Friday, August 15, 2008

The Market Showed Its True Colors As The Day Went Along; I Don’t Care About The Weak Rally In The Nasdaq And SP 600 When The IBD Indexes Are Lagging S

August 16, 2008

I have made mention many times how I have produced some incredible returns in short, intermediate, and long-term time frames with some incredibly fantastic stocks. Sometimes they were perfect charts like in 1999, 2003, and 2004. Sometimes they were CANSLIM pure stocks like 1998, 2005, 2006, and 2007. But sometimes there is nothing to buy, even when a market rallies. This short rally on the SP 600 and Nasdaq has so many traders itching for action that it is becoming down right depressing.

The fact that so few can see the ugliness in the charts that they buy is disturbing and makes me wonder just exactly how many our learning from my past success instead of just piggy bagging off of some random idea.

Recently, I have had a rash of personal subscribers go long FUGLY charts like MPWR and MR. First off, I did not go long these stocks and I believe my PAST BIG WINNERS have proven that I know what to look for when it is time to get very long a certain stock. Second off, why did so many go long these two stocks. Were they really that nice? HECK NO. I have no clue how a newbie thinks because I have gone past that level. I went past that level when I started. I looked for answers myself that people meet me and just ask me. The bottom line it is simply amazing that we could have had five years of a bull market and NOBODY SHOWED UP yet this year, the year when the bull died, everyone shows up. This is the exact replay of 2000. And the facts show only 10-20% will be able to come out of this bear market with their accounts in tact.

Recently, I went long two stocks that made huge one day gains of 25% and 30%. I told some of those that bought them to take 25% to 33% off the table immediately because in this market everything fails. Those that did not listen has seen all their profits wiped away in one stock. I suggest taking profits in the other home run before the same thing happens. The facts are that this other stock has a higher chance of working out because the green in its charts came over a longer period and the stock is in the medical group increasing its chances for success.

However, unless you are professional you should not be investing anyways. But Joshua, IBD said that the market is in a “confirmed rally.” Well does a confirmed rally have the NYSE, DJIA, SP 500, and SSEC-x indexes trending under the 50 and 200 DMA? NO! All the indexes will be rallying. Not just the Nasdaq and SP 600. Anyways, to those that still DO NOT GET that a follow-through day does not guarantee a new bull market, can’t you tell something is wrong when breakouts soon fail like MR, MPWR, and OPTR. I can name about another 100 stocks that have broken out and failed recently. The fact that I did find that one gem out of 100 losers has some thinking that this is a bull. NO! The facts are that I can tell a beautiful chart in a strong sector from an ugly chart in a strong sector. While some were buying MR, I was going long that stock that recently just gave me a 65% gain in under two months and a big one day gain of 30% on a good buy. Did I load up on this stock? Of course not! This is not a bull market.

But Joshua what about the follow-through day? I will repeat this one more time, because obviously IBD has not said this enough for some of you: not every FTD launches a new bull market BUT NO BULL MARKET HAS EVER!!! STARTED WITHOUT A FOLLOW-THROUGH DAY. So just because the Nassy flashed one doesn’t mean that the whole market is ready to rock. Doesn’t it throw a HUGE RED FLAG that the IBD 85-85 and IBD 100 indexes are lagging so badly? I mean, folks, these are LEADING STOCKS. THAT MEANS THEY ARE SUPPOSED TO BE L E A D I N G! When leading stocks do not lead but instead lag and show that they are the weakest links in a weak market, you are supposed to be very long cash. That is why I keep saying CASH IS KING. Why? Because, in a market that has gone a whole .52% on the Nasdaq since January 11th, you are not supposed to be trading. The greatest traders of all time would be fully 100% in cash, so why aren’t you?

Even in small downtrends in 2005, 2006, 2007 (the start of November to January), I have proven that I can make a lot of money. But recently NONE of my shorts have worked. Why? There is no trend. At the same time almost none of my new longs are working. Why? Because there is no trend. There is no trend up or down and those of you that think you can trade the market the same way as you can a trending market using the CANSLIM system you are wrong. And if you think it is smart to drop a system that has produced the returns that you can see via my past big winners for a short-term oscillating market you need to realize that out of a system of 46 methodologies tracked by the AAII CANSLIM comes in the top three in overall returns since 1998 with a 1,500% return. The only two other methods beating the CANSLIM system are forms of the CANSLIM system with a touch of value investing thrown in. So the bottom line is that the way to make big money is to use the CANSLIM or a momentum type of system that has you going long leading stocks in a market trending up and have you go short the weakest fastest falling stocks in a bear. But when a market goes nowhere, don’t try to change your investing style. You will just end up making the losses worse.

Those that are not patient are going to get killed by this market as MPWR, MR, and OPTR’s will be lined all across the landscape until all the johny-come-latelys finally get exhausted and drop out. When these weak holders finally drop their stock into the strong holders hands the rally will come and most will not be long the right leading stocks. But those that subscribe to this site will not have to worry for I will be long the leaders and the best setups that exist when the tide turns. But for now you must remember unless your whole chart is loaded with green to max green BOP and strong accumulation there is no way you should make foolish breakout plays in a market that is not rewarding that type of action. Try a little bit of patience. It goes a long way in life.

Aloha and I will see you Monday where I will be doing my usual unbiased work on the market. During the weekend I plan on posting a few winners from 07, XCO from 08, and TZOO from 04. And know I did not get the whole move in TZOO like I did with TASR. But as you will see, just like TASR, TZOO clearly setup in a proper buy pattern that made it an easy choice to get long. When stocks are loaded with max green BOP, extremely strong accumulation, and have incredibly strong fundamental growth it doesn’t make it had to get real long…AS LONG AS THE TREND IS UP ON THE LONG, INTERMEDIATE, SUB-INTERMEDIATE, AND SHORT TERM TREND. Right now we are far from that. There is only ONE STOCK that I see setting up in a near-perfect to perfect pattern. In a good bull market I will see anywhere from 10-20 at once. So we are a long ways away. Patience young Jedi. Patience.

One more time, ALOHA!!!!

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