Sunday, August 10, 2008

Big Drop In Oil And A Big Rise In The Dollar Ignites Another Bear Rally.

August 10, 2008

How do we know it is a bear rally? Easy. Volume. Volume would not be heavy on the selloffs and light on the rebounds like it has been if this was real institutional investors. Besides that I ask you, if you were a bank or a mutual fund, would you be buying stocks knowing what kind of macro environment we are coming upon? I would think not.

The biggest surprise to Friday’s trading is the complete reversal of action from Thursday. After Thursday ran right into the 50 and 200 DMA resistance points on various indexes, it sure seemed like the trend was ready to push lower. But just when the market looks like it wants to breakdown, it breaks upwards. That is what markets due in bear markets. They do this to throw the shorts off. They make the longs and bears look bad until eventually both give up (like I have done a while ago). This is the right thing for the market to do. But the problem belongs with traders. Most will get frustrated and leave the game behind. The smart traders watch this up and down dance and wait for the big volume of the institutions to return. My bet is that when they do return they will return as sellers.

If you don’t think I have a list of stocks I want to get short that I was not able to get short or make big profits of from November to January, you are wrong. I am loaded with names of ag, oil, big-cap tech, and other gold/metal/mining related stocks that have been in bull markets anywhere from 2000 to 2003 all the way till this year. I am sorry but 5 to 8 years of price gains is a bit too much for me. Especially, that now I am finally starting to see excessive splits within some of these stocks in the chemical arena. However, at the same time I see some without and not too many are excessive so I don’t want to get too excited just yet.

But the facts remain that the outlook is for our GDP to come in the negative territory the upcoming quarter. The market is a forward looking beast and a weak ecomonomy should mean weak upcoming earnings and that should mean more estimates will be taken down which only mean one thing for a stock when that happens. Kaboom and goodnight. More stocks are seeing the dark nights of Hell instead of the bright lights of Heaven, no matter if they announce great, good, even, poor, or really bad earnings. The same thing seems to be happening anyways. Lower stock prices.

This kind of tape action (there really is no tape action since January) has left me twiddling my thumbs searching hard for something that could setup for either a bullish tape move or a bearish tape move. Those that have my forums have my “pretty charts,” “nasty charts,” “toppy charts,” and “possible future longs” sections to study from to learn what is topping out and what is setting up for a potential nice long or a potential nice short. Right now, it seriously, is pretty messy.

I do have one stock that I do put up on my computer screen on zoom 4 to help me sleep well at night. That stock is APII. If we are going to have an upcomig raging bull market a lot of stocks will start to look like that but will either pullback or flat base out on max green to green BOP, low volume on pullbacks, heavy volume on moves higher, and then will breakout with the max green BOP still in full effect. Just study those past big winners to see the truth. History always repeats itself and it will not be any different this time.

That is why you are not seeing me excited about this stupid “follow-through day” everyone keeps talking about. If some of you would take the time to study your 2002 market and your 2004 market which are your two most recent real FTD’s from severe bear markets you will notice some things existed then that do NOT exist now.

Back in 2002 from August through September through most of October the stock market sold off on VERY light volume. It wasn’t till the November volume that some action started happening. That action turned into a 4.42% up day as day 1 of the rally attempt was now on. Day two followed immediately with another 4% advance. Day three was an up day but it wasn’t much and volume was light which was then followed by day four (the BEST FTD’s come on day four–notice this one comes on day four) with the market jumping an incredible 5.1%. That took the index above the 50 DMA with a 5% move on the FTD. Those ignorant of the market BITCHED and BITCHED that they “missed all the gains.” Boo hoo. We missed them all. What these fools failed to know via their history is that this time SINA SOHU NTES USNA SSYS GRMN and a few others were setting up, breaking out, and looking great with max green BOP, huge volume and great price action charts. But the amateurs did nothing but complain.

The rally was looking good until about January when some stocks started to selloff with a few nasty days. But the key to all of this was that, once again, volume was below average on the down days signaling that institutions had no interest in selling. By this time, not only were the stocks just mentioned already putting on a beautiful display of green talent, now about 20-30 other stocks were setting up in bases that were long and flat and quiet and loaded with green to max green BOP. This then helped lead to 3-12-03 where the market had a nice little up day. Nothing to throw a party over. But the next day another huge rally hit the market with a 4.8% gain on volume at least 20% higher than the day before’s already heavier volume. This was now starting to look real good.

Day three was about as quiet as you could get on 3-14-03 as the market traded in an EXTREMELY TIGHT RANGE GOING NOWHERE for a -0.03% day. Then came day four. Day four is supposed to be the day you want to see a FTD if you have already had day one and day two under your belt. Well day four came and we got what we wanted. Not only was 3-17-03 a great follow-through day with a 3.88% rise on the Nasdaq, a 3% rise on the SP 600, and a 3.1% rise on the NYSE, but volume was once again around 25% higher than the day before which was once again a heavier volume day. By this time beautiful CANSLIM and max green BOP quality charts were setting up and some were breaking out all over the scans. The only difference between this rally and the 2002 rally. This time no one was around. The other difference. This FTD came with the Nasdaq retaking the 50 AND! 200 day moving average. It is incredible to have a FTD on such a strong move that it takes you over the 50 DMA but with it also taking us over the 200 DMA and with SSYS, GRMN, USNA, CRDN, SINA, SOHU, SINA, and HIL already being very heavy holdings in my portfolio it was clear something was different this time. Just thinking of HIL and how much money HIL made me makes me very happy right now (HIL is now HILL).

Until we have a market like this that has me feeling good like that one did, you can bet that I will have to suffer each and every day in a rough market just like you. This market is not any easier for a professional than it is a completely ignorant newbie (ignorant of the facts). I need a trend, either up or down (I can make big money in shorts to; just in November to January 50% gains were made in GRMN SGMS SIGM and CBEY) and right now there is not a single trend. So until there is a trend, I will be doing my best to help you understand how to make the most money possible when there is a trend. Be patient, REFUSE to let this market wear on you, and do NOT be the 90% that give up. YOU CAN DO IT!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! I KNOW YOU CAN!!!!!

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