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!

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