Friday, August 01, 2008

Nasty Reversal Below The 50 Day Moving Average Telegraphs Just How Weak This Market Is

It is never good to have a solid day that has so many people feeling contempt on higher prices reverse hard and show investors losses. But that is what we got today. Nothing short of the word disappointing can describe today’s price action. The reversal intraday of the good price action was a major disappointment to investors across the board.

However, if you are me, you actually welcome it because you know it promotes disgust which will eventually lead us, if not to a new bull market, at least a strong bounce. However, the even better news is that the one stock that I have been promoting for weeks to my paid subscribers in the platinum chat room was up over 3.5% today. That is a nice divergence and continues its nice path of beating the market. This is not the only long like this. I am also long a swath of medical stocks that are doing well. Including one stock that has setup in a POTENTIAL (nothing is for EVER for sure) powerful bullish pattern that could make us subscribers even more money in this nasty market.

I am hearing so many UNsuccess stories of this market from players on message boards and free chat rooms that I wonder why people can not just stop trading. It is so simple to just wait for a bull market. If you are unhealthy, use this time to go to the gym and get a book on tape of some of the books I recommended last night or have in my book section. If not that, take the time to go to the gym and read IBD. Whatever you do, do not force yourself to watch this market intraday unless you must. We have quite a few professionals in my chat room that can handle watching the market go from euphoria back down to reality and sometimes the other way where a bad day turns into an incredibly bullish day. We can watch this without having the prices effect us. But too many of you live and die by the latest tick. That is a sure way to the nut house in this market environment.

Some positives that have me believing we could be NEAR the lows of the current downtrend is the action in MER. Two sessions ago MER had a huge intraday bullish hammer reversal on HUGE volume and max green BOP. The volume was the highest ever and came AFTER a 75% decline. This usually tells me that the selling is washed out and that this stock was accumulated heavily with the max green BOP and huge volume surge. However, like I have said my entire life, nothing is for sure. If MER can not hold on to the 22 support, I have little conviction that this market will rally any time soon. However, if 22 can hold for a while, my faith in a more positive market to work with it will increase.

Some are really worried about the upcoming job numbers but I am telling you that all this stuff is pure noise. Do not fall into the trap of realmoney.com or CNBC and start jockying for a heads-up on the GDP report or the upcoming jobs numbers. All of this is noise to your actual index charts. Pay attention to the way they are acting. If you are doing that then you know this is not a market to be involved with. And if you are not listening to the junk that spews out of the local/cable media then you know there is only one safety place right now and that is medical. There are OF COURSE a few other groups but they are so small that I don’t really feel it is necessary to talk about them when they have something like 4 commercial services stocks hitting new 52-week highs when 20 medical stocks are doing the same. So if you are not listening about the jobs report you should be focused on going long medical stocks or staying in cash.

I know that kind of seems out of place considering where we were going on the commentary but trust me it is important that you do not get lost in all the BS that I am reading out there. I am very blessed in that I have been in this business almost 24/7 for 12 years. I know good information and I know bad information. Unless Ken Shreeve, William O’Neal, or Ken Heebner is on CNBC it is normally a waste of time. They are behind the curve and I wish more people would use their free 1 hour a day to not watch Cramer and instead would read all the investors education and investors corners in IBD. These educational tools are still read by me 12 years after I got involved with the market. There is never a time to stop learning.

And that brings me to my next point. Some of you are wanting to trade stock chart patterns that are horrible. I posted another two past big winners: one was KNOL from 2006 and the other was a smaller one with OIIM in 2007. Once again, these two chart patterns buy signals will teach you what we are looking for out there. Until we see stuff like LMLP in 99, GNSS in 01, TASR in 03, IST in 04, KNOL in 06, AFSI in 07, and DGLY in 08 there is no way I am going to let my cash position get over 50% in this market. RIght now, I am around 75% cash. But I would love to get more long if the market turns up. However, if the market doesn’t turn up there is no way I am just going to trade for the sake of trading.

Great luck out there, keep your longs/shorts small, and be very careful out there. And to all of you guys that are long the one stock that is making us over a 33% gain in under a month after setting up in a near-perfect chart pattern. WTG!!! You guys are going to make a lot of money when stocks with patterns that look like this BUT WITH MAX GREEN BOP, HUGE VOLUME, and an even tighter price action turn up left and right. Just like they do after every bear market. This too shall pass. ALOHA!!!

No comments: