Starting To Get Worried But Not Really

August 22, 2008

I hope that my internal feelings are a contrarian but as every day that goes along that I continue to scan my charts and see nothing that looks like it wants to rally or make higher highs in a proper fashion I get a little more nervous that I begin to think that this bear market is going to go on a lot longer than I would like it to.

I am not sure where I heard the saying, or if I even ever heard the saying and have come up with it on my own by studying the market, but if a bear market does not last six months or less it usually last two years or longer. The problem now is the it is clearly past six months since the top in November but at the same time there are absolutely zero charts that are ought there with beautiful patterns that make me feel comfortable that we have a real rally coming along any time soon.

Instead what I see are ugly rallies in medical and other defensive stocks that do not give investors a safe chance to get in or are in chart patterns that are so V-shaped that I am not sure people should be getting involved anyways. However, it doesn’t matter what I say, newbies constantly think they are smarter than this market. So I’ll watch them bottom fish FRE and FNM till they are broke. If you loved it at 60…you’ll love it at…3.

It is just amazing to me how many times I can say “DO NOT GO LONG STOCKS HERE BECAUSE IT IS TOO DANGEROUS AS THE MARKET IS TRENDLESS,” how many foolish traders will literally buy a breakout on margin and watch that breakout reverse and kill them on margin. Unless the trend is up there is no way you should be going long stocks. At this point I feel like no matter how many times I tell newbies to not go long they are not going to listen to me. Some people are saying, “but Joshua, you went long that beautiful chart XSI and made a pretty penny in that.”

First off, I have made it clear that those that are experienced are allowed to trade if they feel like they have a perfect stock setup. XSI was mine. I took it. If you are a newbie there is no way you can tell how beautiful something like that is and you can not risk your money on that. I have seen SMART TRADERS go long MR, MPWR, and OPTR during this recent market. Each breakout was ugly and showed signs that they were not going to work, had red BOP somewhere in the chart, or had other problems that made them poor longs. However, these smart traders still went long. The difference between their mistake and and newbies. Their mistake more-than-likely barely cost them. A newbie would have loaded up on XSI, MPWR, MR, and OPTR. Then he would have told you about the XSI trade but not of his other three losers. Thankfully for me (which I showed you a video of MPWR being ugly compared to XSI) I went long XSI and am very happy about it.

Am I upset I did not buy more? Yes. But is it ever smart to buy a stock with only 59,000 shares average and only $6 a share? No. This is a tough market and remember just because us experienced guys are having fun dinking around with a trade here or there does not mean that you should be playing around also. Do you see how low the volume is on the Nasdaq and NYSE? Do you think any of the big boys are anywhere around? You better believe they are not. Volume doesn’t ever look like that unless NYC is in the Hamptons.

Volume is low and while the big boys are gone you should go out and enjoy your life. You never know what tomorrow might bring. Hey, how about that China crash nobody is talking about? That’s something huh.