Wednesday, April 30, 2008

Another Very Quiet Day And Another Very Bullish Day For Our Longs; Fed Meeting Should Produce A One And Done...

It was a very quiet day of trading and until the very last hour appeared to be the lowest volume day the entire year. However, a pickup in action the past hour prevented that from happening. But instead of a rush to buy stocks there was a small little rush to sell. That helped take the indexes off their highs and helped leave them basically flat for the day with most indexes up or down between up .1% and down .2%. The biggest moving index was the SP 600 with a walloping .6% rally.

Leading stocks, in the form of the IBD 100 fell .4% but many stocks that make up this index look great, pulled back on lower volume, or actually moved higher on higher volume. Some of the bright spots that I am not long (no free picks :)) include ACL SINA STR SOHU CMI NTES and ARD. Some of the dark spots were the chemical-fertilizer stocks that are in the middle of ANOTHER possible topping process. This topping looks so much more real this time as not only is TNH in a climax run but POT MOS CF and AGU on weekly charts going back to 2002 show stocks that have gone from a sustained slight uptrend, to a strong uptrend, to an exponential uptrend, to a powerful exponential uptrend, to a parabolic uptrend, to a climatic possible top this month. With these stocks selling off in a climatic topping fashion and with so many tech, retail, bank, and other lagging stocks looking good, it does appear that this is a massive rotation. I think that is a very good thing, if not now, for the future.

The mixed results came on lower volume as volume contracted around 10% on both indexes as most investors are in a holding pattern waiting for the Fed to come out with their announcement. Even though I do not care about this really, the truth is the overall trend is very important and that trend could be coming to an end as the Fed is expected to lower rates one final time as inflation is finally starting to worry them more than economic weakness. This move might be taken as the signal for investors to get back to work.

This is all wishful thinking. But my hope is that by signaling that they are done cutting, the big elephants (mutual, pension, trust funds) will start to put money back to work and will go out looking for money knowing that they will not be able to get a better deal on their financing down the road. But, if you are in that wishful thinking cap you have to be cautious when you here that Warren Buffett thinks that this will be a really bad recession that will last longer and be deeper than we think. I could see that happening also, so I am not so sure I am even confident with my wishful thinking best case scenario.

What I am hoping for is for the Fed to change the wording in their announcement that would somehow signal to investors that the rate cuts are finally over and now the Fed will be waiting for the next move which historically, after this many cuts, is higher. That means the next time the Fed will raise rates, they will know that the economy is strong and that they will need to cool it off.

All I know is that I see a LOT of mutual fund cash just piling up in some great mutual funds that have some experienced fund managers with excellent long-term track records. Those guys are going to eventually need to put that money back to work and you can bet after going this long without a TON of volume on the indexes that in the future we are not going to be able to miss these elephants as they leave their tracks all over this market. Volume has only been above average two time since 3/20 on the Nasdaq, with one of those days of above average volume coming on a triple-witching session (and even then it was only BARELY above average), and the NYSE is still waiting to see a day of above average volume since that date. It came close once, but close is not final.

This is proof that the smart money is not involved in this market and what you are all seeing is a low volume rally that is naturally lifting stock due to the fact that the market has a natural tendency to rally on low volume. This is because investors are very impatient and when they do not see rewards immediately they go out and sell stocks. The dumb retail crowd is notorious for making this bad decision. On top of this slow selling into strong bidders, many weak traders start shorting stocks which completely goes against the market axiom "never short a dull market." This short selling in a low volume market causes stocks to slowly naturally lift, which then hits the stops of the dumb money, which then raises the stocks as they are forced to cover, that covering then sends stocks higher till they break out, that then draws in more of the retail crowd who buys breakouts, that buying then leads to more short covering, and more and more amateurs continue to repeat this process until they are either all wiped out or they all turn bullish. Once this happens, then the stock can finally come down. With the NYSE short interest ratio at 11.81 I don't think we have to worry about the market falling any time too soon as the lower volume rally will continue to inflict pain on these amateur traders.

Not only is the NYSE short-interest ratio bullish for longs with it being at YET ANOTHER all-time high--it seems like it is hitting a new high EVERY day--but the put/call ratio remains high at .87. This is not extremely high which would be around 1.6 but anything over 1 is extreme. Still though, the fact the put/call can not fall below .80 is proof that every tick higher brings in more and more short sellers that are buying puts thinking the market will fall. As long as market players are buying just as many puts as calls (which is historically bullish for stocks) and shorting stocks as stocks rise, volume or no volume, I will not hesitate going long great stocks forming solid chart patterns that show excellent fundamental characteristics. I have already started to do that as this rally moves on but I am still waiting to get heavily invested as I refuse to load-up on stocks without the big boys/smart money participating.

In M&A news I was pleasantly surprised to see WWY get bought out by Mars Candy which Warren Buffett financed. What I found interesting is that if you just would have bought WWY in 1984 and held it all the way till this announcement, you would have found yourself a big slow and steady monster stock as the stock has rallied over 6,800% since then including a small dividend. Not bad at all and why I prefer holding stocks over intraday trading. However, I still think intraday trading (due to the inability to nail HUGE MONSTER STOCKS) and long-term investing (Enron, Worldcom, Adelphia, .com's) is very risky and advise against it. I believe active investing which involves holding most stocks between 6 months and 18 months is the best way to make a fortune in the stock market.

I do not think that we can expect too much action from the market before the Fed actually makes their announcement. So I would expect for the market to give us more of what we just saw today. After the Fed, I am sure there will be more action. But for now, it is best to just take it easy, stick with what is working, and leave the riff-raff alone. Enjoy the lull, there will be a lot of fireworks, I assume, after the Fed is done doing that thing they do to annoy us so well.

There is yet again another supposed to be GIANT south swell hitting the south and west shores of Maui. This is my backyard and anytime it can actually get overhead and possibilities for big drops and barrels are there, I would rather be there than watching a dead market. So I might be checking out early tomorrow, to give the platinum members a heads up. But if the market is doing something really amazing to the bull or bear side, I will make an effort to stick around to the closing bell. Until then...SURF'S UP AGAIN! and until this market gets more exciting via more volume in the overall market or we get more HOT charts like the two that subscribers know I am talking about I will continue to focus on my surfing which brings me much greater joy than a chart ever will....well I have to admit, pretty max green BOP filled charts like those you see in my 'past big winners' do make me very happy to. There just is no feeling to getting a good wave and carving it up like it was a pumpkin. I still have yet to feel ANYTHING (besides LOVE, OF COURSE!!!!) that feels as good as a nice long tube ride tucked deep in the barrel (not that I am too familiar with those with my donkey surfing and crap Maui waves).

Aloha and I will see you in the chat room, unless I am out surfing and then you can find me at either Olowalu, Breakwall, or Guardrails if it is too crowded at the two best lower west side breaks. Well, the best is Lahaina Harbor but that is for the groms that will be going pro. I have no business over there, lucky for all of you. :( ALOOOOHA!!!

Sunday, April 20, 2008

A Bullish Week Comes To A Close As Leading Stocks Lead The Market Higher; Volume Was Finally Over The 50 Day Volume Average On Friday, On The Nasdaq

Friday turned out to be one of the best days without a doubt for the stock market in 2008 as the Nassy led the way with a 2.6% gain. Why Friday? Because this rally came not only on heavier volume but came after the indexes have already had a few up days. This is a confirmation of the follow-through day as volume was sharply higher on both indexes by 20%. Not only did the gains come on higher volume but leading stocks took charge once again as many leading stocks continued to setup in what are now nice looking bases--just a week ago they were not nearly as nice (this is why it is important to ALWAYS follow the market). That is what two very strong accumulation days will do when they are within three days. There are also plenty breaking out to new highs on strong volume and the fact that they are in so many broad sectors is bullish.

Too bad the broad sectors are all commodity related stocks but heck since they are all moving higher that is your tell that the rally is back on. The Nasdaq, NYSE, DJIA, SP 600, SP 500, and IBD indexes are now in short-term and sub-intermediate term uptrends. That means that it is time to start looking to get aggressive with longs. Especially with a lot of technology stocks showing up. They may not be leading but at least they are coming along with the recent gains. This is something that has not happened since the November selloff started. This is very good news.

However, with volume still below the 50 day volume average on the NYSE and with volume just barely over the 50 DVA on the Nasdaq it is clear that funds still have not dove into buying stocks. This has either two implications as they will either return to dump stocks hard or will create the final touches of buying power that could start another leg of the longer-term uptrend since the 2002 lows. I lean on the side of them coming back in buying stocks as I have watched some of the best funds go from 3% cash to 15% to 20% cash the past six months. Quite odd and eventually they are going to have to put that money to work. We will see.

Some out there will complain that the lower volume is bearish and I can agree with them because this was an options expiration and the fact volume was so tiny indicates to me that the bull is not ultra-powerful. However, even with the volume lower, it was still higher than the even LOWER volume on the down days. This rally could prove to be very similar to the August to November 2007 rally where the best stocks only went up like 100%, but go up none-the-less they did, and that is good enough for me as it has not been the easiest market environment to make money in since January for growth investors as no trend up or down equals no lasting profits for us. To make matters worse the VIX fell below 20 intraday which means that the returns in fact will be low.

However, before the VIX could break that level, we did go long HEAVILY a few longs that produced over 10% gains this week. This should ONLY BE THE START of the moves in these stocks, if this market can last in its uptrend for at least six months. I would like a full year but those markets, historically, start with powerful rallies on heavier volume. We do not have heavy volume at all. In fact it is hard to find volume and has been that way for over twenty days now.

That move, so far, looks good as the IBD 100 outperformed the leading Nasdaq index with a 6.5% gain compared to a 4.9% gain, for the week. The SP 500 also rose 4.3%, showing the strength in this leading 100 index. This was the best week of 2008 on a price performance basis as all the index put in a fantastic showing.

And like I said it was the leading stocks that rose to the front. There were six to seven stocks the past two week that have setup in either near-perfect or perfect patterns that we have gone long. They all are showing us gains but two and one of those we have already cut. This has been a good start, especially with two stocks that start with the letter D FLYING the past two days right after we went long. I am not sure if all of you know this but that is how it NORMALLY HAPPENS in bull markets. In fact most of the longs I will go long, if they are going to end up producing a 1000% gain in six months, will normally move higher immediately.

A recent example of this is our G*** long on 4/4. It is up 45% since my purchase and the chart is nearly perfect. I have taken in 20% but expect to ride the rest to AT LEAST a 50% gain. By looking at a weekly this chart should be much higher. As for the stock up 21.5% in the two days since we went long, I am honestly looking for AT LEAST a 100% gain in six months. Anything less from either one of these will be a HUGE disappointment.

There are a lot of past leaders mixed with a few new leaders that are starting to show solid chart patterns and to help guide you into the right direction I am going to list some of the best stocks with strong chart patterns and extremely strong fundamentals that would make good buys if they either setup in a proper base or pulled back on low volume and then moved higher on strong volume. AMZN, AGU, BIDU, TTES, TNH, KWK, BUCY, CAT, GTLS, BMI , HAL, SID, MON, and TITN are all very strong stocks. I am long a few of those names in there and all the stocks I am long in that list are making me money. This market is clearly in the direction that favors the bulls. It is nice to finally see some nice round bases setting up out there. It has been six months since APPY produced a 130% gain, DRYS a 100% gain, MTL a 90% gain, and VMW a 65% gain in a little over one month. Even if it only last a month, I will be happy to finally get something instead of nothing which has basically been the case since January 22nd as the stock market traded in a low volume tight range. Thankfully, that appears over.

Some excellent technicals that I see underneath this market, regarding the indexes, come in the form of the ACC/DIS ratings in the index. About a month ago all the indexes were mired in the D to E range. However, now, they are all at least B's. The Nasdaq is in the best shape with an A rating, the SP 500 has a B+, the NYSE has a B, and the IBD 100 and IBD 85-85 have a B-. This is excellent and shows that, even though the big boys are not loading up on stocks, at least whoever is is buying them and not selling them as an A or B rating is accumulation.

Stocks started shaping up nicely the past few weeks as a few more charts kept showing up each day with a bit more solid pattern than the day before. This finally climaxed on Friday, after GOOG jumped 20% and 89 points helping to send stocks higher everywhere. That for some odd reason was all it has now taken to put most stocks in uptrends. There are still a ton of flaws out there and beside ONE SINGLE STOCK out of 10,000, there is NOTHING setting up in a nice long-term perfect base or has a long-term uptrend with a ton of volume and max green BOP that could setup in a nice perfect base. It appears it will still take at least another month of the max green BOP charts to look right and have enough time pass by to not have the downtrend effect the rise in the stock. Things are looking better but there is still a long way to go. By next month there needs to be AT LEAST 1-3 more stocks that look like that one stock that all subscribers know that I am talking about.

The move the past week is a perfect example of why you never see me take time off from the market. I am always purging my watchlist of weak stocks and replacing them with top stocks that are nearing new highs, under heavy accumulation, and have great fundamentals. If stocks start selling off on heavy volume or somehow get relatively weak compared to the market, they are taken off the list and replaced by new leaders. This keeps me focused on the best stocks in the best sectors which is where I want to be as they produce the best returns. Are any of you watching those bank stocks? Do you see how they are only returning 25% or lower? Compare that to my XIDE, GENC, NEU, MTL, or FEED long. They are all up 32% or more during the same time. Not good bottom fishers. Another lesson for all of those who want to learn how to invest in the market correctly spending the least amount of time per day so that you can ENJOY YOUR LIFE and not sit in front of a computer screen checking quotes all day. Not what I call a great life. I prefer the nice warm sun and ocean, thank you very much.

Speaking of bank stocks. I notice something key that you normally see when selling is washed out. Now, remember, the homebuilder stocks have been rallying on HUGE volume recently making it appear they have bottom. With that, the big banks look similar. One of those is C. C has just put out earnings showing losses of $13 billion, yet the stock rallied 4.5% on the day. This is proof, once again, that the chart knows all as the news was priced into C's stock a long time ago when the stock started breaking down. Now that such a huge loss is accompanied by a 4.5% stock gain, I think it is safe to say the market is washed out a bit here.

I wonder why? Let's see. We have a media that hates this President so much that they are wiling to lie, lie, and lie some more. Instead of telling us the truth about the millions of jobs created, the all-time household net worth and home ownership, and a strong stock market, they focused non-stop on the negatives and only once it got real bad and it was confirmed did they come out in full force. They talk about the mortgage problems, the banks, the bankruptcies, the loan delinquencies, layoffs, slow wage growth, gasoline, natural gas, jobless rate, Iran, Iraq, Afghanistan, China, North Korea, Tibet, and global warming. No wonder the crowd is so bearish.

The crowd is so bearish that almost 50% are bears according to the AAII poll of individual investors. Along with that 38% are bears on the Investors Intelligence survey compared to 37% bulls. Normally bears only cross the bears to the upside near bottoms. With this market slowly starting to turn around, with these kind of bearish sentiment indicators, we have to be on the lookout for higher volume to complete the "all-in" signal.

There are other sentiment polls that line up well too, including the University of Michigan reading that showed the crowd the most pessimistic in 26 years. The IBD/TIP poll came out a day before that confirmed that with the poll coming in under 40 for the first time ever. If that is not a negative reading, considering how bearish it got during the 2001-2002 swoon, I wonder what is. Bottoms normally form with extreme pessimism. I am not sure if this is it with the negativity being at 26 and all-time lows and with bears well over bulls in the two surveys but if I had to take a guess if this was a bottom, I would say it very well could be. All that is missing is more HOT charts and volume. Sentiment, leadership, and a market in an uptrend is all there.

I definitely believe you should be long now (around 60% long, 40% cash is where I stand w/ 1% of those totals in 12 short positions) as I am starting to see some nice charts out there. They are not perfect but there is one that is and there are a few more that could be. Everything just looks real solid and the best part is that the leading stocks in the top 20 industry group continue to rally on strong volume. As long as these leading stocks are taking control, I will play those along to the upside until I can get some near-perfect to perfect stock charts setting up and breaking out. It is safe to be long and trust me if this is a start of a new uptrend, you have NOT missed anything yet.

If you were one of those people long the market after the very first big rally, chances are you were long the entire way down from 2000. Good luck investing like that for a living for a long period of time. I have been doing this since 1998 and KNOW that I will be able to use this exact methodology till the day I die. Stocks like XIDE, NEU, MCF, MA, IHS, EBIX, GENC, MTL, CMP, and MCF prove that!!! If you study the past you will be rewarded in the future. I have done my homework going back to 1880 and I understand that because humans NEVER change and emotions are always the same, for as long as humans have existed. Greed, fear, pain, euphoria, pain, joy, and anger have existed since the dawn of time and will till the end of time.

Speaking of fear. A lot of people are fearful that the dollar is going to be worthless in the future. Maybe that is why so many people are shoring stocks. I would love to see this rally continue for a full year with as many HOT max green BOP heavily accumulated perfect price action charts setting up as did in 1999 and 2003. However, anything can happen. But it does help that the NYSE short-interest ratio is yet AGAIN! AT ANOTHER NEW ALL-TIME HIGH AT 10.95! It is amazing. As the stock market rallies, more and more people are shorting this market.

Everyone, can you imagine, what the rally might be like if all those growth and value mutual funds with strong performance track records come in and start buying the greatest stocks in bulk and that then forces the emotional shorts to start covering. If it took them two full days to cover, thus getting the NYSE short-interest down to 9, and the mutual funds went to work during that time, we could see some incredible gains. And something tells me that they would want to put money to work soon as bonds are starting to look very unattractive at the short-end. But the very bullish slope of the yield-curve should be very bullish for stocks. The slope is about as good as it gets.

Getting to some more internals, I have already told you how I don't like that the VIX is already trading below 20 on an intraday basis. On top of that complacency, even though the uptrend has already started, the put/call has already fallen to .77. But this might have been more related to options expiration than traders overall mood. I will look at the closing figure on Monday to make that decision. New highs are also taking care of new lows (on a 52-week basis) 192 to 65 which is yet another day of gains and another day of new highs beating new lows. This is a major turn as we have not seen two out of three days with gains and with new highs beating new lows in two of the three. Quite impressive. But not nearly as impressive as knowing that 63 of the new highs are in the energy sector and the next closes only has 9 stocks in the group. So there should be no questions about which groups are leading. It is obviously the energy group which is loaded with solar, gas, and oil stocks.

Once again, this was the best week of the year, not only for the indexes but for my leading stocks and my longs. This hopefully is just the start of what should be a profitable uptrend. However, until I see a LOT MORE volume come in on the days when we are up 2% to 5%, there is no way I am going to be a "raging bull." Instead I will enjoy my "mini bull" status and play the few stocks that say "buy me" while I wait for the real buying to start. If it starts. We have the right sentiment, a lot of short sellers, and the uptrends for it to happen. Now all we need to have happen is for "it" to happen.

It was a slow start after the follow-through day but we are starting to build steam. There is nothing that says this has to continue and we could rollover. That is why it will be so important here to watch volume. We need to see more volume above average on the days we move higher. Don't forget everything is not hunky-dory. ISRG lost 17% and was a full sell (total loss 15% on less than 1% of my accounts). This is not a surprise and this is the reason I TOLD YOU TO NOT LOAD UP ON ISRG. I warned of going long "former past big winners" that EVERYONE now sees. BIDU is one I am personally watching to go long because it is Chinese. But RIMM, GRMN, GOOG, YHOO, AMZN, AAPL are all stocks that I really almost have no interest in going long UNLESS they setup and breakout from a pattern like AAPL did in 2004. If they do that, then sure I will go long. But I have a feeling those that I listed are a bit too old to be the "next fresh big winner." FSLR could be and BIDU could be but I truly doubt any other big boy can repeat what they have already done.

As long as the headlines remain negative, I will remain bullish. It is going to take some more volume to the upside or downside before I commit to a side but for now the trend is my friend and on the short and sub-int it is up and I have a few stocks that say it is time to get long. So that is my plan. Be careful, remember to keep a good amount 25% to 50% cash handy for possible new buys of future perfect charts or extremely powerful CANSLIM stocks. There have been a few gems but so far I am left wondering when the rest will show up. They better show up or else we will not last in a rally for too long. Great luck out there and I will see you in the chat room.

Sunday, April 13, 2008

A Market That Moves On No Volume Should Be Treated With Caution

There is an old adage that goes "never short a dull market." I couldn't agree with that more and want to stress that it does not say "go all-in and long a dull market." No, it says, "never short a dull market." If we have to get down to the core of what that statement says it is clearly telling us that when volume is no where to be found the LAST thing you want to do is go short stocks as you are leaving yourself open to a large short-squeeze as usually happens in low volume markets. But do not think that due it saying that it is never smart to be short a dull markets that it means it is OK to load up on longs and be very long a dull market. It means to, more-or-less, MAKE SURE YOU ARE NOT SHORT but do not worry about being long either. To sum it up it is simply saying "when there is no volume you should have all cash."

For those that do not understand why this is, it is not that hard to figure out. When stocks are moving up and down with no volume they become easy to manipulate by a few and when those few are manipulating stocks can move them and make them do whatever they want. I was just reminded that watching my favorite long pullback viciously on Friday. Volume was not that much above average yet the stock lost 9%. The stock is still above three supports, has green BOP still, and the reason for the trade still exist. So I will not be scared out of this long fully. But so many will be that it just goes to show how dangerous it is to be long in this low volume market.

While everyone focuses on GE..blah, blah, blah, I remind myself how stupid this stock is by looking at the returns you would have made since the start of the year in 2000. A negative 35%. Yes buy and hold is in fact THE MOST DANGEROUS way to invest. It is PURE GAMBLING AND HOPE at its best. You decide to hold something for the long hold and you are proving you are a true gambler. History has shown us over and over and over that the great stocks of the past NEVER last in this dynamic country. Yet, here we are all focused on GE. Even though it was a market mover, it is a giant distraction from what is really important and the new blood in the market.

About the only thing I guess I can judge by overall sentiment is that it appeared most were ready for the weak numbers that would then lead to buying as all the bad news would have been priced in. Well I guess it isn't as GE broke hard right at the 200 DMA and right below the 50 DMA. Even a mid-day rally was slapped lower. Not good for this big-bellwether. However, if you focus anymore on GE, after this paragraph, you truly need to go pick up a copy of 'Monster Stocks' by Boik. GE IS DEAD. DON'T EVER LOOK AT GE AGAIN. IT IS OVER FOREVER as a growth stock. If you are an income investor, then fine, whatever, but that isn't my style.

What I find more important to focus on is all the sentiment data. The University of Michigan Consumer Confidence came it at a 26 year low for April. This extreme lows shows that the crowd is very bearish right now. Is there anything else that can confirm this? Why, yes there is. The IBD/TIPP poll just the day before saw its numbers hit the lowest it has seen since the start. That number came in below 40 which was the first time ever for that index. So both of these consumer data points show the crowd is more pessimistic on their finances since right-before President Ronald Reagan made his way into the office. God bless you Ronny! :(

The good news about this is that the crowd is always wrong. They are. It is that simple. If you are out of high-school and run with the crowd, you have serious issues and I don't think reading this blog will help. I am a leader, not a follower, and that goes to my investment philosophy. When everyone else is scared and selling, while I don't necessarily want to buy I want to watch the smart money start to buy and then piggy-back off of them.

With sentiment that low I think we have a good enough reason to believe the crowd is too bearish out there. My only problem with this is that before the crowd became so BEARISH in late 2002 to early 2003 which led to the March FTD in 2003, we had a two year plus bear market. Here we are, now, less than six months since we topped in November, yet the crowd is already MORE bearish now than then. I am not sure if this extremely low reading means that the state of the market is so bad that this extremely bearish reading is just THE START of what is about to be a VERY ugly period. Or...we really have freaked out all the weak stock holders that they have finally capitulated, gone bearish, and now see their financial mess as the worst ever.

While I am not sure where we are at, as NO ONE CAN PREDICT THE FUTURE, I do know that I would rather be looking for longs here rather than shorts, as the negative sentiment has come on very fast for a five year plus bull market. Something just seems really wrong about that but if they were somewhat bearish the WHOLE WAY up and now they feel this way-I guess it does make sense.

Confirming this sentiment, are a few other key indicators. The bulls for the third week in-a-row came in lower than bears on the investors intelligence survey. The bulls come in at 37.4% while the bears continue their reign at 38.5%. It is bullish for stocks in the intermediate term when there are more bears than bulls. Now, while this is NOT a reason to start buying stocks, it is a reason to maybe start scanning the charts looking for the next group of leaders to buy. Sadly, that new "fresh" group is not showing up yet. I still have defensive, medical, commodity--soft and hard, and envrio. related issues leading the way. Throw in tobacco stocks and you have a real exciting group of leaders.

I guess this weak leadership with a lack of volume is the reason why people are getting very short. Now, while I have no problem going short a broken stock (MICC on 4/3 for example), I do have a problem going short based on the "theory" that the market is overbought and that economy is so weak that we just can't not be short stocks. I guess this is why I see the NYSE short-interest ratio hitting a brand-new five year high of 10.50.

A short interest ratio of 10.50 indicates that it would take 10 days of average market volume to unwind all short positions. It seems to me the public is EXTREMELY short at a point when it should not be that short. Like I keep saying, shorting a dull market is not only dangerous but historically it is deadly as low-volume short-covering rallies happen often. If a short-covering rally started here and it picked up volume as it went along forcing those to cover, it could turn into a nice vicious short-covering rally.

With the low volume it could be even worse, since the big boys will be on the sidelines not selling into the gains. This could lift stocks heavily way beyond what most would assume would be "rational." Obviously, this is just something to think about as low volume rallies happen often. Especially when the put/call is at 1.25. It seems like Friday's selling did turn the crowd quite bearish after the weak GE numbers.

Too bad they did not study volume. If they would have they would have noticed it was 4% lower on the NYSE and 14% lower on the Nasdaq which clearly shows that the selling was not intense and institutions stayed on the sidelines. This kind of lame selling on such a bad day is just like a huge up day on no volume: meaningless. There is nothing to really delve into. It simply is what it is: a low volume big move.

While there are things out there that personally scare me like 4% inflation (somewhere around 7-10% on Maui) it is getting hard to buy all the goods that I like to buy. This is definitely having an impact on my accounts as the poor stock market gains combined with loss of earnings power has wreaked havoc on my lifestyle. But since I am a simple man I find it easy to adjust and when I step back and look at things overall I just don't see it that bad. People are extremely bearish right now, via sentiment polls, and when the crowd is bearish I want to be bullish. Now that I see so many weak readings out there I can tell you that I would like to get very bullish.

However, the put/call, investors intelligence, VIX, and NYSE short interest ratio are not going to make me money. What is going to make me money is price and volume. I need some hot charts forming sound bases that are followed by breakouts on strong volume. If I can get more of this action, in high quality stocks, I would be very bullish on the short term. However, the lack of volume and long quiet bases has me still thinking that we have a lot more time before we can get a real rally.

Once we get some more backing and filling in the indexes, within an overall uptrend, we can then pray that some "fine" charts setup and breakout of sound patterns that can produce for us some "monster stocks" that go on to produce large gains. A VIX at 23 might inhibit that but still, at this point, I don't care if I get a 500% return. I will be happy with a few 100% returns. It is simply impossible to get greedy in the market when there is nothing to get greedy over. There is no speculative money pushing stocks higher.

Besides no speculative big money, there is no real institutional money either, as I see a LOT of high quality funds out there carrying cash positions from 5% to 25% all over the place. These funds are going to have to put that money to work eventually and if you take a look at the yield curve you will hope that stocks is going to be where it is at as a great bullish slope of the yield curve combined with the current low returns in bonds bodes well for stocks.

LOL, In fact, I can not turn anywhere without seeing headlines like this. I blinked and saw this: The American Bankers Association recently reported that in the fourth quarter of 2007, consumer credit delinquencies reached their highest level since 1992. This is the kind of constant negative drumbeats that cause the chicken-littles to sell after they already have big losses. It is possible this is just the start of something that is going to get out of control. But the way EVERY indicator/report is bearish, I find it hard to not want to lean to be bullish. All I need now is another higher volume 3% plus gain on the indexes with more green to max green charts making bases lasting at least 5-7 weeks. If I can get that, you can see my margin being unleashed as I start to load-up on ALL the best leading stocks.

Getting to some important numbers that I see: The Nassy now has an ACC/DIS rating of A- which is NOW very bullish, to go along with all the negative headlines. Like I said all I need now is that explosive day and better charts. This is made even better knowing that the Nassy fell 2.6%, yet the IBD 100 and 85/85 fell only 2% and 2.2% respectively. This is bullish RS and divergence from the overall market.

Too bad the leading stocks that make up this index all come from the exciting (sarcasm) and dynamic (not at all as they led from 03-early 06) groups of oil&gas, steel, chemicals, energy, machinery, building, transportation, and metal ores stocks. Combine those PAST leaders with medical, pollution control, tobacco, and media groups leading the way higher and we have a market that very well could be bullish in the short to intermediate term due to EVERYTHING!!! that I have posted today in regards to the sentiment direction.

However, for the long term, if you think the stock market is going to be higher a year from now you want to be long technological and innovative companies in brand new industries that are revolutionizing the way the world runs. These current leaders will NEVER be those kind of stocks. Our current leadership of energy and medical stocks will not change the world forever or make our lives better. They may DEFINITELY in their own way via research and development. But still this is not an airplane, car, or internet.

There are things that we need to watch for, of course. If the selling starts to come back into the market we will know that the low volume rally was actually a trap for the institutions to sell into. However, we have to see that happen to believe that. For now, it appears we are ready to drift higher. If they do knock us down further it shouldn't be that much of a surprise as the indexes are all back below the 50 DMA. But it is how they act here that will determine if the future is good or bad for the market.

I am being very patient, relaxing, watching, plotting, and waiting for that moment when to go all-in to the market. I want to be long the best patterns in the best stocks that are moving the most. When I can get some volume in this market, to the upside, I would love to get very active in my favorite longs like.....yeah right! :). If we continue to selloff, I am sure we can find some past-leaders that will have setup into some perfect short positions. Either way, no matter which way the market goes, I AM READY. Make sure you are to. Up, down, or sideways. I have a plan for all and I AM READY. :)

Before I go I want to take a moment to tell everyone how much I hate CLR a stock I went long on 3/13 and sold on 3/17 and 3/20. As you can see the stock is now up 30%; I took a 12% loss on my final sell. This is how the market is right now. I see so many stocks I was long, that I sold out of being disciplined, that are now hitting new highs. This DOES NOT HAPPEN IN BULL MARKETS. And I guess that proves that this is still a very mixed and choppy market.

Be ready for anything. I am expecting more upside relief, but I do not know if it will come with low or heavy volume. If it comes on heavy volume, I will be happy as I can start getting long the best of the best for some "monster" gains. However, if we rollover I am sure some 25-50% short sell winners will setup for me.

Life is great (especially without having to read NASTY comments) and if I go out and can find some surf either north or south today will have been a great day. It already has been a rocking weekend. Let's keep it up and roll this over into the work week for me, God!!! Aloha everyone. Thank you for reading my blog. I hope this can help you make money. If it doesn't, something is wrong with you. :)....or does that mean something is wrong with me? Whatever it is, it is all good, with me.

Maui No Ka Oi! Pray for surf!!

Sunday, April 06, 2008

Low Volume Consolidation After The Big April Fools Rally Is So-Far So-Good; CANSLIM Stocks Setup And Breakout But Volume Is Still Suspect

A weak open after a very poor employment report that showed the US lost 80,000 jobs in March with the unemployment rate moving up to 5.1%. It was a pretty lousy number but considering the fact that we had 25% unemployment after the crash of 1929 it isn't "that" horrible. But the media, with a Republican still in White House, of course, made it sound like all hell was breaking was loose.

Maybe that is why the market could not build on the weakness and instead rallied higher the rest of the day off the lows until 2pm when traders unwound some of their longs into the weekend. Overall though, it was very positive action, following a strong rally on April Fool's Day. That now makes it three constructive sessions in-a-row where stocks have held on to the gains.

Volume, however, was, once again, nowhere to be found as it came in lower for the third straight day on both exchanges. I would be A LOT more happy about the low volume consolidation if the indexes were pulling back. But they are slightly rallying on this low volume and while not bearish, by far, I still would much rather see higher volume gains and lower volume pullbacks. It is good to see that two of the three days on the DJIA have been lower. But overall they are slightly rising on lower and lower volume. Overall not a good LONG-TERM development. BUT! it is a very good short-term development as this is the first rally attempt that has not been thrown back immediately.

It is good on the short-term, obviously, because the trend is our friend and a rising market lifts a lot of high quality boats, normally. It is no different this time around as within just a few days I have gone from very few good charts to a TON of good charts. However, before we all get all happy and bullish, and start "guessing and calling" bottoms that NO ONE EVER knows is a real bottom UNTIL AFTER the fact, we still have to ask the seriously important question of "where are my HOT charts?" There still are ONLY a couple to none. In EVERY very strong bull market I have been a part of I have had two or three OBVIOUS longs and a couple more. This time around there are only a few that stick out to the point where I say "ooooooooh." And the sad thing is is that even these have problems. Ugh, nothing can be perfect. All I need is one perfect chart and I can make a lot of money being VERY CONFIDENT in loading up on the potential candidate. But those charts still are not there.

Now, that is not to say that one more month to two more months of a rally can not lead to some of these fantastic 'MONSTER STOCKS' setting up. There are a lot of charts out there now in uptrends, with heavy accumulation, and green to max green BOP. But like I keep telling you (and my paid subscribers know in a LOT more detail of why and what I like) there is just not that chart that looks like APPY and RICK of late 2007 and AFSI and TESO of early 2007 (you MUST have tcnet with BOP to see the same thing that I do. The beauty will knock your socks off). When they show up I will not hesitate to pounce and load up for the HUGE gains in a short amount of time. I will be focused on the MA 350% gains while other focus on their "value bargains" of LEH, GS, C, and other PIECES OF CRAP that are worthless in my mind. If the stock is BELOW the 50 and 200 day moving average, IT IS CRAP UNTIL IT IS NO LONGER BELOW THOSE LINES. The greatest stocks of ALL-TIME since 1880 HAVE ALL STARTED THEIR BIGGEST, FASTEST, AND LEAST VOLATILE RUNS AFTER!!!!!!!!!!!!!!!! THEY WERE ALREADY OVER!!!!!!!!!!!!! THE 50 AND 200 DMA. Those are just the facts; NOT MY OPINIONS. MY OPINIONS LIKE YOUR OPINIONS ARE WORHTLESS!

On that lovely note, some of you might be wondering what stocks I have been going long (over 25 new/adds longs were taken this week). Well, there is no way I can tell you that as with us now in an uptrend-IF WE STAY IN ONE-the stocks I am going long now are going to do 4-5x as well as the beaten down names you will read about on TSCM and watch on CNBC IF THE WORK. If they don't move up immediately, I CUT THEM IMMEDIATELY. If they do move higher, they normally go onto significant runs with some lasting as long as two years like my IHS long or over a 1 1/2 like my MA long. Or sometimes they go up 70% in 1 1/2 months like GEOI. Either way this is how I expect everything to act.

Some stocks that I am not going long at the moment that I can tell you to watch for potential big gains would be all the stocks I have gone over in my TSCM columns since the middle of March. I have been posting leading stocks for about a month now and there are many to pick from in there with proper pullbacks or new bases. Some others are just the SAME OLD names that I have already been long once before back from anywhere in 2004-2006. There are NO NEW leaders. SWN, NGS, CLR, POT, FSLR, MOS, MEE, STRA, GFA, CF, SQM, and RIG are all stocks that we should all be familiar with and here they are leading the way once again.

This kind of leadership is fine to follow but being long the stocks already up 3000% since 2003 increases your risk of a potential failure even if a stock breaks out from a base. Just look at FSLR or MEE. Those are NOT proper bases. In fact a lot of the bases in these leading stocks you will notice all have very "loud" bases (a lot of volume in the base). Obviously, those that know their history know that the best breakouts come from FRESH leadership where the volume is BONE DRY in the base. Loud volume in the base indicates a MAJOR war between big institutional bulls and bears which historically is not good for the breakout. Low volume is a clear sign that as the stock sellsoff there are no more sellers left to sell. If volume is very large on the uptrends it is the clear signal that your stock is under massive accumulation and if the volume is low on the pullbacks it is only a matter of time before prices have to rise to meet demand.

So the loud bases and low volume on the rallies in the indexes are HUGE red flags to me and will continue to keep me away from FULLY embracing this follow-through. When nobody was bullish on the late 2006 rally, I WAS (this was when one subscriber who subscribed to Rev finally had enough of losing money with Rev that he joined this site and is NOW ONE OF MY BEST CONTRIBUTORS AMONGST MY CHAT ROOM--CONGRATULATIONS VIVEK!!! I AM VERY PROUD OF YOU. YOU ARE CLOSER AND CLOSER AND CLOSER TO TAKING CONTROL OF YOUR FINANCIAL FUTURE FOREVER). One of the reasons I was bullish during that time was because during the pullback I had nearly ALL of my longs hold up. Very few violated their 200 DMA or violated their 50 DMA on huge volume. It was easy to hold for that final LAME rally up to the February 2007 top.

It is all about following the trend and the quality of that trend was much better than we have now with charts but the things that are the same is that stocks are rising now, like they did then, and volume is nowhere to be found on the indexes. So, just like I did then, I will be following this short-term trend higher with the best performing longs breaking out of proper bases or bouncing off proper support. There are a lot of long candidates out there and there are even more setting up. But I have to admit there are still less than 5 stocks that get me EXTREMELY excited out of a scanning world of 7,000-plus. That is an extremely low number, and while it ensures that I focus on the VERY best looking stocks, it still signals that the market is not very powerful and that with the low volume is a clear warning to NOT load up. It is STILL not the time to load up. So I will continue to spread myself around in a LOT OF HIGH QUALITY LONGS with excellent fundamentals, constantly purging my worst performing stocks and moving that money into stocks acting like NEU (long initiated on 2/11--pretty sure Wendy missed that one).

This speculative (due to volume being very low on the indexes) bullish action in top quality CANSLIM longs is a two-edged sword right now. The good news is that the leading stocks are leading with the IBD 100 up 6% this week compared to the NYSE's 4.5% gain. That is going to be good for our portfolios as we focus on the best. Too bad with a 22.45 VIX, and with our leaders being from sectors that have ALREADY led this market at one point or another from 2003-2006, the chances of us getting HUGE returns are less than 20%. I have been around too many uptrends to know when one will become a powerful one or a dull.

This one might start off with a bang but unless volume shows up it will just die like EVERY OTHER low volume rally ever. The good news, right now, is that the put/call is still near the 1 area at .98 right now. This number has consistently been over .80 for a very long time. Bulls are at 36% and the bears are at 37% two weeks after the extremely bullish cross (contrarian indicator). But now I see in IBD it says 56% bulls and 25% bears. That can't be right as visually it appears it is somewhere near bears 40% and bulls 39%. Whatever it is the sentiment is still in the right direction for a good rally with the investors intelligence survey and put/call ratio. The VIX NEVER confirmed a low as it NEVER hit 40 which it has ALWAYS hit before making a REAL bottom (don't argue with me over this, newbies; go look at your freaking charts going back to 1986). Back during the 1987 crash it hit 170!!!! So don't you DARE tell me the VIX is high up here at 22. THIS VIX IS PATHETIC and is what is preventing us from making HUGE gains. I have never seen a market hit a real bottom without a 40 VIX and this rally on low volume still has me thinking this.

But like I said the old leaders of steel-producers, oilgas-us expl/prod, manufacturing-farm, building-residential/commercial, chemical-fertilizer, energy-solar/coal, building-AC, oilgas-drilling, oilgas-us royalty, transport-rail, transport-trucking, and chemcial-basic. Wow, where have I seen all of these before? Oh yeah, THE ENTIRE RALLY OF 2003-2006. This is just further confirmation that this is a bull market in commodities as commodity related stocks. There is no doubt that stock related to softs and hards are where it is at. As long as that is the case the REAL big winners that launch HUGE BIG BULL markets will not show up. This explains why we have no "HOT" charts.

If you need further proof, let's look at the IBD 100. Back in the October 2002 and March 2003 bottom building phase, the IBD 100 was consistently beating the index on the way up. While that was the case on the initial big rally on Tuesday, since then the gains have been a bit mixed. What stands out more is the overall price/volume action of this leading index. The NYSE, SP 500, DJIA, and Nasdaq all have B+, B, B- ratings while the IBD 85-85 and IBD 100 carry a D. If anything, this should definitely be the other way around with the IBD indexes having B ratings and the big cap indexes with D's. This opposite effect is a clear lagging showing by the index and just another red-flag on this market.

This is why I will NOT load up. Without the IBD 100 leading, HOT stocks setting up in perfect chart patterns, and WAY MORE volume in the overall index charts, it would be CLEARLY FOOLISH to load-up and build HUGE margined out positions in this low volume environment even with the nice CANSLIM charts out there. To be safe enough to load up, those stocks AND THE INDEXES must have volume.

I focus on the leading indexes because out of 65 methodologies tracked by AAII, the CANSLIM system is the #3 top performing methodology after two other "non-system" (can't use either like CANSLIM; only CANSLIM can be applied for us basically) methods. Those two methods have returned over 2,000% since 1998. But only one other system has returned over 1,380%. That is the CANSLIM system which has returned 1,477% since 1998 compared to the SP 500's 42% return. Also the IBD 100 from 5/2/2003 to 4/3/2008 has returned 206.6% compared to the SP 500's 47.2%.

Oh yes! Did you notice that if you invested in the SP 500 in 1998 you have made LESS money than if you would have invested in the SP 500 the day the IBD 100 was created!!!!!! Yeah, tell me again how it is stupid to buy growth stocks????????????

Let's see, besides CANSLIM, there are two other strategies which are both up over 2,000% since 1998. What are they?

--O'Shaughnessy Tiny Titans tries to predict the future using historical long-term trends. These screens combine both value and growth criteria to find viable investments: The screens focus on reasonably priced, growing companies whose stock price is rising by including criteria such as relative strength, sales and earnings. (2,463% return since 1998).

--Zweig A strategy that identifies companies with strong growth, a reasonable price-earnings ratio given the company's growth rate, buying by insiders and relatively strong price action. (2,150% return since 1998).

Zweig, O'Shaughnessy, or CANSLIM. I don't care which one you focus on but if you are doing ANYTHING OTHER THAN THESE THREE SYSTEMS, sorry folks, the truth is that your strategy is WEAK, LAME, AND SOMETHING I DON'T GIVE A DARN ABOUT. :) Your system sucks, unless it is one of these three! That is just the facts; ONCE AGAIN, NOT MY OPINIONS.

God I love the stock market and God I love leading stocks! The market is in a short-term uptrend and a lot of HIGH-quality CANSLIM stocks are breaking out. Hopefully, the overall market indexes can join in on this action, WITH HIGHER VOLUME, thus allowing me to start putting my margin to use. If that can happen, I will not hesitate to load up on the prettiest HOT and perfect charts and stocks with fundamentals like GXDX FSLR MCF RIMM SID BUCY PCLN TITN once they set up and breakout from a well formed base.

The stocks with incredible fundamental growth like the ones listed above do NOT have to make picture perfect price, volume, max green BOP charts. DRYS and MTL were both very large positions for me during our last rally and neither one of those had perfect charts by far. However, both had incredible EPS, sales growth and other extremely strong fundamental measures.

DRYS was one of my biggest and best longs with a 106% gain from 8/22/07 to 10/29/07. MTL rallied 92% from 9/27/07 to 12/07/07. Had MTL not broken down below the 50 DMA on very HEAVY distribution in the middle of a bear market I might still be long from that point (I am still long NOW from 2/8 with a 32% gain) with a 156% gain. This is why I need to learn to NEVER sell ALL of my long UNTIL it closes BELOW the 200 DMA, no matter what. I will learn my lesson one day. Hopefully you will learn yours before mine.

We have earnings season coming up and that should be full of fireworks and drama. We will need more volume in the market if we want to keep this rally up. I hope you all are having a great weekend so far, I love you all that have respect for me, and would like to encourage all of you morons reading me that don't like me to please STOP! GET OUT OF HERE and let the winners enjoy the fruits of my spoils. ALOHA and I will see you in the chat room!