Sunday, June 08, 2008

Friday's Reversal Destroys The Euphoria From Thursday; I Did Not Have A Single Long Give A Full Sell Signal (There Were A Good Amount Of Partial Sells

There is no other way to describe Friday as uglier than ugly. When you have 4-losers-to-every-1-winner you can be sure that it was a very ugly day. That ugliness can be blamed on the unemployment jumping to 5.5% from 5.0% which was the biggest gain in 20 years and oil jumping almost $11 and a total of $16 (13% gain) in two days which was also the biggest gain in 25 years when they started keeping records of oil. Economist were expecting the unemployment to only increase to 5.1% so this was a LARGE miss. You can't blame the market for doing what it did today after a miss of that magnitude, along with oil jumping 13% in two days.

However, as I will be doing quite often, as I write this I will try to interject some bullish points to the negative headlines. For instance, it could have been 10-losers-to-every-1-winner. But, actually, that would be bullish as it would show the crowd was extremely bearish and I would be looking to get very long very quickly. Still there is nothing good to say about a day when losers did beat winners by such a strong amount.

As it is and as it was Friday was a horrible follow-through to what appeared to me as a "confirmation of the rally" signal that Thursday seemed to produce. The only really good news is that all my new buys from Thursday held up really well and about half of the new longs actually produced some nice gains (one was up 4.28%). So overall my portfolio while it got a MAJOR whack this week is still up over 10% which is a heck of a lot better than a certain Action Alert portfolio that I am watching right now. So overall I have to admit, it is not as bad as it seemed once the bell rang and the market session ended on Friday. After taking some time to look it over, I have to say that it wasn't nearly as bad as the initial numbers from the market had me believe it was.

Those numbers go like this: the Nasdaq and SP 600 lost 3%, the DJIA and SP 500 both lost 3.1%, the NYSE lost 2.7%, the IBD 85-85 lost 2%, and the IBD 100 lost 1.8% on Friday. As you can clearly see the selling hit everything as only 5 of the 197 industry groups that IBD tracks were up on the day.

The other key measure I always keep an eye on is volume. Volume is key because that is how you know if the market is made up of a bunch of retail traders or if the market is under accumulation or distribution by the real players that drive stocks the pension, insurance, hedge, and mutual funds. Well on Friday, mutual funds were active on the NYSE as volume picked up 17%. But on the Nasdaq, volume was off 1% which shows that the big boys still had no real interest in distributing a lot of stocks. But still the damage was done, volume or no volume.

The euphoria that was starting to permeate the market before Friday's opening bell, imo, was not that "frothy." It seemed to me that there was a lot of poo-pooing of the rally. In fact there was so much "non-believing" in the rally that I was for sure it would continue. However, I know that in bear markets, if we are in fact still in one, I will turn very bullish the exact day that you will top. This happened in 2000, 2001, and in the summer of 2002 more than once. Still, I was able to cut my losses on some of the longs I took, while still gaining some huge wins in some charts that setup really well. That is a lot harder to do now, but as you can via my long-term holding MA and my more intermediate term GEOI PDO and QTWW, getting 100% gains is still very possible as long as you know where to go: pollution, solar, oil, oil, oil, energy, coal, nat gas, metals, mining, ag, and chemicals. There are a couple of other commodity related industries that you can include in that list also.

Speaking of commodities, oil was the talk of the day as it started a climax run on Thursday that is sure to cause a TON of pain for those trying to top tick oil. Oil flew $10.75 to $138.54 which promptly sent my behind to my local gas station to fill up our tanks before a price rise (later that night on the island of Lana'i gas went from $4.71 to $5.11; looked to be a great move on my part). This move in oil sucks and is for sure going to hurt those that drive long distances for work but at the same time you know you are allowed to invest in the United States of America and when you are here you can go long stocks related to the oil&gas industry.

I don't know about you, but since the rally of 2003 started after Bush cut the income and cap gains tax, the Energy sector has given us plenty of gems to help you combat rising gas prices. Instead of bitching about the cost of oil why didn't you go long TGE after the market followed-through on EXTREMELY impressive volume? If you did you are now the happy owner of a 7,833% return. GMXR is up 4,405%, SWN is up 2,820%, MCF is up 2,737%, ALY is up 2,173%, ACGY is up 2,142%, UPL is up 2,109%, and HK is up 2,064%. So there is 8 stocks that could have not only protected you from high gas prices but they could have saved you from your rising taxes, grocery bills, and everything else that will be EVEN MORE EXPENSIVE under an Obama Presidency. How scary does that sound? Yikes!

But besides those 2,000% gems, there have also been another 154 stocks that produced 100% gains since then which more than could have made up for some of that gas you put in your tank. So remember TGE the next time you fill your tank up. Instead of complaining about the cost of gas, you should try, instead, to look for ways to invest in the market that will make up for the losses at the pump. But I know that is not going to happen. This nation has become a lazy, self-absorbed, "daddy, mommy take care of me," country. We are weak and most will not take control of their future as they wait for Social Security to come and disappoint them. Too bad by then it will be too late.

Getting back to the current market which is more than a little nutty. Like RevShark said in his blog this market makes those nuts that think the market is "efficient" look a bit silly. At the same time it doesn't help our charts out at all when the market acts like this. In fact it hurts chart analysis greatly.

But by using charts you also can stay unemotional and look at the market from a point of FACTS and not opinions. By doing that a very surprising thing happened on Friday. Out of 100 stocks out of 10,000 that I am focused on NOT A SINGLE ONE gave a signal to SELL SELL SELL. This is kind of shocking as I expected my recent longs to have done poorly. Instead they continue to hold or rally as 90% of my longs are in the Energy related industries.

It is clear that energy is the only place to be and this can be seen in the IBD 100 and IBD 85-85 index with both outperformed the market on Friday as they were only down 1.8% and 2% respectively which is better than the 3% decline in the Nassy and sp6oo. Also for the week the IBD 100 ACTUALLY PUT IN A STRONG GAIN rallying .8% this week, compared to the 1.9% decline in the Nasdaq, 2.6% decline in the NYSE, 3.4% decline in the DJIA, and 2.8% decline in the SP 500. Those losses for the indexes took out the previously hard-fought gains. Not the best action for a market trying to rebound from a November to January selloff.

This is simply because leading stocks are dominated by energy issues and even though they are nearing the end of their long-term run (look at your LONG-TERM weekly ARITHMETIC charts going back to 2000) their still could be one last violent push higher as they go into a parabolic run and climax top. SWN, PBR, MCF, RRC, DNR, and CNQ are just a few of the stocks that on those long-term weekly arithmetic charts look to be very close to an end of the multi-year run. Still another 100% gain from a parabolic climax run can not be dismissed. It very well could happen especially with oil now going off.

Not only is oil going off, but have you seen the December contract for Corn. Sheesh. That was one heck of a powerful breakout ON VOLUME on Thursday. Corn added to that on Friday. This means not only is gas going to $5 but food is still going higher. I need more setups like DGLY to come along. Even if I only get 30% from it, it is that PERFECT SETUP!! that makes all the difference when going long stocks in bulk. However, it might be a while before too many more show up like that as the rally in the NYSE, SP 500, and DJ-30 is dead. However, the Nasdaq, SP 600, and Philly Semiconductor Index look good and are still holding. If there is more gains coming and this is a one day event, those latter three indexes will kill those former big-cap indexes.

That is if they can keep rallying. I am not happy to see that not much fear was generated after today's selloff. The put/call only jumped to 1.09 which is below two peak reading areas since the August lows, the VIX while it was up 26% on Friday is still only at 23.56 well below the peak reading of 35.60 on 3/17, and the investors intelligence survey saw the bulls jump back to 44% this week. This does not indicate that enough fear was generated yesterday to have us put in a bottom here and that is why I am still a bit fearful that there could be more selling coming. I hope I am a great contrarian indicator.

The one thing I know you must not do right now as we selloff is bottom fish. Bottom fishing is suicide and will leave you stuck in stocks like ABK. I really wish all those people that told me to buy ABK in November would have also asked me to short them the shares. I made a mistake by not going short off those horrible reco's and therefore lost 90% on a powerful short. However, I don't like to break my rules and my rules are more CANSLIM based. Though it may not be easy right now, it is still sometimes very lucrative when you are on the right side of the market in a bear market. That is the beauty about the CANSLIM system. Once you learn to use it right, you can constantly move yourself into the bullish sectors with no problem. That is why we are going long oil stocks and have been making money the past three months while many I know are just spinning their wheels or losing money. I can honestly say I am up 15% and while I normally would be PISSED OFF with such a return at the midpoint of the year, the facts clearly indicated that I am not. Why? I know my methodology will come back to working like gold. Another 1999 or 2003 will happen again and when it does ANYTHING UNDER A 200% annual return is PATHETIC. I expect a 200% return AT LEAST if we have another 2003 market environment. I have to stay positive because this market is making it real easy to get very down on yourself.

Some believe it is safer to protect capital right now and I can not say I disagree with them if you are a newbie. I believe if you are long a stock and it goes up 25%, 50%, 100%, and 200%, you should take 20% gains at each stop. And then when you learn how to spot topping signals and learn to sell stocks as they move higher then you can go back to systematically selling them on the way up. But if you are a newbie make sure you use my fixed result trading. Right now, it is probably safer for the extremely new traders to protect capital but if you are experienced and know what to do there is no doubt that if you get that signal to go long you should go long.

If the put/call can hit 1.5, the VIX can hit 40, and the investors intelligence can see the bulls and bears, we would be in much better position to have another 99 or 03 type of rally where our longs breaking out of beautiful chart patterns can produce some huge wins. Right now, we are no where near there. These numbers strictly do not show enough fear. But when they do there will be no doubt about the facts that we will see better setups that will produce for us better winners that will make us a lot wealthier than what this market can. If QTWW, PDO, and GEOI can do this now with a VIX around 20, imagine the gains of a PDO with a 40 VIX.

There are some things out there that make me think it could be possible Friday was a one day deal. The fact that not a single stock gave me a FULL SELL signal is a huge development as a lot of stocks did give me partial sell/profit taking signals. But the fact nothing said "SELL" is a big clue that this might be a one day event. The other thing that indicates maybe that is not the case is that I had 6 excellent setups for new shorts. So really, to be honest, it is very mixed. And while it is mixed, it remains a stock picking market. And for those following this blog it is obvious there are only a few places to go: energy and metals/mining. This is a development that has been going on for quite some time as oil stocks are the only stocks, besides a few tech, that are breaking out, holding up, and then breaking out again. However, there is not enough and they are not giving us the biggest of gains. But at least it is a start.

This market right now is a bit insane. There is no doubt that this is a headlines driven market that from one week to the next is moved on the most recent economic report or political event. That is not the kind of market that is healthy for those looking to go all-in on margin. This market must be treated carefully, unless your stock picking is around the top of the class. I don't know too many that are getting everything right out there but there are a few of us that have been doing very well when it comes to buying the best stocks that are currently moving in the hot industries. If I wasn't able to go long these great oil&gas stocks that are making me money the past few months, I am sure I would be looking to get about 50% cash heavy. As for most of you I suggest probably getting down TO AT LEAST 25%. I don't think I want to suggest anyone push it here, especially with the way this market is acting. If we recover on Monday and take back everything we lost by the end of the week AND we get quite a few green and max green BOP filled charts setting up in double bottoms, cups, cup with handle, flat base, high tight flag, saucer pattern, and two/three week tight patterns, there is no doubt I will be looking to get long and will be on the hunt for the next near-perfect to perfect setups that will setup out there.

There is no doubt that this is an extremely tough market but I must suggest that YOU DO NOT give up. I know it is hard. It has been very hard since the top of the October 2005 rally that topped out in May 2006. Since then my perfect charts have been hit and miss and before late-2006, it was about only a 10-20% chance that my perfect charts would fail. Recently, it is very much 1/2 and 1/2. Luckily the perfect charts, when they work, are still working very well, while the failures ALWAYS lose 10% or less. Very rarely, if these perfect charts fail, will you ever lose 10%. But at the same time when they work a 100% gain is almost always for certain in under six months. So don't get discouraged.

When should you give it up? Well, if we have a 1999 or 2003 kind of market and I return 300% and some members return 500% and then you LOSE MONEY!!!....yeah maybe it is time to hang it up. But if you are losing money now, don't hurt yourself or be too hard on yourself. Someone, even with a lot of my longs having a great week, I managed to lose almost 20%, as a 35% gain is now around 15% YTD. Very disappointing but if there is more room to run, like these stocks are hinting that there is, I am sure I will make that back up and then some. There was nothing I could do about Friday. There WAS ABSOLUTELY NO WARNING that that breakout was going to turn into a fakeout. The thing is is that sometimes that just happens. The truth of the matter is that we are on day 9 of a new rally still. Unless the Nasdaq breaks below the 50 DMA on huge volume, I will keep the faith that all my nice charts that are still very nice are still going to turn into HOT HOT stocks that will offer me new places to load up.

But until then I will be very careful with my longs. I will keep all new longs and shorts small UNLESS THE chart sets up in a near-perfect to perfect patterns and then those stocks if they have fantastic and strong fundamentals decide that they are going to continue to rally, i will continue to get very long those leading stocks.

Right now, things are not easy, and I suggest new traders be very careful. If you go long MAKE SURE YOU STICK TO THE CANSLIM LONGS ONLY AND IF YOU DO DECIDE TO TAKE THOSE LONGS PLEASE ADHERE TO MY CUT LOSS AREAS. Do not let them pullback any more than I have listed. Do not let losses grow in this market. It is not easy to hit a homerun and when you do hit a HUGE winner like PDO, you want to make sure a bunch (10 to 20) of those profits get locked in and that you can build a powerful positions around the remaining position that you can let run like the way I have let MA run. A nice 520% is my reward for being patient in this big cap winner.

I am extremely tired and I have about 4-5 articles/columns I want to write before my night on Maui is over (it is 630pm). I want to thank everyone, except skeezaroonie (Mark you are a DONKEY!!). This was a great week and I have to say that despite this market treating us like crap, we are still doing very well overall and even though I watched a 35% gain turn into a 15-20% gain, I have to admit I am still long stocks that are basing on heavy buying volume and low declining bottom. If the market takes off again, these stocks are DEFINITELY going to take off again. If the NYSE, SP 500, and DJIA is going to lead the market lower, and will be taking out key support and that then sends the SP 600, Nassy, and IBD indexes into downtrands well then I am ready to cut my losses, take in some shorts, and regroup while I wait for another bottom that will eventually turn the stock market into a big money making machine. Just like it was in 1999 and 2003. However, for now, we are no where near those environments.

For now, we enjoy the pain at the pumps by investing in stocks like PDO, MXC, FPP, and TGC which are acting like pure internet momentum stocks. They are dangerous up here but subscribers to this site are not unfamiliar with any of these names. So many energy stocks, so little time.'s best oil long is MCF. MCF is up 173% from 4/25/07 to 6/6/08. You didn't just make made 170% LONG-TERM capital gains. That is darn good. That is why I love this methodology. There is nothing out there on the internet or available in any printed publication that can come close to touching the CANSLIM methodology with my little tweaks.

Aloha and I will see you in the chat room where Chat Blazer has been horrible with their customer service. You may be booted off once in a while for a bit as we try to contract our software provider. You must realize this is happening to EVERYONE and that this IS THE BEST CHAT software for compatibility. Everyone doesn't run windows anymore. Now there are multiple operating systems, firewalls, and anti-virus programs that make it impossible for stuff to work for everyone. This is the best and normally when we have problems they are fixed fast. This has never happened before and if we can host the software on our server and fix this problem trust me I will pay up and have this fixed. ALOHA!!!!!!!!!!!!!!!!!!!!!!!!!!

No comments: