Thursday, July 31, 2008

How I Deal With A Market That Does Not Reward Trend Following

July 30, 2008

I definitely, first off, do NOT watch CNBC. This should be the last thing all of you newer investors should do. A lot of people that watch CNBC tell me that they do not have enough time to read Investors Business Daily and instead find it easier to listen to the raving madness of Cramer. This is baloney. All you need is 20 minutes a day to read ‘the big picture,’ ‘the investors corners,’ and any of the other investors education articles.

If you do this every day, I realize that it will not be fast, but eventually you will learn the right way to make money in the market. The same way the greatest traders ever, which were detailed year by year by John Boik in his fabulous books, traded is the same way you should invest. If the greatest all invested a certain way, shouldn’t you to?

Some of you believe that you can outsmart the market or you are lazy and believe that a method that has been PROVEN not to work (using P/E ratios to buy and sell stocks) will work especially for you. This idea must be dropped and you must learn that some very smart people have learned that the best time to invest is ONLY when the market is in a clear uptrend. A few of the greatest of all time know to be long certain stocks even in a bear market. For instance, the smart money managers are long biotech and medical stocks right now while they sell financials. This is clear to those that are experienced but for the newbies this can be very confusing.

That is why you must start learning now. Learn now what worked in the 1890’s and learn what worked in the 1990’s. What worked then will work now. You can not give up in a bear market. If you lose money now, stop trading. Pick up some of the books that I have recommended on my site and get reading. When you notice the market starts going up again with a lot of stocks participating (right now that is not happening–hence the new lows beating the new highs), that is the time to get long again. But when only a few rally with the index it is still time to exercise caution and learn up on how the greatest of all time traded/invested.

You will quickly learn that they did not buy stocks against the trend. There are very few charts that are moving up and even though I know how to find them thanks to Telechart does not mean that most people will be able to play along. 75% of stocks follow the trend of the market. So if the trend is shaky or down, why try going long. Instead read those books that I have posted on my website. This is the only way to learn about the future; you must learn from the past.

Besides that I do one of the greatest things that I think everyone on the internet who is a professional should do. I have posted 70% of my biggest winners since 1999 on this website. I have posted them for free so that you can see what they looked like when I went long and you can see what they looked like when I sold them at the top. You can learn so much from these examples that I do not think some of you are taking the time to study and memorize patterns that showed up in the bull markets that ranged from LMLP in 99 to HRZ in 06 to PDO in 08. These patterns do not show up and work for no reason at all. History constantly repeats itself and while it is very important to pay attention to fundamentals at all time, when you get chart setups like this, including stocks like TESO and AFSI in 2007, you can not pass on the supply/demand setup. These charts have been posted to show you what some of my best stocks have looked like before they go on to their biggest runs. One thing should be noticed, 90% of the time the market trend is up with the stock.

I hope a lot of you are studying these stocks but some of you do not know when to sell to take profits. I here of some of you taking all of your profits on a stock once it is up 10%. Well, I guess you missed DGLY and PDO, even though the gains in BRKR and BKE did evaporate, they never hurt us enough to make a significant impact. Eventually another bull market, even if it is a bear market or choppy market bounce, and will give us another max green BOP beauty. Don’t be a sucker and pass on it like so many did on APPY in 2007. Until 2007, I can only remember one stock that broke out of one of my beautiful patterns that failed immediately. This told me that all the failures in 2007 and 2008 were warning us of this bear market that we are now in. But do not for one second think the patterns that worked in 2003 will not work again. Only those that give up now will miss out on this. Trust me that will be too many. Too many do not realize that markets like this are made for a reason. To get rid of the weak. That always helps the strong make a lot of money when the market does lift higher under its own natural movement.

Until that natural movement higher comes, there is still a lot of learning that new investors need to be doing. If any of you out there have not read/listened to “Reminiscences of a Stock Operator,” it is time to buy the book or buy the itunes edition of it and get that book under your belt. You will learn that even in 1920 a man figured out daytrading was not the way to big profits but instead a system similar to CANSLIM was the only way to major riches. This book will prove to you that nothing new is under the sun. What worked then will work now. The only time it doesn’t work real well is in choppy markets but even in a choppy market there will be up swings with some good stocks and some down swings with some real weak stocks. With $1 commissions now the norm to $5, there is no reason to take strong signals when you get them. Just make sure you cut your losses quickly if you are wrong. But if you are new you might want to wait for a bull; some of you sell way to fast and will NEVER hold a TASR. NEVER!!!!

How are you going to hold a TASR if you can’t even hold a stock like BAX moving up. Some of you need to buy the book “How to Make Money in Stocks” by William J. O’Neal and “How I Made Two Million Dollars in the Stock Market” by Nicolas Darvas. This will help you learn to hold a stock as it moves up instead of selling a rising stock way to early. You may get lucky once in a while and avoid a nasty selloff and lock in a 10% move. But when NTES or TASR moves 2000% in under 12 months and you are stuck with a 10% gain, trust me, my friend, you are going to be the donkey. And being the donkey is the last thing you want to be.

In this market a lot of donkeys are out there. There are only a handful of charts that are even nice and nothing is perfect. Until I see a perfect setup like ACM was SUPPOSED to be and would have been if the year was 2003 (those chart patterns like EGHT EVOL USNA SSYS etc… all made the same pattern and worked) there is no way I am going to get excited and call a bottom too quickly. I think we still probably have more pain in the commodity area. If that is the case, living on Maui sure is going to hurt.

Aloha and I will see you in the chat room where we can get back to the business of trying to find some max green BOP wanna-be’s. ALOHA!

Wednesday, July 30, 2008

Follow Through Day Hits The Indexes On Day 10; Remember, No Bull Market Has Ever Started Without A FTD. But Not All FTD Leads To A New Bull Market

July 29, 2008

This is one of those terms (FTD) that throw people for a loop when they here it. Most think that it means it is automatically time to go into the markets buying stocks. However, a FTD has to be accompanied by a few things to be a real FTD for me. First the selloff must lead into the FTD on low volume. We did not have low volume on the pullback this year. Second when I see a FTD the first thing I look for is the explosion in volume. How much volume was in on the FTD? Today, it was around a 16% to 18% increase in the indexes and while that is close to what I look for it was no where near the 20% increase in volume that I like to see.

For a perfect example of what I am talking about go back to 2003 and take a look at that FTD. The volume was huge and the price gains were enormous following a lower volume selloff. We do not have that this time and the fact that medical stocks are still the only stocks leading has me still not convinced we have a real follow through day here. Even if we do there will be plenty of time to jump on the bandwaggon and make a lot of money. Just study my 2003 and 2000 winners before the top. They showed up well past the initial follow-through day and still made me and a few investors very wealthy. It will happen again. Trust me. So if this is for real we will have plenty of time to get involved. And as you subscribers know I will be in the stocks that will be moving the most during the next bullish phase of this market.

The best news about all of this is watching oil come in. I am so happy for the rest of us that oil can continue to pullback and the fact that the charts look like they have definitely topped and that nothing is going to help them rise again. Many of us were able to profit on the bull market in oil stocks but it finally appears to be over. That is good news, not bad. Oil has fallen, I bliever, 25 points to $122.

If there is a chance we have seen a bottom it could in fact happen. We have had mutliple weeks of newsletter writers coming in with a bearish viewpoint than a bullish viewpoint. I believe it is seven weeks in a row according to IBD. That is a very long time for these usual perma-bulls to be bearish.

And this is so important that I am taking it straight out of IBD to show you exactly how bad it is. This is from today’s IBD’s Big Picture: Also, 15% of stocks in IBD’s database own Accumulation/Distribution Ratings of E, the worst possible grade. Typically you want to see that figure above 8% at the time of a follow-through, as it’s a sign of severe investor pessimism.

Remember one important tenet of follow-through days: Every bull market in Wall Street history started with a follow-through. But not every follow-through launches a new bull market.

This is just confirmation of my analysis that is trying to make sure that you do not do anything stupid and get too bullish too soon. Let the market continue to prove itself by offering up CANSLIM quality longs that are breakign out of perfect patterns. You will have at least a month of great stocks breaking out of great patterns before it becomes to late to get very long stocks in a safe moment where the market is not too far extended yet.

I still do not think we are there and think too many people are looking for a bottom for this to actually be a bottom. But I will change my mind if I could get a ton of stocks to setup and build those same chart patterns they did in 1999 and 2003. God were those great years. I hope we have one of those kind of years when this bear market is over.

I don’t have much to add to tonight to say that when I think a stock may have bottomed I want it to look like MER. Take a look at that bullish intraday reversal candlestick pattern, look at the HUGE VOLUME surge, and look at BOP go max green with TSV18 taking off also. This is what I like to see in a stock that I think is bottoming. Now, with me saying that, if MER does not rally and continue to rally on green BOP and strong volume and instead drops below the lows. That, my friends, will be very bearish.

So on that note, do NOT get too excited. Wait for the good charts to come to you. They are still not out there. I will leave you tonight with the final part of the IBD Big Picture which I think is important that everyone should read it even if you don’t have a subscription. If you do not have a sub to IBD….why not?????

FROM IBD: Financial stocks were among Tuesday’s top performers, following the announcement late Monday of Merrill Lynch’s (MER) latest write-down. The plans appeared to give the market some hope that the firm is working through its credit mess.

Bank of America, (BAC) Wachovia Bank (WB) and other financials banked hefty gains.

Better-than-expected earnings reports also stoked the market’s rally.

Amgen (AMGN) gained 1.80 to 62.28 in triple its normal trade. Late Monday, the biotech firm beat views and raised guidance. It boosted its full-year profit outlook to a range of $4.25 to $4.45 a share vs. estimates of $4.19 a share. Revenue is expected at $14.6 billion to $14.9 billion, or above views of $14.42 billion.

Amedisys (AMED) climbed 4.62 to 65.53 in heavy volume. The provider of home-nursing services grew Q2 earnings 44% to 82 cents a share, or 13 cents above views. Sales gained 85% to $312.7 million, easily beating forecasts of $288.3 million.

Concur Technologies (CNQR) gapped up and rose 5.15, or 14%, to a nine-year high of 41.20 in huge turnover, although it closed well off its intraday high.

American Express (AXP) said it bought a 13% stake in the software maker for $251 million.

Sunday, July 13, 2008

A FLat To Down AND VERY BORING Week Comes To A Close Leaving Us Praying For A Real Trend To Actively Invest

July 13, 2008

It was a down week for stocks and even though I gave the market only a side glimpse as I watched the overall stocks within the market–I know the trend is already sideways to down, it was quite clear that the few really nice charts that were left are starting to die like they have done so well of doing this year and that (something that could become more bullish later on) many of the big-cap oil, steel, metal, and chemical stocks all showed signs of possibly topping. Even if they have not topped, the fact is many of these have been running since 2001, 2002, and 2003. So if you are thinking of buying a new breakout, try to look at a longer-term weekly arithmetic chart before you go long that shorter-term intraday 60-minute logarithmic chart breakout. A little history and perspective will save you a fortune in learning cost, in the long-run.

Truth be told if some of you are finding this market frustrating it is because you refuse to STOP LISTENING to the talking douche-bags on CNBC. These fools make it so that you are constantly confused. If you just put your trust in someone who has a long term track record of beating the market (I DON’T CARE WHO IT IS AS LONG AS IT IS NOT a yelling madman on CNBC) over the long-term markets of the 80s, 90s, and 00s. A lot of people did well in the eighties and nineties but are now doing HORRIBLE in the double-zero’s. These people should not be listened to unless they have told you to either stop trading or to have reduced your holdings considerably recently. If they have not and are telling you to load up on stocks, I am not sure I can say that you should be listening to that person.

While I believe in buying panic, I don’t think we have real panic out there in price and volume and that can clearly be seen by a VIX around 25. If the VIX was at 40 and I saw a put/call around 1.6, I could say maybe buying stocks for those that do when blood is on the street could. But for now I don’t see that panic to buy stocks. I do think people’s exaggerations about how bad things are is overdone but the quality of the longs and the supply/demand patterns that show up in top quality longs before a bull market simply is not there.

The only thing that is there seems to me is a lot of frustration. Listen the market recently tried to setup and give us some longs to play with but that did not happen. That just confirms we are more range bound. However, when I casually read or hear anything about the market in the media it sounds like the worst is happening. I can’t wait till the market actually crashes and the VIX with the market can confirm what these jokesters are saying. I mean I am sure there are some of you, right now, that know where the futures are. LOL. Dude, if you are trading using my methodology you don’t need to know the futures. Freaking loosen up that tie bro. Luckily, for me, everyday I invest in surf-shorts. So when the next bull market of the 90’s that made so many “geniuses” comes again and I take control of the market and produce the huge winners that 1999 and 2003 produced left and right then I can be truly vindicated ON A REALTIME level that watching the market too hard is stupid. Especially in a downtrending to choppy market. It is so stupid to psychoanalyze this market I do not know where to even start.

I mean sheesh in 2003, we already had 450 stocks up 100%. This year we have ONLY 65 right now. I am not sure why or how some of you do not understand why it is so hard to pick the winners this year. This simple statistic clearly tells me why it is so hard now. The fact is is that I found all 450 back then and found your 65 right now. Nothing gets by my simple scans. No stock can make a huge run and get by me. NOTHING.

Besides there also only being 65 stocks up 100% this year, there are only 20 that are up 200% since the start of the year. In 2003, BEFORE THE BULL MARKET WAS CLOSE TO BEING FINISHED IN JANUARY 2004, there were already 164 stocks up over 200%. That is almost three times more than are up 100% this year. So the reason “why I have not found TASR this year” is because there is no TASR this year. When the next TASR sets up in the pattern that you see in my ‘Past Big Winners’ and not only shows me that beautiful chart pattern but shows me those EPS/sales growth again, I will, once again, be very long the next TASR.

What is so hard to figure out about this and why do some people not understand that a raging bull market is basically EASY for me to make money in (over 80% accuracy in 99 and 03) compared to non-raging years. The fact that I continuously beat the market even in tough time proves that this methodology is still superior to the “sky is falling” crowd we hear on TV every day now. And to be honest that is all I ever hear. No matter what time of the day it is, no matter where I go, or no matter who I have not talked to in Maui or seen in weeks to years, they all ask the same question. “When is this market going to crash?” If they don’t ask that they ask an even more weirder question and ask me “when is the recession going to be over and when will stocks rise again?”

Now I know it has not been a great year at all but the fact that I have produced some winners, have a small victory in my accounts so far this year (even though my gf and friends speculative accounts are in fact down 3 and 1% this year compared to the Nassy being down 16%) with a 10% gain, this has still been a pathetic year.

I am encouraged by the fact that I see everyone everywhere recommending to buy oil stocks. Along with some “soothsayers” that I have been following for over ten-years that are now treated like gods. Some have heard some recent buy recommendation from big oil stock promoters not realizing that weekly arithmetic charts going back to 2001 clearly show that you are not only late to the party but you are anywhere from 100% to 5000% late on some of these. Remember, people, you first want the market to be in an uptrend before you go buying. Second, you have to realize that if you are a fund manager if you have been long a stock for a while and you have a big gain and you want to dump it you need the most “dumb money” you can find out there. CNBC fits that role perfectly. Watch that in this market, if you watch CNBC. If you don’t watch CNBC, congratulations!!! You can actually think for yourself, you probably use charts somehow to help you invest in the stock market, and I guarantee you have a better return than those that do. That is my final plee to stop watching “the sky is falling crowd.”

They are finally IN LOVE WITH OIL stocks and so if those fall, along with chemicals and metals, which are also becoming media darlings, maybe we can have a real bull. All I know is that before we are going to have winners that actually look like 1999 and 2003 charts that work, we are going to have to flush the excess in the commodities market. I believe that is starting. But I have believed in a commodity flush before and was proven wrong. However, I am persistent and this time all the charts are moving around wildly on HUGE volume (this is known as churning in my line of work) and the fact I am already short some large-caps in this environment shows that something must be wrong. I don’t get short stocks unless they are setting up in HISTORICALLY HIGH ODD patterns. I have read the book and studied the charts OVER-and-OVER, from WON’s “How to Make Money Selling Stocks Short.” I am starting to see some of these patterns and that with a lack of my “HOT HOT HOT HOT HOT” max green BOP charts in either CANSLIM or totally speculative but hot industries is a sign to stay in cash and FOR ME TO start to get short.

For most, shorting is not a game to try to even to do. But for those experienced, if these beloved big-cap oil, chemical, and all other type of commodities continue to breakdown on heavy volume. You know what to do on the low volume rallies.

on the sentiment front, while the VIX may suck around the 25 (27.49 to be exact-I know my numbers; we just don’t have to be exact in this realm of conversation) area but the fact that bulls dropped to 27% and bears rose to 47% this week, from last week’s already falling numbers, is another good thing for us “waiting to be bulls.” That with the extremely high 14 NYSE short-interest ratio sure is going to be fun if the VIX can give us some real fear in the market. Then charts like DGLY will make you rich like PDO did and charts like AEHR and ACM can at least act like DGLY did. For now, I’ll take what I can get. And that isn’t much.

At least the Mets are winning again!!!!! They are winning a lot and their streak is hot!!!! Nine-in-a-row baby!!!! Mike Pelfrey. Great time for an all-star break. Not!

Aloha from Maui, where the Mets are over 6,000 miles away yet are still right in my heart where they will forever be; corny but true. Go Mets Go! and please, God, soon, go market go! Just give me some CANSLIM or “Hot” charts.

Monday, July 07, 2008

Stocks Look To Be Starting Another Trend Down. Well They Already Have But Now It Looks Like It Could Get Worse; I Hope I Am Wrong But I Would Rather

July 7, 2008

If this is the case, as you can see, I KNOW there is only one smart thing to do and that is to raise cash. That is what I have recently been doing.

In early 2007 my account when through some volatile stages and is doing the same thing now. With my gf account down almost 3% and my accounts up only 10% YTD after SO MUCH HARD work it is obvious to me the stock market bull market since 2003 is near over. I said this in November and made money as stock came down but so many believed the real bottom was in on March that I guess we all put out “we have topped thesis on hold.” Well it looks to be back on after so many stocks have failed what was starting to look like nice long patterns. The most disturbing failures range from BRKR, BKE, AEHR, ACM, DGLY, along with a few more this year and other stocks like INXI, BLL, ESEA, FALC, and a few others last year. This is my clue that the commodity bull market from 2001, that has most people thinking our dollar will be worthless and gas will be a t $10 very soon, is running into a top in the near future and most of those stocks are nearing tops with their current chart patterns.

Look at weekly charts of the Big Oils, The little oils, the chemical-fertz, the chemicals, or another other commodity related stock some of you are asking me if we should be buying. LOL. Well, maybe if we were reading IBD together back in 2000, when the market was rotating into these commodity stocks. Some of you want to buy TNH, MOS, POT, and the other fert stocks after 5000% perfect CLIMAX PARABOLIC runs that have now seen some of the stocks make some “interesting” splits to get the publics money into these stocks. Do some of you NOT ever look at a WEEKLY chart going back to 2000 on an arithmetic scale before thinking of buying some of these names like PBR, SCHN, MT, or CVX. While they are not at JDSU, QCOM, SDLI and the extreme nature of internet stocks. Seriously!, the noise on CNBC and the radio about commodity, oil, and precious metals are still near topping pitch.

Now if you are still long TNH and MOS, like I was for a 300% and 400% gain, from 2006-2007 by all means continue to hold. But if you are thinking of buying now you really need to get into a habit of looking at arithmetic weekly charts that go back at least five years. That way you can make sure you are not buying a stock that it already up 3000% to 5000% that is splitting on you to make the stock seems attractive but yet it is the smart money finding the dumb money to sell into it. So watch for that.

Also I am currently long still one stock that is of size. I do still have some oil, chemical, gold, steel, and other energy related longs in uptrends that I am holding. But a lot of our new hot charts like DGLY (which we will count as it did give us a 50% gain) and worse off AEHR are just picking up where BKE and BRKR or this year and ESEA INXI BYI BLL and FALC ended of last year. Those pefect patterns used to never fail but in a bullish uptrend those HOT patterns are nearly 80% to 100% automatic. I know I hark on these failures a lot but you must remember from 1996 to 2006 (with over 50 of my best and still around 20 from the 2004-2008 period that still needs to be posted including about 10 from 1999 that were SO HOT but I can’t get you a tcnet chart anymore) whenever a super hot pattern showed up in an uptrend ESPECIALLY but still even in a downtrend they were OK to get long.

But maybe proving the thesis that what 2003 was just a bear market rally and But maybe proving the thesis that what 2003 was just a bear market rally and that the real kind of 1980s and 1990s kind of rallies are a ways off. Whatever it is I am ready for it. Subscibers see this be watching me sell off the losers, stop going long poorly quality stocks But maybe proving the thesis that what 2003 was just a bear market rally and But maybe proving the thesis that what 2003 was just a bear market rally and that the real kind of 1980s and 1990s kind of rallies are a ways off. Whatever it is I am ready for it. Subscribers see this be watching me sell off the losers, stop going long poorly quality stocks, going long only a little bit of the few great CANSLIM stocks that are left, and watch me raise cash as the market clearly weakens.

It started to look like some stocks wanted to come alive and make some money. One clearly did. We were very long PDO and I have sold it all off after it announces a split into the run up. It is very quite posible it is going higher but I had a very nice size position and took in a 370% gain from 5/9 to 6/24 with a VERY LARGE position from June 5th to June 24th giving me a 110% return that helped take an account only up 3% back up to up 20%. Since the ACM falloff from Friday along with the other 27 CANSLIM quality stocks that still make up a much larger % of my ports from my 22 short positions, I am now back up to only a 10% gain. But heck guys at least I am being honest and telling you this is the hardest i have ever seen it.

I have friends here on Maui that have seen me go day-by-day through a LMLP MRVC example in 1999, have seen me go through CRUS of 2000, GNSS of 2002, ALL OF MY 2003 (including FMDAY, TASR, EGHT, TRAD), IST in 2004, and HRZ of 2006 and THEY ALL CLEARLY see how easy it was. They all also understand it was because it was still a more fresh environment.

As many of you can see now, with AFSI TESO APPY RICK and OMNI being the truly beauties that were easy to spot and say “yes, definitely, go with those to make money. However, it was weak and this year the peformance of PDO was great but the only other one that has worked has been DGLY. I don’t know how to say it any other way but it is time to raise cash.

Another reason for raising cash is clear to me because the investors intelligence shows something like 45% bears to 31% bulls. This is a major contrarian signal but you need the CANSLIM stocks to start moving higher first. For now that is not happening and with the put/call also showing a bit of fear with a 1.01 reading. However, the most important thing telling us if there is real fear int he market o make money for those brave enough to go long is telling us that more pain is in store: the VIX at 24.80 is no where near a fear level of 40 or better yet 50 that can set us up with those AEHR, DGLY, and 2007 stocks that failed. Soon things will be back to normal but for now protecting your capital for those times when my PAST BIG WINNERS are ready to really work for me again is what I will be doing.

Some of us will be able to benefit going short but if you are a newbie and do not have a track record of making big gains in big bull markets and beating the market in other periods, I would give yourself time to learn how to do this the right way. Don’t start shorting the market until you first learn how to make money on the long side. That is my final advice for the night. I am going to bed and I hope that you all have a GREAT Fourth of July!!!