Saturday, March 29, 2008

Stocks Reverse Hard Selling Off All Session Into The Close, Closing Near The LOD; Lower Volume Eases Selling Pressure But Some Leaders Selloff On High

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%)

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