Monday, June 30, 2008

“Talk Story” about the Market

I have to admit, those that think it is wise to be either a bull or a bear here are doing themselves a major disservice by not studying the past. This market is clearly a range bound market and taking a bullish or bearish side on the overall market is a terrible thing to do.

The correct stance to have is to be bullish in some sectors. Right now, to me, it is clearly obvious that the money is being made in energy stocks or even a couple select medical stocks. The one place you definitely do not want to be right now if you are looking to make money on the long side are the bank stocks which have 80 stocks hitting new 52-week lows. Besides the carnage in the Banks, Insurance, Leisure, Metals, and Real Estate stocks are seeing anywhere from 20 to 30 new lows daily. Now, if you are a bottom fisher trying to get the exact bottom of these stocks then you have suffered some serious damage.

Back in March, I was called names and was viciously attacked by the “buy the banks now” crowd for not buying the banks. Instead I bought stocks that were leading the market at the time as their industry groups were flying to the top of the list. A lot of these stocks included oil stocks and some technology stocks that were finally coming along. But the same old chemicals-fertilizer, steel stocks, and metals , along with the oil stocks kept leading the way up. This was kind of a clear indication that the same old leaders since 2003 were still leading the way higher. This is what prevented me from getting too bullish but at the same time the fact that I was seeing some fresh breakouts combined with old leaders like MTL had me excited that a tradeable rally was on us from March to May. However, now that June has arrived, it is apparant that that was all indeed it was: a short-term tradable rally that did allow CANSLIM investors a short time to make some good money. Stocks like PDO, QTWW, GEOI, XCO, CLR, EBIX, MA, TGC, IPI, NOG, CPST, CSIQ, ROYL, NOG, XIDE, CMP, and MCF all helped make all of my readers plenty of money and helped keep my portfolio up around 20% the past six-months while MANY colleuges of mine had a near impossible task of staying above the water. In fact I know a pretty famous wall street baffoon who has an action alert portfolio down 9.81% YTD. Yet so many still subscribe and listen to this fool that it is shocking.

I know I am not the most politically correct guy in the wall street community but that is what I like about me. I tell you the truth. I tell you like it is and the truth is that this market is pretty crummy. I see a lot of jerks on the WSJ, CNBC, and at TSCM telling peopel that they need to buy this stock on this pullback or to load the boat on this stock that has run up 5000% in three years. This is the kind of advice that leaves people broke. Folks you should never buy a stock that has had more than two splits in a span of three years while running up over 1000%. These splits are caused to get the price of the stock cheap enough so that the dumb public things they are getting a bargain when in fact they are now getting a diluted piece of trash of something that was once very valuable. The first two splits are OK normally. But it is when they make the 3rd split a 3 for 1 deal in the 3rd year of a run that has seen the stock go from a split adjusted 2 to a curent share price of 200. Folks you must stay away from stocks like that.

Also, take a look at HP or ZEUS on a weekly artihmetic chart going back to 2001. You are going to tell me you think those stocks are safe to buy up here ? I don’t think so. Now that we have a lesson on what not to buy in and a lesson on how to recognize stocks that are too far extended due to the arithmetic weekly chart clearly showing you that things have gone too far and too fast. Now that that lesson is done let’s get directly to our current market. You know the piece of junk that we are all trying to learn how to love and live through.

This market, to be honest, is not that difficult if you are only focusing on the top sectors. Those are , of course, the oil&gas stocks that have been doing a great job at making investors money. Especially the exploration and production stocks. Sure there are some in ag, metals, and miners that are doing an OK job with stocks like NCOC but the fact remains that small-cap and mid-cap oil stock are about the only place you want to be if you want to make a lot of money in this market.

However, something in my gut wonders how much longer this can go. I have so many newbies asking me about stocks like PBR and OXY if they are good buys UP HERE. Well, if these subscribers were asking me in2001 to 2003 if they should be buying these stocks I would say go for it. But like I have been saying if your stock is up 5000% in 5 years MOVE ON!

I like to go long stocks that are at least eight years or younger. Those are the stocks that go on to make big gaiin in shor amount of time as their new products start producing huge EPS and sales growth. This is what gets the smart mutual fund managers interested in the stock and has them buying them hand over foot. All of you that are out there wanting to go long oil, corn, and all the other commodities that have been moving since 2000 you need to reevaluate your investment methods. I am sure many of these stocks have much more room to run but the fact that they are way up there compared to where they were when they started tells me looking for shorts is the right play. It isn’t time yet by far but the move in these stocks are near the end and when they top, rollover on huge volume, and break through the 50 and 200 DMA’s there is no doubt stocks like POT, MOS, and a few others will be in my short portfolios

But shorting stocks is a tricky game and too many think just because something looks expensive that it should top. The fact is you need the market to be rolling over on huge volume with some nasty patterns existing out there to short. The sad news, for the bulls, is that a lot of stocks are starting to show those ugly topping patterns. The good news though, for those that love real bull markets, is that most of the topping appears to be in metals, mining, oil, gold, and steel related issues. All of the oil stocks have gone parabolic and all the chemical fert stocks have gone under a nasty churning situation. This should eventually help rotate that ag money into tech money.

This can start to be seen by the nice charts that are showing up on the IBD 85-85 and IBD 100 indexes that are technology and semiconductor related. I have to admit that we were starting to see a bunch of nice charts setup but after the week we just had that was partially destroyed. For the week the Nassy lost a nasty 3.8%, the DJIA swooned 4.2%, and the other indexes faired just as well which was not well at all. But for those of you who are long the strong stocks in the strongest sectors with the prettiest chart there is no way you had a bad week. In fact, coming into this week my portfolios were up only 10% YTD. Now I am leaving the week with an 18% YTD return. Not only that, I am managing one small portfolio that came in the week down almost 2%. It is now leaving this week with a 5% return. Can you say ACM, PDO, XCO, NCOC, TGC, QTWW, and FLIR. This is definitely a stock pickers market and there is no doubt that if you have been going with the trend either up or down you are finally probably doing very well.

To bad most of the jokesters that I read try to tell me about “value” investing all day long. I am not sure why in the heck so many unsuccessful people preach value investing with their personal pathetic records but when I take a look at LEH, GS, ABK, and MBI which were ALL stocks that people YELLED at me to buy and all I can think of is how sick those people that look at PDO and think it is too expensive are. The truth is the majority of the people involved in the stock market have no business here and the fact that half the people on Wall Street can even dress themselves in the AM shocks me. The only thing that doesn’t shock me is the constant lies from the mouths of those on CNBC.

The DJIA is now down 20% from the highs which officially puts it in bear market territory but the entire way lower I was told to buy. The ENTIRE WAY. Why do so many “smart” people tell me to do something that clearly makes you lose a lot of money. Ask those that are still long TASR how buying on the way down worked out?

The truth of it all is that riding the trend higher when stocks are moving higher, riding the trend lower when stocks are moving lower, and staying on the sidelines when stocks are doing nothing is the only way to make the big money. Those that buy stocks on the way down or sell stocks that are moving up and that daytrade very actively when the market is in a trading range will quickly be placed on a hospital gurney as they are whisked away to the “losing money” hospital. The truth is the only way to make the huge money in the stock market is by going extremely long on heavy margin when the market is rallying on HUGE volume and by going very short on huge margin when the market is moving down on HUGE VOLUME. When the market is moving in a choppy fashion like now, you still must not sell out of all of your PDO just because it is up 250% in a month. You can sell out of 50% but by not holding the rest you will possibly watch your perfect looking H-T-F pattern go and run 500% to 1000% without you. You newbies need to stop selling out of all of your biggest winners. You guys are still trading wrong. if you go long a stock and it moves lower immediately, sell 25%. Then watch for my final CUT LOSS level to be hit to get rid of the rest, if the stock does not work out immediately.

As for you newbies who have no clue as to when to sell a stock, make sure that when you have a 20-25% gain that you get rid of 20%, when you have a 50% gain, take another 25% off the table, and then the same thing applies when you get the 100%, 200%, and 500% gains. Make sure you are taking 20-25% off. And don’t give me the excuse I “only have 5 shares.” So what! Sell one, the sell two, then sell two more. At $.005 per share and $1 per 100 shares, trust me, you can afford to partial out. I do not want to hear anymore excuses that you don’t have enough to partial out. One day instead of taking 20% off with a 500% gain, you are going to wake up and instead of taking that 20% off your stock will gap down hard and might let you only walk away with a 300% gain. You want to always be taking profits on the way up and taking big chunks off on big down days. But you never want to just sit back and watch a stock like XCO and PDO make such big moves so fast and not take 10% to 20% off on the way up. You simply must lock in some profits while the market is choppy.

Now, if this market takes off on HUGE volume with stocks rising on volume 20-25% higher than the day before then it is definitely OK to hold your stocks as they race higher. That is how we end up with SINA, SOHU, NTES, SSYS, and USNA from 2002. Our early HOT and pretty green BOP leaders will be our huge winnersl You do NOt want to lose your positions in those. As for stocks like QTWW and MCF, I have to say it is OK to take profits early and to be happy with a 100%, 200%, and even possible 300% winner. The bottom line is with the VIX AT 23 and with the market making it hard to hold onto gains you do want to take your big winners in slowly as they move up. But heck, if this rally started with a 35, 40, or God willing a 50 VIX, trust me I would still have 90% of my PDO and not 50% of it. The 250% gain is locked!! However, if the VIX was at 40, only 20% of that gain would be locked.

The other reason we clearly have to lock our gains in fast is because it is clear the downside is still the trend overall for the market. Even though we seem to be in some great stocks that are treating our portfolios like this is a bull market the fact remains that things are very ugly out there. We have only have 64 new 52-week highs (seems like we are long every one of them :)) to 738 new 52-week lows. So clearly this is not a market to be messed with and that is why despite the fact that you see us at doing so well overall everyone needs to just be patient with the market. I believe soon the market will be a buy. The press is just too negative.

That was confirmed via the Reuters/University of Michigan sentiment index which fell 3.2 points in June to 56.4. That is the lowest level since 1980 and that comes with current inflation near long-time highs. About the only good news from these fears is that personal savings rates spiked 4.6% to 5% in May which is a good thing for Americans who have an abitlity to spend money on stuff that no one needs. It is nice too see this saving rate go up. Maybe instead of buying another worthless non-durable good, some of the illiinformed invesotrs can start to leearn to take control of their financial future so someone like me who will have MS and have to pay for it out of my own pockets will not also have to take care of other people as they destroy their future by not investing

I want to wrap it up here by reminding everyone that we should not get as negative at the TV is. The bears on the Investors Intelligence is at 39% while the bulls are only at 33%. When I see the pros so negative, see the put/call stay over the 1.00 level for so long (like it is now at 1.01), and read nothing but bearish headlines about the market I know that I need to be looking for a rally and not a selloff. Therefore the longs, the max green BOP, the big tall green volume bars, and all the open daily pretty price candlestick bars are where my focus is going to remain. If you have not been studying my PAST BIG WINNERS, PLEASE!!!!!!! TAKE THE TIME TO STUDY EVERY SINGLE ONE FROM 1999 TO APPY IN 2007. That way when the next near-perfect to perfect chart comes around with the market making 2-3% plus gains on volume 25% higher than the day before YOU WILL BE READY TO MAKE A TON!! OF MONEY. Trust me, this bear market will not last forever. Another bull market will come shortly. Be patient, keep that cash high for those perfect stocks, protect that capital, and make sure you keep those green BOP and CANSLIM watchlist updated to that when the next real bull market with a lot of stocks rallying higher with CANSLIM quality eps and sales growth with max green BOP charts come along, breakout, and run producing us the kind of gains that we can think about retiring on.

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