bottom during the time all of these amateurs are calling for a bottom. After a very long bull market, where every single leader of that uptrend gets broken, it usually take a long time to form a bottom. If everyone I talked to was telling me that they were scared to death of a financial collapse and that they believe they should be selling stocks left and right, then I would be looking for a bottom. But everyone I know wants us to bottom now so we can go back to getting long GOOG and AAPL for the next attack on the old highs.
It would be nice to bottom here and then in about a month (it would take that long) start going long a bunch of stocks that look like all the patterns in 'my past big winners' but I just don't think I am going to get that opportunity yet. Before that could happen in 2003, we had to have a horrible 2 1/2 year bear market. And before those perfect beauties of 1999 setup, we had a Y2K fear that sent companies investing in technology at a breakneck speed. This along with the bear market of 1998 (LTCM fiasco) helped create a ton of near-perfect to perfect charts. Since I doubt we will see another 1999 setup until I am, maybe, 100 years old, then we probably need a very long bear market to create the charts we saw in 2003.
I know a lot of people do not want to wait that long, but if that is how long we must take before we can get the next TASR, EPIC, EVOL, FMDAY, SSYS, TRAD, USNA, SINA, SOHU, NTES, FARO, and SIGM setups, then dang it, I will wait as long as I have to. A lot of people want to make money right now. But as those impatient and historically ignorant traders do damage to their account (like yours truly) by forcing trades that should never be forced (I am not forcing them, the market is just that hard!!), the smartest traders are in 100% cash loading it up for the moment when the stocks above are waiting to be taken.
Like I keep saying, you do not have to bottom tick the lows or bottom tick the day the market hits the lows to make a ton of money. EGHT and FMDAY both produced 300% gains in one and four months respectively. Both of these stocks STARTED their move in late October/early November; ONE FULL YEAR AFTER THE OCTOBER 2002 BOTTOM!!!!!! So the FOOLS, MORONS, IDIOTS, and SCUMBAGS on wall street that tell you that you have to buy the bottom can go F themselves. These idiots can buy THE BOTTOM TICK and they will not come close to TOUCHING my returns by the EOY. The scumbags like to brag when they get the bottom right. Too bad they never remind you about the other six times they got it REAL WRONG.
Calling a bottom here makes more sense than any of the other attempts, as we had the VIX hit 35 intraday (still below 40 and the last indicator to get extreme enough to have a great low), the investors intelligence bears take the bulls, and we have a put/call that has been pervasively around the 1 area for months now. So it makes sense for the donkeys to bottom call here now. However, do they not see that there are problems all over the index charts, besides the bad leadership and destruction in past leaders underneath the indexes.
My first problem with becoming a bottom caller is that it only works 10% of the time and those are odds I will NEVER take. Therefore, I never will bottom call. But I believe in my multiple years of trading FULL TIME I have seen many tops and bottoms during that time. I have learned that calling a bottom before prices can at least get over the most recent resistance is a recipe for disaster. Sadly, the constant bottom callers never have to eat the egg on their face. They just conveniently forget and move on.
On the NYSE, I love the volume I see on the January and Friday's lows. The huge volume surge along with the accumulation leading up to Friday's move is very bullish. But that volume is still leaving much to the imagination as the selloff in January came on heavier volume than the uptrend from January to February. That was followed by heavier volume selling that received some sneaky accumulation during that time. At best, this index is very mixed with the extremely short term looking bullish compared to the overall downtrend from November which is still VERY much in tact. Especially with price below the 50 DMA.
This almost exact same kind of action is happening on the Nasdaq also. The volume near these lows have been incredible but the overall downtrend is still very much alive with the price below the 50 DMA. The bottom line is calling a bottom UNTIL YOU ACTUALLY KNOW it is a bottom is foolish and if you are one of the fools that think you must buy the bottom to make the big money you really are ignorant and need to study the past big stock market leaders like CSCO's 80,000% gain, SCHW's 10,000% gain, or MSFT's 10,000% gain. Do you think you needed to bottom tick to score big gains from those winners? Of course not. So don't believe the MORONS that tell you you need to be buying here. You can wait. In fact, I hope we go on to crash just to show these fools how dangerous the verbal shit that flows from their mouth really is. If we bottom, I can hold off for months!!! and still CRUSH ALL OF YOU who think we need to buy "the exact bottom." You all have SEVERE historical mental problems.
All I am going to do is continue to look for my hot charts, as I know when they show up, and if the market is in an uptrend, the coast will be clear for me to go all-in with my 2 to 1 and 4 to 1 margin accounts. There is no need to buy here with all the carnage out there. The greatest traders of ALL-TIME waited for trends to be confirmed up or down before making any big bets.
That can proven by those who made big recent bets in gold and oil. My God it looked like gold was about ready to explode to the upside and become the next bubble. But it in fact was already in a mini-bubble and now we can only cut our losses and wonder about what could have been. The most important point that came out of the gold selloff is that even leadership is NOT safe in this market. If you can't find comfort in your leaders, even in a bear market, you know that you have some very serious issues to deal with. So calling this a bottom, IMO, is the most ignorant thing you can do after getting the last six to nine calls wrong.
Some interesting items of interest from Thursday's session includes oil falling to $101.84 and gold falling to $920. Gold just touched $1020 intraday on Wednesday (I believe) and since then has spent its time selling off hard. This is a clear sign of a sector that is putting in its top. This comes with oil stocks recently reversing hard and EVERY chemical-fertilizer stock FINALLY rolling over on strong distribution and starting its selloff on heavier volume with low volume rallies. They are not ready to be shorted in bulk yet, but if the market does not breakout above the 50 DMA on heavier volume soon, confirming the FTD, then it will only be a matter of time before the ugly charts in the chemical, oil, and gold group really get nasty. Breakout fakeout reversals are NEVER good for the market, when they happen in leading industry groups.
However, like I said, if the market can build on these short-term gains, I would love to start finding some more stocks that are as green as NEU. If a bunch of charts start showing up in industry groups that are FLYING up the list of top industry groups in IBD's 197 group list, then I would love to jump back into the market long and strong. But for now, we are lacking any leaders. Every time a new leader gets rotated into the top spot they WHACK it. In my recent RM columns I have posted the charts and stocks that I am finding very attractive and that are also the current leaders. However, the small-regional banks and savings & loans are not going to produce any 300-500% winners in 12 months or less. So we better hope for higher quality or else we are going to be sitting on our hands a lot long than expected. Well, expected by readers. I am ready for a two year bear market or for the bear market to end today.
All I need to know it is over are more charts setting up like the stocks you see in my 'past big winners' or like TESO, AFSI, HRZ, PTT, APPY, CVO, MT (IST), BOOM, ZEUS, IHS, MA, CCC, TNH, MOS, OMTR, or ERS from 2004-2007 that I have not posted yet. I KNOW HOW TO FIND AND BUY THE BEST STOCKS THAT PRODUCE THE BIGGEST GAINS IN A SHORT AMOUNT OF TIME IN ANY BULLISH MARKET (YOU DON'T NEED TO PICK AND GUESS AT THE BOTTOMS). I HAVE NEVER SEEN A MARKET LIKE THIS OVER THE PAST SIX MONTHS IN OVER 12 YEARS OF INVESTING EXPERIENCE. THERE STILL IS NOTHING OUT THERE to get insanely excited about besides one stock that I have recently started going long and adding to. If you are not a subscriber, there is no way I am telling you what this near perfect stock is. But it needs a bit more time moving sideways, another pop, and it would be PERFECT! If I see more setup like that I will be more than happy to rejoin the bulls. For now, that is not happening.
We have not had a market like this since 1938 as there have been 28 days this year where the market has moved at least 1% by the close. Nothing is going to make sense in that kind of volatility, unless every day was up or down. Right now, the market is just trying to wash the weak blood out so that when the fresh faces and cash heavy traders return they can come over and pick up the easy cash in the corner and profit handsomely via the smart money that is trying to pick the bottoms like the professional-amateurs they will always be. That is why they have to keep their job at the trading desk; they would NEVER last on their own.
But for now, until I see more technology and innovative groups make their way to the top of the IBD industry group list with some very green chart setups, there is no way I am joining the bottom callers with small regional-banks, tobacco, medical, savings & loans, and beaten up junk sectors leading this rally. WMT and NKE are not my ideas of "fresh, new" leadership. V is my idea of new leadership. Hopefully, this could be my next MA 340%-plus winner. But unless the market continues to trend higher, V will more than likely suffer the same fate the market does. Still it is nice to see an IPO price and run after the public offering.
Until I get more confirmation on the upside, I am simply not going to fall in love with this FTD. I recognize it and realize we have one and that it is time to start looking for stocks that are green like NEU that are setting up or breaking out of well-formed bases like the cup, cup with handle, double bottom, flat base, high-tight-flag, saucer, saucer with handle, or three-week tight pattern. This market is not a market to be overleveraged. Keep the longs small, keep the shorts small (newbies avoid going short the rallies until you have a track record of making money going long), and keep the cash VERY VERY HIGH.
This is the most cash I have had since 2002-2003. When the 2003 follow-through happened I was long 35 stocks. By the end of 2003, I was long over 90. You don't have to be all-in long AT the bottom. You have plenty of time to get very long. GO STUDY 2003 in TCNet and learn for yourself that you don't have to bottom call to get FILTHY RICH. My 'past big winners' should PROVE this! If you still are not convinced, please, NEVER come back to my site. Mahalo and aloha! I will see you in the chat room where everyone is in control, thanks to the CANSLIM methodology. God bless you IBD, O'Neil and the CANSLIM system!!!
Pray for surf!
But it is important to pay attention to the market right now as things are lining up for at least a powerful short-term rally. When we look at the put/call ratio we can see that on a huge up day that it jumped to 1.12 which is a very high level of fear on such a bullish day. That tells me that market players expect this market to move lower on the short-term. Too bad these guys are almost always wrong. Therefore, the extremely bearish bets on such a strong day is a bullish item short-term.
The investors intelligence survey shows more bears than bulls for the second straight week, with bears beating bulls 45% to 31%. This is a very wide margin and considering we have a high put/call and a follow-through I think it is very important to make sure you are not overextended to the bear side. Just on Thursday it appeared it was all over for the market. How amazing that on the VERY NEXT day all looks well. But such is the nature of this market.
And even though I have been pounding the table telling you that cash is king, it is time to start looking for potential setups in CANSLIM quality longs that are in well formed bases. Right now, there are not a lot out there but there are a few stocks out there that are starting to show up that I would like to get long if they could quiet down, move sideways on lower volume, and breakout on strong volume with BOP green to max green the past few months. Some are starting to show up but the few that are are NOT in your usual powerful bull market leading groups. They are in the small banks, savings & loan, medical, manufacturing, business services, auto/truck-parts, tobacco, and transportation-railroad stocks. These are not the exciting innovative groups that lead most long-term bull markets. These are the groups that normally show up in bear markets. However, during the bear market rallies, these stocks always do very well.
But how well these will do with a VIX at 26 is the question. I have a bad feeling I know how well they will do. During the last bear market we had in stocks, I still had no problem finding a few stocks here and there that produce good gains. But besides COIN which rallied 58% in three weeks, I have not had any big winners in this bear. This is unheard of. And it isn't me that is the problem. The problem is the market. I finally have a few really green charts that are looking good. But usually, even in bear markets, I will have a couple of stocks that have produced 75% or more by now. This market is simply THE WORST market in twelve years that I have been a part of.
Now, like I said, there finally are a couple of chart that have shown up that are full of accumulation and max green BOP. But the way the market is still acting it is very hard to "load-up" on these. So I am going to continue to keep it cautious but my first long position over $60,000 has finally been taken for the first time since September. That means that I am finally beginning to think that maybe we could sustain a rally here. The good news about my methodology is that if this trend reverses, I can be out with less than an 8% loss on both stocks. If they don't blast-off and make immediate big gains, there is no reason to be long and they will be cut.
I love being a bull and if this market can continue to build on these gains WITH HEAVY accumulation then I will embrace this rally with arms wide open. But for now, I am as skeptical as you can be. This is due to the constant flooding of emails from bottom callers (which oddly enough don't happen anymore) since the November top till about two weeks ago that we were bottoming. Now that the donkey losers that make up this group of emailers have stopped with their FACTLESS crap, I am ready for a bounce. But the fact that everyone is still looking for a bottom makes me believe that there is almost NO WAY that this is the bottom.
I have never seen a prolonged selloff where everyone is bottom calling actually bottom during the time all of these amateurs are calling for a bottom. After a very long bull market, where every single leader of that uptrend gets broken, it usually take a long time to form a bottom. If everyone I talked to was telling me that they were scared to death of a financial collapse and that they believe they should be selling stocks left and right, then I would be looking for a bottom. But everyone I know wants us to bottom now so we can go back to getting long GOOG and AAPL for the next attack on the old highs.
It would be nice to bottom here and then in about a month (it would take that long) start going long a bunch of stocks that look like all the patterns in 'my past big winners' but I just don't think I am going to get that opportunity yet. Before that could happen in 2003, we had to have a horrible 2 1/2 year bear market. And before those perfect beauties of 1999 setup, we had a Y2K fear that sent companies investing in technology at a breakneck speed. This along with the bear market of 1998 (LTCM fiasco) helped create a ton of near-perfect to perfect charts. Since I doubt we will see another 1999 setup until I am, maybe, 100 years old, then we probably need a very long bear market to create the charts we saw in 2003.
I know a lot of people do not want to wait that long, but if that is how long we must take before we can get the next TASR, EPIC, EVOL, FMDAY, SSYS, TRAD, USNA, SINA, SOHU, NTES, FARO, and SIGM setups, then dang it, I will wait as long as I have to. A lot of people want to make money right now. But as those impatient and historically ignorant traders do damage to their account (like yours truly) by forcing trades that should never be forced (I am not forcing them, the market is just that hard!!), the smartest traders are in 100% cash loading it up for the moment when the stocks above are waiting to be taken.
Like I keep saying, you do not have to bottom tick the lows or bottom tick the day the market hits the lows to make a ton of money. EGHT and FMDAY both produced 300% gains in one and four months respectively. Both of these stocks STARTED their move in late October/early November; ONE FULL YEAR AFTER THE OCTOBER 2002 BOTTOM!!!!!! So the FOOLS, MORONS, IDIOTS, and SCUMBAGS on wall street that tell you that you have to buy the bottom can go F themselves. These idiots can buy THE BOTTOM TICK and they will not come close to TOUCHING my returns by the EOY. The scumbags like to brag when they get the bottom right. Too bad they never remind you about the other six times they got it REAL WRONG.
Calling a bottom here makes more sense than any of the other attempts, as we had the VIX hit 35 intraday (still below 40 and the last indicator to get extreme enough to have a great low), the investors intelligence bears take the bulls, and we have a put/call that has been pervasively around the 1 area for months now. So it makes sense for the donkeys to bottom call here now. However, do they not see that there are problems all over the index charts, besides the bad leadership and destruction in past leaders underneath the indexes.
My first problem with becoming a bottom caller is that it only works 10% of the time and those are odds I will NEVER take. Therefore, I never will bottom call. But I believe in my multiple years of trading FULL TIME I have seen many tops and bottoms during that time. I have learned that calling a bottom before prices can at least get over the most recent resistance is a recipe for disaster. Sadly, the constant bottom callers never have to eat the egg on their face. They just conveniently forget and move on.
On the NYSE, I love the volume I see on the January and Friday's lows. The huge volume surge along with the accumulation leading up to Friday's move is very bullish. But that volume is still leaving much to the imagination as the selloff in January came on heavier volume than the uptrend from January to February. That was followed by heavier volume selling that received some sneaky accumulation during that time. At best, this index is very mixed with the extremely short term looking bullish compared to the overall downtrend from November which is still VERY much in tact. Especially with price below the 50 DMA.
This almost exact same kind of action is happening on the Nasdaq also. The volume near these lows have been incredible but the overall downtrend is still very much alive with the price below the 50 DMA. The bottom line is calling a bottom UNTIL YOU ACTUALLY KNOW it is a bottom is foolish and if you are one of the fools that think you must buy the bottom to make the big money you really are ignorant and need to study the past big stock market leaders like CSCO's 80,000% gain, SCHW's 10,000% gain, or MSFT's 10,000% gain. Do you think you needed to bottom tick to score big gains from those winners? Of course not. So don't believe the MORONS that tell you you need to be buying here. You can wait. In fact, I hope we go on to crash just to show these fools how dangerous the verbal shit that flows from their mouth really is. If we bottom, I can hold off for months!!! and still CRUSH ALL OF YOU who think we need to buy "the exact bottom." You all have SEVERE historical mental problems.
All I am going to do is continue to look for my hot charts, as I know when they show up, and if the market is in an uptrend, the coast will be clear for me to go all-in with my 2 to 1 and 4 to 1 margin accounts. There is no need to buy here with all the carnage out there. The greatest traders of ALL-TIME waited for trends to be confirmed up or down before making any big bets.
That can proven by those who made big recent bets in gold and oil. My God it looked like gold was about ready to explode to the upside and become the next bubble. But it in fact was already in a mini-bubble and now we can only cut our losses and wonder about what could have been. The most important point that came out of the gold selloff is that even leadership is NOT safe in this market. If you can't find comfort in your leaders, even in a bear market, you know that you have some very serious issues to deal with. So calling this a bottom, IMO, is the most ignorant thing you can do after getting the last six to nine calls wrong.
Some interesting items of interest from Thursday's session includes oil falling to $101.84 and gold falling to $920. Gold just touched $1020 intraday on Wednesday (I believe) and since then has spent its time selling off hard. This is a clear sign of a sector that is putting in its top. This comes with oil stocks recently reversing hard and EVERY chemical-fertilizer stock FINALLY rolling over on strong distribution and starting its selloff on heavier volume with low volume rallies. They are not ready to be shorted in bulk yet, but if the market does not breakout above the 50 DMA on heavier volume soon, confirming the FTD, then it will only be a matter of time before the ugly charts in the chemical, oil, and gold group really get nasty. Breakout fakeout reversals are NEVER good for the market, when they happen in leading industry groups.
However, like I said, if the market can build on these short-term gains, I would love to start finding some more stocks that are as green as NEU. If a bunch of charts start showing up in industry groups that are FLYING up the list of top industry groups in IBD's 197 group list, then I would love to jump back into the market long and strong. But for now, we are lacking any leaders. Every time a new leader gets rotated into the top spot they WHACK it. In my recent RM columns I have posted the charts and stocks that I am finding very attractive and that are also the current leaders. However, the small-regional banks and savings & loans are not going to produce any 300-500% winners in 12 months or less. So we better hope for higher quality or else we are going to be sitting on our hands a lot long than expected. Well, expected by readers. I am ready for a two year bear market or for the bear market to end today.
All I need to know it is over are more charts setting up like the stocks you see in my 'past big winners' or like TESO, AFSI, HRZ, PTT, APPY, CVO, MT (IST), BOOM, ZEUS, IHS, MA, CCC, TNH, MOS, OMTR, or ERS from 2004-2007 that I have not posted yet. I KNOW HOW TO FIND AND BUY THE BEST STOCKS THAT PRODUCE THE BIGGEST GAINS IN A SHORT AMOUNT OF TIME IN ANY BULLISH MARKET (YOU DON'T NEED TO PICK AND GUESS AT THE BOTTOMS). I HAVE NEVER SEEN A MARKET LIKE THIS OVER THE PAST SIX MONTHS IN OVER 12 YEARS OF INVESTING EXPERIENCE. THERE STILL IS NOTHING OUT THERE to get insanely excited about besides one stock that I have recently started going long and adding to. If you are not a subscriber, there is no way I am telling you what this near perfect stock is. But it needs a bit more time moving sideways, another pop, and it would be PERFECT! If I see more setup like that I will be more than happy to rejoin the bulls. For now, that is not happening.
We have not had a market like this since 1938 as there have been 28 days this year where the market has moved at least 1% by the close. Nothing is going to make sense in that kind of volatility, unless every day was up or down. Right now, the market is just trying to wash the weak blood out so that when the fresh faces and cash heavy traders return they can come over and pick up the easy cash in the corner and profit handsomely via the smart money that is trying to pick the bottoms like the professional-amateurs they will always be. That is why they have to keep their job at the trading desk; they would NEVER last on their own.
But for now, until I see more technology and innovative groups make their way to the top of the IBD industry group list with some very green chart setups, there is no way I am joining the bottom callers with small regional-banks, tobacco, medical, savings & loans, and beaten up junk sectors leading this rally. WMT and NKE are not my ideas of "fresh, new" leadership. V is my idea of new leadership. Hopefully, this could be my next MA 340%-plus winner. But unless the market continues to trend higher, V will more than likely suffer the same fate the market does. Still it is nice to see an IPO price and run after the public offering.
Until I get more confirmation on the upside, I am simply not going to fall in love with this FTD. I recognize it and realize we have one and that it is time to start looking for stocks that are green like NEU that are setting up or breaking out of well-formed bases like the cup, cup with handle, double bottom, flat base, high-tight-flag, saucer, saucer with handle, or three-week tight pattern. This market is not a market to be overleveraged. Keep the longs small, keep the shorts small (newbies avoid going short the rallies until you have a track record of making money going long), and keep the cash VERY VERY HIGH.
This is the most cash I have had since 2002-2003. When the 2003 follow-through happened I was long 35 stocks. By the end of 2003, I was long over 90. You don't have to be all-in long AT the bottom. You have plenty of time to get very long. GO STUDY 2003 in TCNet and learn for yourself that you don't have to bottom call to get FILTHY RICH. My 'past big winners' should PROVE this! If you still are not convinced, please, NEVER come back to my site. Mahalo and aloha! I will see you in the chat room where everyone is in control, thanks to the CANSLIM methodology. God bless you IBD, O'Neil and the CANSLIM system!!!
Pray for surf!
Saturday, March 15, 2008
BSC Blowup Proves A Chronic Emailer Wrong And, Once Again, Proves The Power Of CANSLIM; Stock Market Indexes Selloff On Mixed Volume But Hold Recent L
Please Note: Starting next week this free weekly commentary will only be available at BigWaveTrading.net so be sure to check out the new FREE site sponsored by BigWaveTrading.com where Joshua Hayes and Market Speculator will be regularly posting some additional commentary about the markets.
Today was another day in the stock market that has just gone to prove that cash is in fact king. When you try to play a stock market with a heavy hand or even on margin in an environment like this you either have a serious illness or you just have never taken the time to study history and to have learned that the smartest thing to do is NOTHING. A stock market that is this volatile that has THIS MANY BLOWUP is definitely not a stock market you want to be messing with.
Today was another day in the stock market that has just gone to prove that cash is in fact king. When you try to play a stock market with a heavy hand or even on margin in an environment like this you either have a serious illness or you just have never taken the time to study history and to have learned that the smartest thing to do is NOTHING. A stock market that is this volatile that has THIS MANY BLOWUP is definitely not a stock market you want to be messing with.
Friday, March 07, 2008
Stocks Selloff On Higher Volume, Helping Send Some Indexes To New 52-Week Closing Lows
Stocks sold off yet again but this time it did so on higher volume which is helping make my point that selling can start off slowly and pickup as it sells off. If you look at the downtrend since last February, you can see that this is the case now as it has been in the past with other market selloffs.
The good news, today, is that, like most sessions recently, the market staged a very volatile and powerful reversal. This time it was to the bull side and it was needed for the trapped longs as stocks looked like they were going to put in another very bearish day of trading.
The past two days has the feeling of a market that is ready to start its downtrend, once again. This would be the third leg down, since the top in November. And just like when the market topped, there are still way too many people that are looking to buy stocks here. If more people were not looking for a bottom, we could look at this selloff as a bullish situation as it would get us one step closer to a real bottom where we can get HOT charts again. Too bad we don't have anything new and fresh setting up out there. Instead it is the same mess everywhere, and when that is taken with all the "dumb" money looking for a bottom, you have a market that could get very ugly.
And very ugly is not what people are looking for. Now, I know the data we are receiving out there is very bearish and I do know that we have had a 24% pullback in the Nasdaq. However, that simply is not going to cut it right now. Like I have said, too many people are looking for a bottom, and some very ignorant (who think they are very smart) people are starting to make some bold statements.
Just like the donkeys that emailed my in December telling me the market was going higher or the bottom callers in January that told me I was stupid for not "knowing" the market bottomed, they are still wrong and will be wrong until we see some nice charts. I think if all of you just do a scan of big-cap stocks you can quickly see that there is nothing out there that looks like the stock market did back in 2003 when we had our last very powerful rally.
So it comes as a bit of a surprise when supposedly "professionals" tell me a bottom is here or coming soon. Someone that has been really good recently by being on top of the market (let's not forget how bearish he was during the 2006 to 2007 rally that I was telling you to buy) is warning that "it is tremendously gloomy out there. Even folks who have been calling for a bottom since this downtrend started back in October of last year have suddenly become less optimistic. We are hearing Armageddon scenarios now, and I bet the local papers will be full of doom and gloom this weekend."
So here we are with MORE past-leaders (XOM and CVX) breaking down from fresh perfect short patterns, and we are supposed to be bottoming. What I want to make clear to everyone here is that the charts are broken, they are broken badly, and they do NOT fix themselves within a few weeks from this kind of damage. The damage that is done to the charts will take weeks and weeks to months and months to repair. You are not going to get CMP type charts everywhere for a very long time. So those that continue to try to "guess" the bottom and catch the "falling-knifes" in the stock market have not learned anything from the 1998 selloff, the 2000-2002 selloff, or even this one yet. It is an amateur game to guess the bottom. And, trust me, there are a lot of professional amateurs out there. I have recently been introduced to one.
Some of these people are telling me that the put/call is too high. What these bozo's (sorry for all the names but seriously to have FACTS prove you wrong and you still tell me you are right is incredibly foolish!) do not understand is that when the market was higher three days ago by almost 4%, the put/call was 1.27. So as the market has fallen, the put/call has dropped to the now 1.17. That is the wrong way. When the stock market bottoms, the put/call will rise as the market falls. That let's you know that fear is increasing. Right now, as prices fall, people continue to believe that the worst is over. Well, considering there are no HOT stock charts out there, you tell me how that is possible.
If it is not the put/call I hear about, it is the VIX. But the VIX is only at 27.50. That is no where near a fearful level. So how in the heck can we have "doom and gloom" out there. How can we have doom and gloom out there when TMA is the only stock crashing and breaking wide open. All the other leaders have just started topping. And a lot of shorts that I have 20% plus gains in STILL! have a lot of dumb investors on the stock's message board buying the stock. So that means the public still thinks GOOG and AAPL are great buys here. Do they NOT remember the lessons of MSFT DELL CSCO and ORCL of the year 2000? Or are they "too smart" for us and the stock market. Let me guess, it is different this time, even though there isn't a single damn chart that looks like CMP setting up in a new HOT industry group.
These foolish investors need to wake up (WAKE UP!!!) and realize that this is more than likely only the start of the bear. And let's say I am wrong here and the market turns on a dime and starts moving up. Guess what? I am still going to outperform you. While you were buying PURE SHIT like HNSN (junk stock with a junk chart and junk fundamentals--why mutual funds are WASTING their time now buying some SHIT like this is beyond all intelligence), I was going long COIN for a 65% gain and short CBEY for a 60% gain in less than one month for COIN and a little over a month for CBEY. You "knife-catchers" are SERIOUSLY going to tell me YOU are smarter than me by buying HNSN as it falls and goes lower while I return 60% in a month on a long and short (using best case scenario--but why shouldn't I?) at the same time. OK, that makes sense.
This is the trap I never want my subscribers to fall into. Right now, the market is ugly. If the market does turn, trust me, you don't need to catch the exact low. Only insecure small-packaged men are interested in grabbing the bottom. Those with big Kahuna's know how insecure you are and understand that to feel good you have to try to pick bottoms and tops. This is a sure way to NEVER create huge wealth. Trying to pick tops and bottom will ENSURE you never get a SINA SOHU NTES.
What is even better, these "smart" guys are telling me to buy GOOG AAPL RIMM FSLR here as they pullback. These people continue to stun me by their ignorance of history. To not understand that past winners almost NEVER lead again is just too much for the weak traders to understand. So instead the buy DRYS, GOOG, AAPL, and HNSN and tell me how much they know and how smart they are and that I don't know the story. Yet here I am with 20-40% gains on ALL of the past big winners that I am still short while DRYS and HNSN longs continue to get their asses handed to them.
When they are finally proven right, not only will they have 50-99% of their wealth wiped out but they will be stuck in this laggard as stocks all around it go flying and make huge gains. That is why people missed the follow-through in March. As one jokester said, "tech didn't lead in 2003." Well, uhm, YES it did. You see, since you are "so smart" and know "so much more" than the stock market, you have failed to learn that the old leaders are never the new leaders. Those that were around in 2003 know that Internet and Biotech stocks were great leaders. But while the CANSLIM active investor was going long SINA, SOHU, TASR, NTES, SSYS, GRMN, USNA, and GPRO, the "smart" money manager was trying to figure out where exactly is DELL and CSCO the right time to buy.
The next time you hear anyone tell you to buy a stock that looks like IMA, C, GS, or HNSN, laugh in their face. They have ulterior motives. There tip is your nightmare. Ignore it and whatever stock they recommend do the opposite. But really if you a CANSLIM active investor you don't have to take tips anyway so you don't have to worry about it.
The fact that someone can actually say that buying a falling knife in a bear market is a good buy is just shocking to me. Especially knowing that he has been around the industry so long. But this guy helps prove one thing. For now the market is not to be bought, shorts continue to lead, and being long is wrong. For most newbies, I continue to preach that you must remain heavy in cash. When I see stocks like CMTL and STSI make moves like that the past few days, I know that being on the sidelines 100% cash is 100x smarter than being long HNSN.
HNSN will lose you money as it makes its way to $10, while you stay solvent. Then when the market turns, and the weak traders are stuck in the old shit like AAPL GOOG RIMM BIDU and their pets like HNSN, you will be in the new BEST STOCKS with the BEST FUNDAMENTALS AND TECHNICALS THAT ARE IN AN INDUSTRY THAT IS WITHIN THE TOP 20 OF IBD'S 197 INDUSTRY GROUPS. Then when their AAPL rebounds 25% and HNSN bounces back 100%, you an laugh in their face with ALL of your 500% to 2500% winners that WILL show up as long as we can get a VIX over 50. If we only get a VIX over 40, I wouldn't expect anything over 2000%. But I have my past returns to prove I know what I am doing. Those chart patterns and all that green BOP don't lie. But when I look at HNSN and someone tells me that is a good stock I know that the man isn't a liar but a HORRIBLE investor. NO CANSLIM INVESTOR IN THEIR RIGHT MIND WOULD BE PUTTING MONEY TO WORK IN THE MARKET HERE UNLESS THEY WERE SHORT. You simply have too much time to wait for the moment to be right. Once you get the breakout, you will get breakouts everywhere.
So not only do you beat the Cramer and Marcin investors in the bear market, when the market turns you CRUSH them in the bull. History has proven that every single on of the greatest stocks of all time have all had the same similar characteristics. The most important one is the market. There is only one right time to buy the market and that is when it is in an uptrend. Right now, the bottom callers in January look stupid as the market is still in one nasty downtrend.
There is absolutely NO WAY ANYONE! who is an intelligent active investor should be thinking of going long this market until we start to see CMP charts showing up. When you can find 5 to 10 CMP type charts out there and you start to see new exciting innovative and technology based groups show up and move higher up IBD's industry list, then you know it is OK to go long again. NEU and CMP are the only two stock that could, right now, setup in a perfect base. They would each need at least five weeks of going sideways to drifting down, on lower volume, with BOP staying green, to be a good long.
The more and more I go looking around internal data about the market, the worse and worse it keeps looking. There were only 26 new 52-week highs to 703 new 52-week lows. Now, let me guess, smart big money managers? That is capitulation right? Wrong, donkeys. I have seen the new lows hit 2000 a few times in my short investing life. So that argument doesn't hold water. Oh, wait, let me guess, this is what it looked like at the 2002 lows right (CANSLIM missed, according to one "smart" investor--IT DIDN'T and if that investor would have read one of my first RM columns he would KNOW THIS!!!)? Wrong. At the bottom in 2002, it was bad. But the trend from July was clear with new highs. New highs continued to increase all the way into the October low. And then by the time the March 2003 follow-through came (did CANSLIM miss that one? You better go read my early RM column :)), new highs were beating new lows and RIGHT ON TOP OF THE INDUSTRY GROUPS were your new Internet, Biotech, and Computer Software leaders. But according to one smart investor (he was focused on MSFT CSCO and ORCL, remember) tech didn't lead.
Does everyone see here why I kill my competition and why those who follow the CANSLIM system will to? The problem with CANSLIM is that there has never been anyone on the internet that has used it in the way that I have: a way in which you can all follow someone who would be running a TON of money, if I wanted to, and how I would be investing it. As you all can see by the returns, there is no one writing on RM who can touch me. There is no one writing for RM that can touch the in-house money managers at IBD. But the problem with that is, nobody has a site from the in-house crew! And then, besides that, there is no professional CANSLIM investor. And trust me there are more than me that have their own site. So I guess I get to attempt to be that leader for you. I guarantee I will lead you to the promise land. A place Cramer will never lead you. The promise land is a land where we try to return 5000% to 10,000% in market environments like 1999 and 2003. Trust me, it can be done!!! TASR NTES SINA SOHU all produced 2000% gains. With 4 to 1 margin on Interactive Brokers, you can do it. Just look at my 'past big winners.' You should see the EXACT SAME PATTERN IN ALL OF THEM. Where are those charts now? No where!
What makes all of this bottom calling so odd to me is that the destruction in leading stocks is horrible and NONE of them are at ANY KIND of major support. There is not any HUGE volume out there signaling a bottom and institutional support. So these ugly charts are clearly not worth buying. The other problem is that there is now ONLY ONE group left looking tight and solid. That is the gold/silver stocks. However, how much longer can these last? The ag stocks are now topping as I have re-entered a short position in a past monster stock. DE is also collapsing. But the best part is the DBA chart that I have been warning of being parabolic for about a week now.
If you go to the forums and click on the area where I list all of my sells and stocks I am watching, you will see that I recently added a "parabolic charts" section and the ETF that continued to show up every day on a more and more exponential rise on heavier and heavier volume. For those that can not tell first off from June to September the stock moved up calmly, then it started moving at a faster rate from October to December. By December the ETF really started moving into January where a very strong breakout took the stock higher at an even faster rate. After a pullback in early February the stock took off at an even more steep slope and on 3/26 DBA has a very large price gain on its highest volume ever after seven straight up days. The next day the stock finished lower and had a very weak intraday session on even much higher volume. Since then it has gone no where with a day of the heaviest volume yet leading eventually to Friday's breakdown below support on very strong volume. An easy to spot classic topping pattern.
Now, this ETF could turn around and move higher. If it does that, I wont be surprised. But when I look at this ETF and look at the leaders I really don't know it is up in the air. I am long one of the top two stocks (DAR) and short one of the top two (***) stocks. So there is no guarantee this is a top on DBA but that chart pattern if you see in a stock is DEFINITELY a place to take 25-50% profits. DBS (silver) appears to be next as the stock went on a very rapid uptrend and is stalling out on very heavy volume. Right now though, silver stocks still look great so this could just be a short term top. However if you ever see a stock move like that for a long time and they then have a move like 3/6 on PBT or 2/27 with DBA, you will know it is time to take profits.
The market, right now, is in a downtrend, and unless you have billions to work with, there is no reason to fight the trend. Even if you did decide to fight the trend, there is no new fresh innovative leadership coming out of the market. Therefore, if you want to do what the greatest traders history has ever provided has done, you will not go long stocks here, you will raise cash and hold cash until the hot charts come along, and if you are experienced you will go short the stocks of the past leaders on low volume rallies to the 50/200 DMA areas.
Besides making sure that you are not one of those "bottom-callers" calling the bottoms that will usually make you look foolish as stocks go right below "your bottom," you want to make sure that unless you have a history of making money in the stock market on the long side, to not go long stocks here OR go short stocks. The only people that should be going short right now are those that have either made a lot of money for long periods of time in the market or those that are new but have mastered, "in their opinion," the art of cutting their losses fast. And if you do go short make sure your stock is RIGHT AT THE 50 day moving average and 200 day moving average. Do NOT short stocks that are more than 5% extended, NEVER SHORT A STOCK MORE THAN 10% AWAY FROM THE 50 DMA, and make sure you do NOT short stocks that have fallen something like 8 out of the last 9 days. Those stocks are always too extended and if you go short that stock, not only will you be seeing the exact same thing EVERYONE else will be seeing (a "for sure" short) you will also be taking a trade that has less than 10% chance of succeeding. Few stocks can move lower 8 to 9 out of 10 days and continue to move lower. It is called oversold.
What is not oversold is this market. Based on the OB/OS oscillator that Helene Meisler (she lives where I was born; looks like I got the better end of the deal) uses the indexes are still quite a ways away from their lows that signal a bounce. Therefore, not only does the macro data, ugly charts, index charts say we are going lower, but the oscillator says we have the room to go lower. It is not like we are so oversold that we are definitely going to bounce. Can we bounce? Absolutely. Does anything indicate that we are near a bounce? Not anymore. Remember those nice charts that started showing up for a couple of days. They were basically killed yesterday. Some are holding it, obviously, as I buy leaders. But others that clearly should have held with the accumulation they have had did not.
Not only that, I had my first two blowups that left me with 20% losses in a VERY LONG TIME!! What is funny is the first one no one really said anything. BUT I DID, as I always want to point you to my mistakes. Well not only did PDGI screw up (another small CANSLIM long based on the chart not having green BOP on the chart), but UDRL turned out to be a dud. The funny thing about that stock is that it triggered a response by a new subscriber. Now, while it did not get me mad at first (I even found it funny), looking back on it it was an insult. You know who you are that said it and trust me I am not mad at you but I want you to realize something:
There have been over 200 stocks that have gapped lower wiping out a ton of wealth overnight. Not only that but stocks like PMI, MTG, ABK, and TMA have ruined peoples lives. First off, I go long a lot of stocks. The first thing that should be appreciated is that MOST of them usually turn out right. Not only that, EVEN IN THIS PAS SHITTY BULL MARKET FROM 2006-2007, I was still able to grab many 300% winners like MA IHS TNH MOS OMTR etc... . So the fact that I go long so many stocks and so many work well give EVERYONE a chance to make money and none of us can move a stock with our buying.
Second off, how often do I EVER!!!! buy a stock and it blows up? Almost NEVER in a bull market and so far ONLY!!!! twice in this bear market. I know a great trader that just suffered a blowup in VE today. IT HAPPENS!!!!! NO ONE IS PERFECT. However, one 20% loss, to five listed stocks that made 300% gains in a year or so, should CLEARLY SHOW YOU that I can take one or two of these and it doesn't COME CLOSE TO PHASING ME.
Third, did I say I loved UDRL? HELL NO! Of course I did not. The stock did not bounce off the 50 DMA on HUGE volume, nor did it breakout to a new high on huge volume. Instead, the stock was bouncing off support of the base of a base on base pattern on just above average volume. Besides the lame volume, BOP fell from max green to around the 80 green BOP area.
So, not only was the volume weak, BOP went the wrong way, and it wasn't a powerful move. Besides that we are in a bear market and everyone here should know that 3 out of 4 stocks follow the trend. That trend is down on every time frame I can think of besides a 5-minute chart and 30-minute chart. UDRL simply was not a stock I had interest in loading up based on that move. That is proven by going to the forums and looking inside the 'very conservative CANSLIM portfolio.' There I bought the usual small bear market amount of 1%. This shows my lack of interest. Perfect charts get 5% and near-perfect get 3-4% in this portfolio. It is very safe and still beats the market.
So I have given you two bad CANSLIM longs recently and not only did I show a lack of interest in both of them but the small buy in the portfolio should have proven to you that I had no real interest in either one of these charts. I will repeat one more time: I have no interest in any chart right now until there are more that look like NEU and CMP. Besides that, I must see better leadership than the commodities. Those are our leaders now and now that everyone notices them there probably is not much time left. Maybe one last blastoff. But after that I don't know. POT and MOS are still above the 50 DMA but the stocks are starting to show more red volume bars above the 50 day volume average. If the chemcial-fertilizers, energy-other (solar), and oil and gas (XOM and CVX) past-leaders start selling off on heavier volume like they are starting to and the other commodity leaders rollover it is going to get real ugly.
Therefore, one more time: CASH IS KING!!! Even I plan on being 50% cash by the end of this bear market. That way I will have a TON of cash ready to put to work in the next SINA SOHU NTES and USNA stocks. When these beautiful bases and breakouts show up, I will have no problem loading up on the longs. But for now, cash must be raised and we cut our losses. My new shorts will be smaller from here on out, even on my favorite past-leaders. I would just rather have more cash to put to work when this bear is over and the next bull starts. The more money I have for the new leaders, the more money I am going to make.
Staying in cash waiting for the next TASR and TZOO and then putting all of your money in those perfect monster stocks is the right way to become extremely wealthy. It sure in the hell is NOT by buying GOOG, AAPL, or worse HNSN all the way down. When these stocks finally bounce, they will leave you with less money at the lows, will produce lame returns compared to the NEW FRESH BIG MONSTER STOCKS, and then will leave you married to the stock while you wait for your opinion to come true. Too bad most opinions end up like assholes: producing nothing but....you know the rest.
Aloha from the most beautiful island in the USA where buying stocks like TMA and HNSN will leave me living in a tent on the beach. CASH IS KING! ALOHA!
current longs (shorts) up today and their total return since purchase: EBIX 127% (BEN 27% TSRA 58% ING 25% PVH 30% COH 31% LFC 36% SGP 22% GRMN 40% NETL 26% THOR 28% SIGM 34% ATI 29% CBEY 60%)
The good news, today, is that, like most sessions recently, the market staged a very volatile and powerful reversal. This time it was to the bull side and it was needed for the trapped longs as stocks looked like they were going to put in another very bearish day of trading.
The past two days has the feeling of a market that is ready to start its downtrend, once again. This would be the third leg down, since the top in November. And just like when the market topped, there are still way too many people that are looking to buy stocks here. If more people were not looking for a bottom, we could look at this selloff as a bullish situation as it would get us one step closer to a real bottom where we can get HOT charts again. Too bad we don't have anything new and fresh setting up out there. Instead it is the same mess everywhere, and when that is taken with all the "dumb" money looking for a bottom, you have a market that could get very ugly.
And very ugly is not what people are looking for. Now, I know the data we are receiving out there is very bearish and I do know that we have had a 24% pullback in the Nasdaq. However, that simply is not going to cut it right now. Like I have said, too many people are looking for a bottom, and some very ignorant (who think they are very smart) people are starting to make some bold statements.
Just like the donkeys that emailed my in December telling me the market was going higher or the bottom callers in January that told me I was stupid for not "knowing" the market bottomed, they are still wrong and will be wrong until we see some nice charts. I think if all of you just do a scan of big-cap stocks you can quickly see that there is nothing out there that looks like the stock market did back in 2003 when we had our last very powerful rally.
So it comes as a bit of a surprise when supposedly "professionals" tell me a bottom is here or coming soon. Someone that has been really good recently by being on top of the market (let's not forget how bearish he was during the 2006 to 2007 rally that I was telling you to buy) is warning that "it is tremendously gloomy out there. Even folks who have been calling for a bottom since this downtrend started back in October of last year have suddenly become less optimistic. We are hearing Armageddon scenarios now, and I bet the local papers will be full of doom and gloom this weekend."
So here we are with MORE past-leaders (XOM and CVX) breaking down from fresh perfect short patterns, and we are supposed to be bottoming. What I want to make clear to everyone here is that the charts are broken, they are broken badly, and they do NOT fix themselves within a few weeks from this kind of damage. The damage that is done to the charts will take weeks and weeks to months and months to repair. You are not going to get CMP type charts everywhere for a very long time. So those that continue to try to "guess" the bottom and catch the "falling-knifes" in the stock market have not learned anything from the 1998 selloff, the 2000-2002 selloff, or even this one yet. It is an amateur game to guess the bottom. And, trust me, there are a lot of professional amateurs out there. I have recently been introduced to one.
Some of these people are telling me that the put/call is too high. What these bozo's (sorry for all the names but seriously to have FACTS prove you wrong and you still tell me you are right is incredibly foolish!) do not understand is that when the market was higher three days ago by almost 4%, the put/call was 1.27. So as the market has fallen, the put/call has dropped to the now 1.17. That is the wrong way. When the stock market bottoms, the put/call will rise as the market falls. That let's you know that fear is increasing. Right now, as prices fall, people continue to believe that the worst is over. Well, considering there are no HOT stock charts out there, you tell me how that is possible.
If it is not the put/call I hear about, it is the VIX. But the VIX is only at 27.50. That is no where near a fearful level. So how in the heck can we have "doom and gloom" out there. How can we have doom and gloom out there when TMA is the only stock crashing and breaking wide open. All the other leaders have just started topping. And a lot of shorts that I have 20% plus gains in STILL! have a lot of dumb investors on the stock's message board buying the stock. So that means the public still thinks GOOG and AAPL are great buys here. Do they NOT remember the lessons of MSFT DELL CSCO and ORCL of the year 2000? Or are they "too smart" for us and the stock market. Let me guess, it is different this time, even though there isn't a single damn chart that looks like CMP setting up in a new HOT industry group.
These foolish investors need to wake up (WAKE UP!!!) and realize that this is more than likely only the start of the bear. And let's say I am wrong here and the market turns on a dime and starts moving up. Guess what? I am still going to outperform you. While you were buying PURE SHIT like HNSN (junk stock with a junk chart and junk fundamentals--why mutual funds are WASTING their time now buying some SHIT like this is beyond all intelligence), I was going long COIN for a 65% gain and short CBEY for a 60% gain in less than one month for COIN and a little over a month for CBEY. You "knife-catchers" are SERIOUSLY going to tell me YOU are smarter than me by buying HNSN as it falls and goes lower while I return 60% in a month on a long and short (using best case scenario--but why shouldn't I?) at the same time. OK, that makes sense.
This is the trap I never want my subscribers to fall into. Right now, the market is ugly. If the market does turn, trust me, you don't need to catch the exact low. Only insecure small-packaged men are interested in grabbing the bottom. Those with big Kahuna's know how insecure you are and understand that to feel good you have to try to pick bottoms and tops. This is a sure way to NEVER create huge wealth. Trying to pick tops and bottom will ENSURE you never get a SINA SOHU NTES.
What is even better, these "smart" guys are telling me to buy GOOG AAPL RIMM FSLR here as they pullback. These people continue to stun me by their ignorance of history. To not understand that past winners almost NEVER lead again is just too much for the weak traders to understand. So instead the buy DRYS, GOOG, AAPL, and HNSN and tell me how much they know and how smart they are and that I don't know the story. Yet here I am with 20-40% gains on ALL of the past big winners that I am still short while DRYS and HNSN longs continue to get their asses handed to them.
When they are finally proven right, not only will they have 50-99% of their wealth wiped out but they will be stuck in this laggard as stocks all around it go flying and make huge gains. That is why people missed the follow-through in March. As one jokester said, "tech didn't lead in 2003." Well, uhm, YES it did. You see, since you are "so smart" and know "so much more" than the stock market, you have failed to learn that the old leaders are never the new leaders. Those that were around in 2003 know that Internet and Biotech stocks were great leaders. But while the CANSLIM active investor was going long SINA, SOHU, TASR, NTES, SSYS, GRMN, USNA, and GPRO, the "smart" money manager was trying to figure out where exactly is DELL and CSCO the right time to buy.
The next time you hear anyone tell you to buy a stock that looks like IMA, C, GS, or HNSN, laugh in their face. They have ulterior motives. There tip is your nightmare. Ignore it and whatever stock they recommend do the opposite. But really if you a CANSLIM active investor you don't have to take tips anyway so you don't have to worry about it.
The fact that someone can actually say that buying a falling knife in a bear market is a good buy is just shocking to me. Especially knowing that he has been around the industry so long. But this guy helps prove one thing. For now the market is not to be bought, shorts continue to lead, and being long is wrong. For most newbies, I continue to preach that you must remain heavy in cash. When I see stocks like CMTL and STSI make moves like that the past few days, I know that being on the sidelines 100% cash is 100x smarter than being long HNSN.
HNSN will lose you money as it makes its way to $10, while you stay solvent. Then when the market turns, and the weak traders are stuck in the old shit like AAPL GOOG RIMM BIDU and their pets like HNSN, you will be in the new BEST STOCKS with the BEST FUNDAMENTALS AND TECHNICALS THAT ARE IN AN INDUSTRY THAT IS WITHIN THE TOP 20 OF IBD'S 197 INDUSTRY GROUPS. Then when their AAPL rebounds 25% and HNSN bounces back 100%, you an laugh in their face with ALL of your 500% to 2500% winners that WILL show up as long as we can get a VIX over 50. If we only get a VIX over 40, I wouldn't expect anything over 2000%. But I have my past returns to prove I know what I am doing. Those chart patterns and all that green BOP don't lie. But when I look at HNSN and someone tells me that is a good stock I know that the man isn't a liar but a HORRIBLE investor. NO CANSLIM INVESTOR IN THEIR RIGHT MIND WOULD BE PUTTING MONEY TO WORK IN THE MARKET HERE UNLESS THEY WERE SHORT. You simply have too much time to wait for the moment to be right. Once you get the breakout, you will get breakouts everywhere.
So not only do you beat the Cramer and Marcin investors in the bear market, when the market turns you CRUSH them in the bull. History has proven that every single on of the greatest stocks of all time have all had the same similar characteristics. The most important one is the market. There is only one right time to buy the market and that is when it is in an uptrend. Right now, the bottom callers in January look stupid as the market is still in one nasty downtrend.
There is absolutely NO WAY ANYONE! who is an intelligent active investor should be thinking of going long this market until we start to see CMP charts showing up. When you can find 5 to 10 CMP type charts out there and you start to see new exciting innovative and technology based groups show up and move higher up IBD's industry list, then you know it is OK to go long again. NEU and CMP are the only two stock that could, right now, setup in a perfect base. They would each need at least five weeks of going sideways to drifting down, on lower volume, with BOP staying green, to be a good long.
The more and more I go looking around internal data about the market, the worse and worse it keeps looking. There were only 26 new 52-week highs to 703 new 52-week lows. Now, let me guess, smart big money managers? That is capitulation right? Wrong, donkeys. I have seen the new lows hit 2000 a few times in my short investing life. So that argument doesn't hold water. Oh, wait, let me guess, this is what it looked like at the 2002 lows right (CANSLIM missed, according to one "smart" investor--IT DIDN'T and if that investor would have read one of my first RM columns he would KNOW THIS!!!)? Wrong. At the bottom in 2002, it was bad. But the trend from July was clear with new highs. New highs continued to increase all the way into the October low. And then by the time the March 2003 follow-through came (did CANSLIM miss that one? You better go read my early RM column :)), new highs were beating new lows and RIGHT ON TOP OF THE INDUSTRY GROUPS were your new Internet, Biotech, and Computer Software leaders. But according to one smart investor (he was focused on MSFT CSCO and ORCL, remember) tech didn't lead.
Does everyone see here why I kill my competition and why those who follow the CANSLIM system will to? The problem with CANSLIM is that there has never been anyone on the internet that has used it in the way that I have: a way in which you can all follow someone who would be running a TON of money, if I wanted to, and how I would be investing it. As you all can see by the returns, there is no one writing on RM who can touch me. There is no one writing for RM that can touch the in-house money managers at IBD. But the problem with that is, nobody has a site from the in-house crew! And then, besides that, there is no professional CANSLIM investor. And trust me there are more than me that have their own site. So I guess I get to attempt to be that leader for you. I guarantee I will lead you to the promise land. A place Cramer will never lead you. The promise land is a land where we try to return 5000% to 10,000% in market environments like 1999 and 2003. Trust me, it can be done!!! TASR NTES SINA SOHU all produced 2000% gains. With 4 to 1 margin on Interactive Brokers, you can do it. Just look at my 'past big winners.' You should see the EXACT SAME PATTERN IN ALL OF THEM. Where are those charts now? No where!
What makes all of this bottom calling so odd to me is that the destruction in leading stocks is horrible and NONE of them are at ANY KIND of major support. There is not any HUGE volume out there signaling a bottom and institutional support. So these ugly charts are clearly not worth buying. The other problem is that there is now ONLY ONE group left looking tight and solid. That is the gold/silver stocks. However, how much longer can these last? The ag stocks are now topping as I have re-entered a short position in a past monster stock. DE is also collapsing. But the best part is the DBA chart that I have been warning of being parabolic for about a week now.
If you go to the forums and click on the area where I list all of my sells and stocks I am watching, you will see that I recently added a "parabolic charts" section and the ETF that continued to show up every day on a more and more exponential rise on heavier and heavier volume. For those that can not tell first off from June to September the stock moved up calmly, then it started moving at a faster rate from October to December. By December the ETF really started moving into January where a very strong breakout took the stock higher at an even faster rate. After a pullback in early February the stock took off at an even more steep slope and on 3/26 DBA has a very large price gain on its highest volume ever after seven straight up days. The next day the stock finished lower and had a very weak intraday session on even much higher volume. Since then it has gone no where with a day of the heaviest volume yet leading eventually to Friday's breakdown below support on very strong volume. An easy to spot classic topping pattern.
Now, this ETF could turn around and move higher. If it does that, I wont be surprised. But when I look at this ETF and look at the leaders I really don't know it is up in the air. I am long one of the top two stocks (DAR) and short one of the top two (***) stocks. So there is no guarantee this is a top on DBA but that chart pattern if you see in a stock is DEFINITELY a place to take 25-50% profits. DBS (silver) appears to be next as the stock went on a very rapid uptrend and is stalling out on very heavy volume. Right now though, silver stocks still look great so this could just be a short term top. However if you ever see a stock move like that for a long time and they then have a move like 3/6 on PBT or 2/27 with DBA, you will know it is time to take profits.
The market, right now, is in a downtrend, and unless you have billions to work with, there is no reason to fight the trend. Even if you did decide to fight the trend, there is no new fresh innovative leadership coming out of the market. Therefore, if you want to do what the greatest traders history has ever provided has done, you will not go long stocks here, you will raise cash and hold cash until the hot charts come along, and if you are experienced you will go short the stocks of the past leaders on low volume rallies to the 50/200 DMA areas.
Besides making sure that you are not one of those "bottom-callers" calling the bottoms that will usually make you look foolish as stocks go right below "your bottom," you want to make sure that unless you have a history of making money in the stock market on the long side, to not go long stocks here OR go short stocks. The only people that should be going short right now are those that have either made a lot of money for long periods of time in the market or those that are new but have mastered, "in their opinion," the art of cutting their losses fast. And if you do go short make sure your stock is RIGHT AT THE 50 day moving average and 200 day moving average. Do NOT short stocks that are more than 5% extended, NEVER SHORT A STOCK MORE THAN 10% AWAY FROM THE 50 DMA, and make sure you do NOT short stocks that have fallen something like 8 out of the last 9 days. Those stocks are always too extended and if you go short that stock, not only will you be seeing the exact same thing EVERYONE else will be seeing (a "for sure" short) you will also be taking a trade that has less than 10% chance of succeeding. Few stocks can move lower 8 to 9 out of 10 days and continue to move lower. It is called oversold.
What is not oversold is this market. Based on the OB/OS oscillator that Helene Meisler (she lives where I was born; looks like I got the better end of the deal) uses the indexes are still quite a ways away from their lows that signal a bounce. Therefore, not only does the macro data, ugly charts, index charts say we are going lower, but the oscillator says we have the room to go lower. It is not like we are so oversold that we are definitely going to bounce. Can we bounce? Absolutely. Does anything indicate that we are near a bounce? Not anymore. Remember those nice charts that started showing up for a couple of days. They were basically killed yesterday. Some are holding it, obviously, as I buy leaders. But others that clearly should have held with the accumulation they have had did not.
Not only that, I had my first two blowups that left me with 20% losses in a VERY LONG TIME!! What is funny is the first one no one really said anything. BUT I DID, as I always want to point you to my mistakes. Well not only did PDGI screw up (another small CANSLIM long based on the chart not having green BOP on the chart), but UDRL turned out to be a dud. The funny thing about that stock is that it triggered a response by a new subscriber. Now, while it did not get me mad at first (I even found it funny), looking back on it it was an insult. You know who you are that said it and trust me I am not mad at you but I want you to realize something:
There have been over 200 stocks that have gapped lower wiping out a ton of wealth overnight. Not only that but stocks like PMI, MTG, ABK, and TMA have ruined peoples lives. First off, I go long a lot of stocks. The first thing that should be appreciated is that MOST of them usually turn out right. Not only that, EVEN IN THIS PAS SHITTY BULL MARKET FROM 2006-2007, I was still able to grab many 300% winners like MA IHS TNH MOS OMTR etc... . So the fact that I go long so many stocks and so many work well give EVERYONE a chance to make money and none of us can move a stock with our buying.
Second off, how often do I EVER!!!! buy a stock and it blows up? Almost NEVER in a bull market and so far ONLY!!!! twice in this bear market. I know a great trader that just suffered a blowup in VE today. IT HAPPENS!!!!! NO ONE IS PERFECT. However, one 20% loss, to five listed stocks that made 300% gains in a year or so, should CLEARLY SHOW YOU that I can take one or two of these and it doesn't COME CLOSE TO PHASING ME.
Third, did I say I loved UDRL? HELL NO! Of course I did not. The stock did not bounce off the 50 DMA on HUGE volume, nor did it breakout to a new high on huge volume. Instead, the stock was bouncing off support of the base of a base on base pattern on just above average volume. Besides the lame volume, BOP fell from max green to around the 80 green BOP area.
So, not only was the volume weak, BOP went the wrong way, and it wasn't a powerful move. Besides that we are in a bear market and everyone here should know that 3 out of 4 stocks follow the trend. That trend is down on every time frame I can think of besides a 5-minute chart and 30-minute chart. UDRL simply was not a stock I had interest in loading up based on that move. That is proven by going to the forums and looking inside the 'very conservative CANSLIM portfolio.' There I bought the usual small bear market amount of 1%. This shows my lack of interest. Perfect charts get 5% and near-perfect get 3-4% in this portfolio. It is very safe and still beats the market.
So I have given you two bad CANSLIM longs recently and not only did I show a lack of interest in both of them but the small buy in the portfolio should have proven to you that I had no real interest in either one of these charts. I will repeat one more time: I have no interest in any chart right now until there are more that look like NEU and CMP. Besides that, I must see better leadership than the commodities. Those are our leaders now and now that everyone notices them there probably is not much time left. Maybe one last blastoff. But after that I don't know. POT and MOS are still above the 50 DMA but the stocks are starting to show more red volume bars above the 50 day volume average. If the chemcial-fertilizers, energy-other (solar), and oil and gas (XOM and CVX) past-leaders start selling off on heavier volume like they are starting to and the other commodity leaders rollover it is going to get real ugly.
Therefore, one more time: CASH IS KING!!! Even I plan on being 50% cash by the end of this bear market. That way I will have a TON of cash ready to put to work in the next SINA SOHU NTES and USNA stocks. When these beautiful bases and breakouts show up, I will have no problem loading up on the longs. But for now, cash must be raised and we cut our losses. My new shorts will be smaller from here on out, even on my favorite past-leaders. I would just rather have more cash to put to work when this bear is over and the next bull starts. The more money I have for the new leaders, the more money I am going to make.
Staying in cash waiting for the next TASR and TZOO and then putting all of your money in those perfect monster stocks is the right way to become extremely wealthy. It sure in the hell is NOT by buying GOOG, AAPL, or worse HNSN all the way down. When these stocks finally bounce, they will leave you with less money at the lows, will produce lame returns compared to the NEW FRESH BIG MONSTER STOCKS, and then will leave you married to the stock while you wait for your opinion to come true. Too bad most opinions end up like assholes: producing nothing but....you know the rest.
Aloha from the most beautiful island in the USA where buying stocks like TMA and HNSN will leave me living in a tent on the beach. CASH IS KING! ALOHA!
current longs (shorts) up today and their total return since purchase: EBIX 127% (BEN 27% TSRA 58% ING 25% PVH 30% COH 31% LFC 36% SGP 22% GRMN 40% NETL 26% THOR 28% SIGM 34% ATI 29% CBEY 60%)
Saturday, March 01, 2008
It's About Time!; Stocks Breakdown From The Triangle Consolidation (NYSE Reverses Its Breakout), On Much Heavier Volume
Well, I guess, all I can say is, so much for that rally. There were a lot of people that were very confident that the lows in this market were seen on 1/22 and 1/23. Those people that believe that is the case still, are living in serious denial about the true problems this market has. Unless you are only focused on the oil, gold, steel, metal, food, ag, machinery, or chemical stocks, there is no way anyone can be serious when they say they are bullish on this market. Everywhere I look I see some big damage that was caused by today's selloff and the reality of the situation is very clear to me. This market is not a market to buy.
Today, stocks were crushed, as a raft of poor economic data and more subprime BS slammed the door in the face of the bottom-callers. Part of it was due to the consumer as for the third month in four their was no growth in spending. And for those that truly do not grasp how important that is, I hope I can help convince you, along with IBD, that it is indeed very important.
IBD echoes my feelings and they use 2001 as an example. If not for the spending habits of the consumer, there indeed is a high probability that we would not have rallied off that horrible time the way we did. We came back extremely strong and it might not have been that strong if not for the consumer. And after LTCM and the global crisis back in 1998, it was the consumer's spending, once again, that helped keep the economy going just enough to keep other sectors moving. If you want to know what it is like when people stop spending money, take a look at post-bubble Japan in the 1990s. This is a big deal and is just another piece of the puzzle that shows the economy is in a lot of trouble.
The bulls want to say that this is just a minor dip and that things will be better in the future. Realist look at that argument and immediately take a look at the books of the homebuilders and say "wait a minute." "This is just starting." Yes, in fact it is just starting. How do we know that? Easily. I call it common sense. Do you think the Fed is lowering rates because the economy is on fire? Do you think that when they are done the market is just going to say "thank you" and start running again?
Our GDP numbers have just started trending down and when you look at factory backlogs and activity it is almost impossible to say that this will correct in just a quarter or two. But on top of this poor GDP is the nasty PPI and CPI which show that we have real inflationary problems. With that inflation we have a big problem with jobs as joblessness is rising and wages earned is growing at its lowest level in a very long time. This is not the proper macro trend for our stock market. And all you have to do to confirm that the macro trend is not good is look at the stock market. A bullish market with a strong economy does not look like this. This is a market eerily similar to the late 1960s and early 1970s. For those that do not know their history, 1968-1980 was the equivalent of investor hell, as the DJIA moved -.22%. So basically it was twelve years of nothing.
However, not to fear, active investors, as many stocks made a lot of big gains during that time. If you backtest your charts of the DJIA you will see that there were some very serious trends back then that allowed us to make some good money on the long side (1968, 1970-1971, 1972, 1975, 1980) and good money on the short side (1969-1970, 1971, 1974, 1977). During these runs, many stocks, obviously produced some great gains. So if we are about ready to enter a period of stagflation or enter a recession, there should be plenty of shorts for us to profit off of. If you are too nervous to short or are too inexperienced, don't be shy about keeping those cash levels high. Most people, if they would have stayed in cash, during the past few months, would be sitting pretty with gains much larger than the market. I know a lot of people that have losses since the start of this year (like yours truly in 4 of 6 accounts) but the key is to see if you are beating the market.
A lot of people do not understand that just because you are down, does not mean you are a loser or a bad trader. If you are down 10% this year, you should not be upset. Instead you should realize that you are beating the Nasdaq by almost 5% and that makes you better off than well over 50% of investors out there. The best bet to do now is to make sure you stay locked in that cash. Let the mediocre stocks come flying by with their almost nice chart patterns that still fail in this choppy market anyways because 3 out of 4 stocks follow the general market. So if the market is going nowhere, chances are that your stock will not be going anywhere either, unless it is in one of the top 20 industry groups and only if that group has been climbing the list.
This is why I keep saying it is ok to be in cash. By going to cash, you can make sure you do not lose money while you learn how to trade and then when this crazy market is over and a new "real" uptrend starts instead of having $385,000 to try for that 1000% (which should be doable with 4 to 1 margin--study my 'past big winners!!') gain you will still have the original $500,000. And trust me more of you (like 99%) will end up with less money when you get out of this market environment.
Luckily for me, I still have a lot of short positions that did not signal any full sells while we had that very low volume drift higher. Those shorts piled it on thick today. Not only that, the longs that I own all pulled back on lower volume and still have nice chart pattterns--that is, of course, mostly the commodity stocks.
But there is a group of longs that I started to go long based on the strong fundamentals and charts. That is the medical stocks. However, after Friday, things have changed as HMSY, CMED, CHDX, and AMED all had to be fully sold today. This is kind of shocking, considering that medical stocks historically do well in bear markets. This along with the utilities falling in a bearish market environment has to be considered really bad.
I am not sure the reasons why these stocks are reversing. But what normally happens with stocks that everyone think should be going up but selloff on no news is that something bad is going on industry wide underneath but will not be known until much later. Taking those charts along with two popping into my head that I just saw (ELN XNPT) and I believe there is a deeper macro issue happening.
What I personally think might be happening here is one of two things, or both, or none. The medical stocks are selling off because consumers are so extended (130% in debt I recently saw) that they simple can not afford to frivolously use up their medical. Or it could be because the sector is looking ahead to a Barack Obama or Hillary Clinton winning and the taxes, trade barriers, and regulations that will be imposed on this industry, along with the insanity of the already-failed-in-Canada-and-England universal healthcare. No matter how you look at it, it is not good for this industry, and now the market appears to have recognized it.
Whatever the reason is the fact that these stocks are failing and reversing on strong volume and red BOP is very bearish. This leaves ONLY commodity related stocks that are moving up and to me that is scary. They are moving higher because it is obvious there is too much money chasing too few goods. This along with the horrible regime of Mugabe in Zimbabwe has helped to spur what could be 100,000% inflation by the end of 2008. But his is also impacting us here as corn is used for the ridiculous wasteful and "carbon emitting" ethanol fuel. This then effects the food chain and line. Combine this with some bad weather here and there and you get some real problems. Hence, all our great looking commodity charts and ugly everything else. There seems to be no end to higher prices in sight and the charts while going "exponential" are no where near at the end of a parabolic run.
Helene Meisler recently penned a piece suggesting they were parabolic. Well, my fellow colleague (who lives in St. Louis, where I was born; I think I got the better end of the deal ;)) Helene did not look at enough charts and if she would have overlaid the current ETFs over other parabolic runs she could see they are just starting. Fortunately, I am not the one that has to tell her this as Manning was immediately on top of this including his own conversation with Jim Rogers.
Jim believes we are only 1/2 way through this run and if it started in 1999 will last until about 2018. So take that for what it is. Jim is also short MSFT and so am I. So if the guy is long what I am long and is short what I am short, who am I to argue with the man. The only amazing thing is that Manning can talk to Jim. LOL. I don't even think Jim would look at someone like me. Which is fine with me, by the way. I prefer to be the outsider looking in.
My returns with this CANSLIM system sure does prove that. These "professionals" couldn't even touch my subscribers with their money. For proof of that, Cramer's Action Alert Plus has an unbelievably pathetic 30% return since 1/1/02. Now I know that is wrong to say something like that and I do apologize for being a jerk. The truth is that he should have doubled his money. Look at the IBD 100, look at the IBD 85-85, look at the returns from the AAII screen that runs the CANSLIM system, look at Ken Heebner, and look at me, axman, market, and wutan (and many others). 30% is terrible. Yet I am sure for those that ONLY watch Cramer on CNBC, it is incredible. Not good.
Now, I will admit, I do not have the money Cramer has, but I lived in Manhattan and Manhattan prices have nothing on West Side Maui prices. Everything I earn almost goes into my cost of living, so it is going to be hard to be worth what Cramer is worth now. But when I am as old as Cramer is, trust me, my Action Alert portfolio will be doing a lot better than his. Mark my words, mark my 'past big winners.' The only ways it couldn't be is if we never have another bull market ever again or if we are nuked. Either way I am screwed and at least I know how to surf. If there is no stock market, at least there might be waves. If there are no waves, there is still plenty to do in the ocean.
Getting back to this market, I want to go over some internal numbers that caught my attention today. First off, besides the NYSE and SP 600 which only barely made it over the 50 DMA, the rest of the indexes spent five weeks basing BELOW this key moving average and that combined with today's crack on 20% higher volume is bearish. On top of that, new lows killed new highs by a wide margin of 39 new highs to 360 new lows. This is not what you see if the pullback was just a normal pullback in a market that had in fact bottomed. If that was the case we would have seen the new lows stay around the number of new highs since they were close the past few days. This expansion confirms the weakness.
Now, there are a couple of things that indicate there was some fear in this selling. This can be seen in the VIX that jumped 11% to 26.50 which is a good pop but still a weak reading as it is still almost 100% away from the 50 needed to signal a GREAT BOTTOM. On top of the VIX, the put/call ratio jumped to 1.21 which indicates there was a good little amount of fear in the market today. However, with the put/call, big jumps usually don't matter unless the stock makes a big move lower and then puts in a very bullish intraday reversal closing higher. The near 3% move just is not enough to signal a day full of capitulation. So 1.21 is just not high enough. When we see another day similar to August 16th, along with the put/call hitting 1.5, then I may declare a bottom.
For now, however, without an extremely high VIX around 40-50, a put/call around 1.5, or the investors intelligence showing more bears than bulls, there is simply no way I can believe 1/22 and 1/23 are bottoms and today's swoon along with all the ugly stock charts and fresh breakdowns signals to me to be ready for new lows. If that happens, I guess the bottom callers will give it another shot. They sure do think we are going to forget that they keep calling these out. They will continue to be wrong, until you do not hear any more bottom calls.
Once you stop hearing those bottom callers and start seeing more SWIR EGHT USNA EPIC EVOL TASR FMDAY DITC FLML SIGM MOBE from 2003, IST (MT) from 2004, LMLP LPTH MRVC PARD CAMP NEWP CRGN from 1999, HRZ from 2006, AFSI from 2007 and maybe, just maybe, CMP in about five weeks. It would need to continue to move sideways on low volume (with maybe a few big accumulation days in between) and max green BOP. If it could do that we might have our first "HOT" chart since APPY on September 19th and 21st (was too speculative to load up).
But if we continue to selloff and we do not see those pretty charts setting up then what I will be doing will be the same thing I was doing shortly after this market topped. And that is shorting stocks of these high priced ex-leaders that are clearly breaking down. Right now, almost every single stock that I am monitoring as a short is no where near being in a position to short. Most still are not close enough to the 50 and 200 day moving average to warrant any big short position.
Recently, I have been very lucky and two stocks have setup in good short positions two days in a row. What makes this even better is that I was already long these stocks going into Thursday's session. Those that are silver to platinum know which two I am talking about and if you study those charts you will see two stock that have done everything right when it comes to being a good short position. It has topped, broken down on huge volume through key moving averages, rallied on lower volume back to the moving averages, and breaks down again on strong volume. To go along with that I like to see red BOP throughout the chart and see the RS line making new lows before price.
If I continue to find charts that are red and setup like this, instead of the usual "green" subjects, I will obviously be focusing on the short side and not the long side. However, right here, there are not a lot of stocks setup right as many are either down too much already or the stock did not rally back far enough to key resistance or the moving averages. So right here, you are basically still in no man's land as it is hard to short and hard to go long.
Now, with all of this being said this weekend from me, it is probably obvious that I am very bullish on commodities (via the charts) and very bearish on the economy (via the charts and macro data). And even though I know we have not seen any real fear with the VIX failing to hit 40-50 and the put/call refusing to print a ridiculously high number, I do not deny the fact that we could see the lows shortly, if indeed this is just a minor blip in the world economy and not a major setback that will take years to fix.
If that is the case, and the market puts in a powerful follow-through day on huge volume (which it NEVER did off the 1/22 reversal), then my short side bias will obviously drop. It will drop further if I can find some more charts that are looking like CMP and SWC. You already know about CMP, but if SWC can chill-out for five to seven months and create a nice quiet base, just like CMP, SWC could easily be a huge winner. It has already built a right side of a base on mostly green BOP running up almost 150%. If it can build a high tight flag, flat base, or another base on top of it, I would be very bullish on this stock. And if I see more stocks like these then I will be very happy. The last thing that would have to happen to get me fully bullish would be for the remaining shorts to have an extremely bullish day (basically following-through off the lows) that lets me know that the easy gains are over.
I have no problem with being a bull here, but to do that I will need reasons to be. I am not just going to be a bull for the sake of being one. I don't need to call a bottom. I don't have to impress anyone, my accounts give me enough feedback that tell me all I need to know about what being a bull is all about here: ignorant pain. That is unless you are long the commodities. But besides the gems, there is nothing out there with "hot" chart patterns that are slowly and steadily climbing the 50 DMA and 200 DMA higher.
When I have proof and reasons to be bullish I will be bullish. Give me a high VIX, more bears than bulls in the investors intelligence survey, a high put/call ratio, a stock market follow-through day with a HUGE price and volume gain, and a couple of handfuls minimum of stocks that look like my 'past big winners' and how CMP is starting out and I will be more than happy to come down with a case of "irrational exuberance."
Until that happens, chances are very low that you are going to get any kind of rally that has any kind of legs. Yes, we have the commodities moving but unless you are experienced and know how to hold through some volatile trending there is not going to be a lot of gains to be had by nervous traders who sell on any sign of weakness. There are sure to be some volatile movements in these stock prices if they continue to rally.
The best thing I can advise, once again, is that everyone keeps their trades very small, if you have to even trade at all. Keep the cash levels in your account very heavy. If you are experienced with the short side, then by all means take some of your favorites that are setting up in proper short positions short. If you are a newbie and you have not established a consistent long-term track record of making money on the long side, then please heed this advice and go to cash. Your account will thank you. It will be difference of starting the next bull market run, that could produce for you a 10,000% gain if you buy the next NTES, SOHU, and SINA and get those 2,500% returns in a year, with all of your starting equity (let's say $500,000) or just some of your equity (let's say after a year of trying to trade this market you are left with $390,000). $500,000 x a 10,000% return, versus $390,000 x a 10,000% return, is a much better way to start a new bull market.
What most fail to realize is that the chances of you losing money in this market is at least 75%, since three out of four stocks follow the general trend of the market. And that is why for one last time I am asking that newbies please keep their cash levels high here so that when the next trending higher, heavy accumulation, max green BOP, perfect fundamentals stock comes along you will have all of your money to put into it instead of some.
Most traders are churning their accounts slightly lower here. Including yours truly as I have some accounts down for the year. However, being down 1%-5% is A LOT better than being down 15% like the Nasdaq is near. There are a lot of bear market where some sectors do extremely well. That sector, for us, is commodities. Besides maybe poking a few tiny longs here and there, please keep that cash level high, so that when the next 1998 or 2002 bottom occurs, you will know that it is time to start looking and to start actively investing on margin.
I hope you all had a great week and that Friday did not get any of you leaning too heavily one way or the other. If you got caught, at least you can't blame me. In my RealMoney columns and on this bronze commentary, over and over, I have advocated new active investors to raise cash. If you are listening to what I am writing, then you are sitting pretty and should be very excited for when that next bull market comes. I know all I have to do is stair at my 'past big winners' for a little while and the joy and passion I had during those times hits me like a great acid flashback (is there such a thing?).
Have a great weekend, don't forget to read my RM column. It was posted late due to internal website problems. Aloha and I will see you in the chat room where it is always a bull market somewhere. SURFS UP!!
top current longs (shorts) and their returns since purchase: EBIX 130% CCC 95% MCF 109% PTEC 109% RICK 85% CPHD 81% IHS 227% AUXL 83% MA 281% (CBEY 56% GRMN 36% GS 21% AAPL 30% GOOG 28% BEN 23% ATI 22% CLP 24% COH 27% MSTR 30% SGMS 39% RYAAY 25% SHOO 37% PSYS 21% TSRA 35% LFC 32% ASF 29% MI 31% FTEK 20% HIG 22% ING 21% PRU 21% PVH 23% LVS 26%)
Today, stocks were crushed, as a raft of poor economic data and more subprime BS slammed the door in the face of the bottom-callers. Part of it was due to the consumer as for the third month in four their was no growth in spending. And for those that truly do not grasp how important that is, I hope I can help convince you, along with IBD, that it is indeed very important.
IBD echoes my feelings and they use 2001 as an example. If not for the spending habits of the consumer, there indeed is a high probability that we would not have rallied off that horrible time the way we did. We came back extremely strong and it might not have been that strong if not for the consumer. And after LTCM and the global crisis back in 1998, it was the consumer's spending, once again, that helped keep the economy going just enough to keep other sectors moving. If you want to know what it is like when people stop spending money, take a look at post-bubble Japan in the 1990s. This is a big deal and is just another piece of the puzzle that shows the economy is in a lot of trouble.
The bulls want to say that this is just a minor dip and that things will be better in the future. Realist look at that argument and immediately take a look at the books of the homebuilders and say "wait a minute." "This is just starting." Yes, in fact it is just starting. How do we know that? Easily. I call it common sense. Do you think the Fed is lowering rates because the economy is on fire? Do you think that when they are done the market is just going to say "thank you" and start running again?
Our GDP numbers have just started trending down and when you look at factory backlogs and activity it is almost impossible to say that this will correct in just a quarter or two. But on top of this poor GDP is the nasty PPI and CPI which show that we have real inflationary problems. With that inflation we have a big problem with jobs as joblessness is rising and wages earned is growing at its lowest level in a very long time. This is not the proper macro trend for our stock market. And all you have to do to confirm that the macro trend is not good is look at the stock market. A bullish market with a strong economy does not look like this. This is a market eerily similar to the late 1960s and early 1970s. For those that do not know their history, 1968-1980 was the equivalent of investor hell, as the DJIA moved -.22%. So basically it was twelve years of nothing.
However, not to fear, active investors, as many stocks made a lot of big gains during that time. If you backtest your charts of the DJIA you will see that there were some very serious trends back then that allowed us to make some good money on the long side (1968, 1970-1971, 1972, 1975, 1980) and good money on the short side (1969-1970, 1971, 1974, 1977). During these runs, many stocks, obviously produced some great gains. So if we are about ready to enter a period of stagflation or enter a recession, there should be plenty of shorts for us to profit off of. If you are too nervous to short or are too inexperienced, don't be shy about keeping those cash levels high. Most people, if they would have stayed in cash, during the past few months, would be sitting pretty with gains much larger than the market. I know a lot of people that have losses since the start of this year (like yours truly in 4 of 6 accounts) but the key is to see if you are beating the market.
A lot of people do not understand that just because you are down, does not mean you are a loser or a bad trader. If you are down 10% this year, you should not be upset. Instead you should realize that you are beating the Nasdaq by almost 5% and that makes you better off than well over 50% of investors out there. The best bet to do now is to make sure you stay locked in that cash. Let the mediocre stocks come flying by with their almost nice chart patterns that still fail in this choppy market anyways because 3 out of 4 stocks follow the general market. So if the market is going nowhere, chances are that your stock will not be going anywhere either, unless it is in one of the top 20 industry groups and only if that group has been climbing the list.
This is why I keep saying it is ok to be in cash. By going to cash, you can make sure you do not lose money while you learn how to trade and then when this crazy market is over and a new "real" uptrend starts instead of having $385,000 to try for that 1000% (which should be doable with 4 to 1 margin--study my 'past big winners!!') gain you will still have the original $500,000. And trust me more of you (like 99%) will end up with less money when you get out of this market environment.
Luckily for me, I still have a lot of short positions that did not signal any full sells while we had that very low volume drift higher. Those shorts piled it on thick today. Not only that, the longs that I own all pulled back on lower volume and still have nice chart pattterns--that is, of course, mostly the commodity stocks.
But there is a group of longs that I started to go long based on the strong fundamentals and charts. That is the medical stocks. However, after Friday, things have changed as HMSY, CMED, CHDX, and AMED all had to be fully sold today. This is kind of shocking, considering that medical stocks historically do well in bear markets. This along with the utilities falling in a bearish market environment has to be considered really bad.
I am not sure the reasons why these stocks are reversing. But what normally happens with stocks that everyone think should be going up but selloff on no news is that something bad is going on industry wide underneath but will not be known until much later. Taking those charts along with two popping into my head that I just saw (ELN XNPT) and I believe there is a deeper macro issue happening.
What I personally think might be happening here is one of two things, or both, or none. The medical stocks are selling off because consumers are so extended (130% in debt I recently saw) that they simple can not afford to frivolously use up their medical. Or it could be because the sector is looking ahead to a Barack Obama or Hillary Clinton winning and the taxes, trade barriers, and regulations that will be imposed on this industry, along with the insanity of the already-failed-in-Canada-and-England universal healthcare. No matter how you look at it, it is not good for this industry, and now the market appears to have recognized it.
Whatever the reason is the fact that these stocks are failing and reversing on strong volume and red BOP is very bearish. This leaves ONLY commodity related stocks that are moving up and to me that is scary. They are moving higher because it is obvious there is too much money chasing too few goods. This along with the horrible regime of Mugabe in Zimbabwe has helped to spur what could be 100,000% inflation by the end of 2008. But his is also impacting us here as corn is used for the ridiculous wasteful and "carbon emitting" ethanol fuel. This then effects the food chain and line. Combine this with some bad weather here and there and you get some real problems. Hence, all our great looking commodity charts and ugly everything else. There seems to be no end to higher prices in sight and the charts while going "exponential" are no where near at the end of a parabolic run.
Helene Meisler recently penned a piece suggesting they were parabolic. Well, my fellow colleague (who lives in St. Louis, where I was born; I think I got the better end of the deal ;)) Helene did not look at enough charts and if she would have overlaid the current ETFs over other parabolic runs she could see they are just starting. Fortunately, I am not the one that has to tell her this as Manning was immediately on top of this including his own conversation with Jim Rogers.
Jim believes we are only 1/2 way through this run and if it started in 1999 will last until about 2018. So take that for what it is. Jim is also short MSFT and so am I. So if the guy is long what I am long and is short what I am short, who am I to argue with the man. The only amazing thing is that Manning can talk to Jim. LOL. I don't even think Jim would look at someone like me. Which is fine with me, by the way. I prefer to be the outsider looking in.
My returns with this CANSLIM system sure does prove that. These "professionals" couldn't even touch my subscribers with their money. For proof of that, Cramer's Action Alert Plus has an unbelievably pathetic 30% return since 1/1/02. Now I know that is wrong to say something like that and I do apologize for being a jerk. The truth is that he should have doubled his money. Look at the IBD 100, look at the IBD 85-85, look at the returns from the AAII screen that runs the CANSLIM system, look at Ken Heebner, and look at me, axman, market, and wutan (and many others). 30% is terrible. Yet I am sure for those that ONLY watch Cramer on CNBC, it is incredible. Not good.
Now, I will admit, I do not have the money Cramer has, but I lived in Manhattan and Manhattan prices have nothing on West Side Maui prices. Everything I earn almost goes into my cost of living, so it is going to be hard to be worth what Cramer is worth now. But when I am as old as Cramer is, trust me, my Action Alert portfolio will be doing a lot better than his. Mark my words, mark my 'past big winners.' The only ways it couldn't be is if we never have another bull market ever again or if we are nuked. Either way I am screwed and at least I know how to surf. If there is no stock market, at least there might be waves. If there are no waves, there is still plenty to do in the ocean.
Getting back to this market, I want to go over some internal numbers that caught my attention today. First off, besides the NYSE and SP 600 which only barely made it over the 50 DMA, the rest of the indexes spent five weeks basing BELOW this key moving average and that combined with today's crack on 20% higher volume is bearish. On top of that, new lows killed new highs by a wide margin of 39 new highs to 360 new lows. This is not what you see if the pullback was just a normal pullback in a market that had in fact bottomed. If that was the case we would have seen the new lows stay around the number of new highs since they were close the past few days. This expansion confirms the weakness.
Now, there are a couple of things that indicate there was some fear in this selling. This can be seen in the VIX that jumped 11% to 26.50 which is a good pop but still a weak reading as it is still almost 100% away from the 50 needed to signal a GREAT BOTTOM. On top of the VIX, the put/call ratio jumped to 1.21 which indicates there was a good little amount of fear in the market today. However, with the put/call, big jumps usually don't matter unless the stock makes a big move lower and then puts in a very bullish intraday reversal closing higher. The near 3% move just is not enough to signal a day full of capitulation. So 1.21 is just not high enough. When we see another day similar to August 16th, along with the put/call hitting 1.5, then I may declare a bottom.
For now, however, without an extremely high VIX around 40-50, a put/call around 1.5, or the investors intelligence showing more bears than bulls, there is simply no way I can believe 1/22 and 1/23 are bottoms and today's swoon along with all the ugly stock charts and fresh breakdowns signals to me to be ready for new lows. If that happens, I guess the bottom callers will give it another shot. They sure do think we are going to forget that they keep calling these out. They will continue to be wrong, until you do not hear any more bottom calls.
Once you stop hearing those bottom callers and start seeing more SWIR EGHT USNA EPIC EVOL TASR FMDAY DITC FLML SIGM MOBE from 2003, IST (MT) from 2004, LMLP LPTH MRVC PARD CAMP NEWP CRGN from 1999, HRZ from 2006, AFSI from 2007 and maybe, just maybe, CMP in about five weeks. It would need to continue to move sideways on low volume (with maybe a few big accumulation days in between) and max green BOP. If it could do that we might have our first "HOT" chart since APPY on September 19th and 21st (was too speculative to load up).
But if we continue to selloff and we do not see those pretty charts setting up then what I will be doing will be the same thing I was doing shortly after this market topped. And that is shorting stocks of these high priced ex-leaders that are clearly breaking down. Right now, almost every single stock that I am monitoring as a short is no where near being in a position to short. Most still are not close enough to the 50 and 200 day moving average to warrant any big short position.
Recently, I have been very lucky and two stocks have setup in good short positions two days in a row. What makes this even better is that I was already long these stocks going into Thursday's session. Those that are silver to platinum know which two I am talking about and if you study those charts you will see two stock that have done everything right when it comes to being a good short position. It has topped, broken down on huge volume through key moving averages, rallied on lower volume back to the moving averages, and breaks down again on strong volume. To go along with that I like to see red BOP throughout the chart and see the RS line making new lows before price.
If I continue to find charts that are red and setup like this, instead of the usual "green" subjects, I will obviously be focusing on the short side and not the long side. However, right here, there are not a lot of stocks setup right as many are either down too much already or the stock did not rally back far enough to key resistance or the moving averages. So right here, you are basically still in no man's land as it is hard to short and hard to go long.
Now, with all of this being said this weekend from me, it is probably obvious that I am very bullish on commodities (via the charts) and very bearish on the economy (via the charts and macro data). And even though I know we have not seen any real fear with the VIX failing to hit 40-50 and the put/call refusing to print a ridiculously high number, I do not deny the fact that we could see the lows shortly, if indeed this is just a minor blip in the world economy and not a major setback that will take years to fix.
If that is the case, and the market puts in a powerful follow-through day on huge volume (which it NEVER did off the 1/22 reversal), then my short side bias will obviously drop. It will drop further if I can find some more charts that are looking like CMP and SWC. You already know about CMP, but if SWC can chill-out for five to seven months and create a nice quiet base, just like CMP, SWC could easily be a huge winner. It has already built a right side of a base on mostly green BOP running up almost 150%. If it can build a high tight flag, flat base, or another base on top of it, I would be very bullish on this stock. And if I see more stocks like these then I will be very happy. The last thing that would have to happen to get me fully bullish would be for the remaining shorts to have an extremely bullish day (basically following-through off the lows) that lets me know that the easy gains are over.
I have no problem with being a bull here, but to do that I will need reasons to be. I am not just going to be a bull for the sake of being one. I don't need to call a bottom. I don't have to impress anyone, my accounts give me enough feedback that tell me all I need to know about what being a bull is all about here: ignorant pain. That is unless you are long the commodities. But besides the gems, there is nothing out there with "hot" chart patterns that are slowly and steadily climbing the 50 DMA and 200 DMA higher.
When I have proof and reasons to be bullish I will be bullish. Give me a high VIX, more bears than bulls in the investors intelligence survey, a high put/call ratio, a stock market follow-through day with a HUGE price and volume gain, and a couple of handfuls minimum of stocks that look like my 'past big winners' and how CMP is starting out and I will be more than happy to come down with a case of "irrational exuberance."
Until that happens, chances are very low that you are going to get any kind of rally that has any kind of legs. Yes, we have the commodities moving but unless you are experienced and know how to hold through some volatile trending there is not going to be a lot of gains to be had by nervous traders who sell on any sign of weakness. There are sure to be some volatile movements in these stock prices if they continue to rally.
The best thing I can advise, once again, is that everyone keeps their trades very small, if you have to even trade at all. Keep the cash levels in your account very heavy. If you are experienced with the short side, then by all means take some of your favorites that are setting up in proper short positions short. If you are a newbie and you have not established a consistent long-term track record of making money on the long side, then please heed this advice and go to cash. Your account will thank you. It will be difference of starting the next bull market run, that could produce for you a 10,000% gain if you buy the next NTES, SOHU, and SINA and get those 2,500% returns in a year, with all of your starting equity (let's say $500,000) or just some of your equity (let's say after a year of trying to trade this market you are left with $390,000). $500,000 x a 10,000% return, versus $390,000 x a 10,000% return, is a much better way to start a new bull market.
What most fail to realize is that the chances of you losing money in this market is at least 75%, since three out of four stocks follow the general trend of the market. And that is why for one last time I am asking that newbies please keep their cash levels high here so that when the next trending higher, heavy accumulation, max green BOP, perfect fundamentals stock comes along you will have all of your money to put into it instead of some.
Most traders are churning their accounts slightly lower here. Including yours truly as I have some accounts down for the year. However, being down 1%-5% is A LOT better than being down 15% like the Nasdaq is near. There are a lot of bear market where some sectors do extremely well. That sector, for us, is commodities. Besides maybe poking a few tiny longs here and there, please keep that cash level high, so that when the next 1998 or 2002 bottom occurs, you will know that it is time to start looking and to start actively investing on margin.
I hope you all had a great week and that Friday did not get any of you leaning too heavily one way or the other. If you got caught, at least you can't blame me. In my RealMoney columns and on this bronze commentary, over and over, I have advocated new active investors to raise cash. If you are listening to what I am writing, then you are sitting pretty and should be very excited for when that next bull market comes. I know all I have to do is stair at my 'past big winners' for a little while and the joy and passion I had during those times hits me like a great acid flashback (is there such a thing?).
Have a great weekend, don't forget to read my RM column. It was posted late due to internal website problems. Aloha and I will see you in the chat room where it is always a bull market somewhere. SURFS UP!!
top current longs (shorts) and their returns since purchase: EBIX 130% CCC 95% MCF 109% PTEC 109% RICK 85% CPHD 81% IHS 227% AUXL 83% MA 281% (CBEY 56% GRMN 36% GS 21% AAPL 30% GOOG 28% BEN 23% ATI 22% CLP 24% COH 27% MSTR 30% SGMS 39% RYAAY 25% SHOO 37% PSYS 21% TSRA 35% LFC 32% ASF 29% MI 31% FTEK 20% HIG 22% ING 21% PRU 21% PVH 23% LVS 26%)
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