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 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%)

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