Sunday, September 14, 2008

September 8, 2008

Well obviously the news of the day was FNM and FRE getting crushed 90% each. For those that know how to read charts you were out of the stocks around $50 in FNM and FRE. So if anyone is actually shocked that the stocks are now trading for under $1, I will say it ONCE AGAIN, you do not have a firm grasp of market history.

Stocks that look great at $50, look better at $40, look the best at $30, can’t be a miss at $20, is an automatic triple at $10, and worthless at $1. That is how is usually goes with 90% of investors out there who think they can trade like that nut Cramer and buy down. He was bullish on the oil pullback that is obviously a top. He makes a comment today that the market is moving on charts and not fundamentals. Does he not understand that in the markets THE FUNDAMENTALS LOOK THE BEST AT THE TOP!! Every bull market ends the same way. With leading stocks showing AMAZING earnings. The stocks top and rollover on huge volume, start a nasty selloff, yet earnings are still amazing and he acts like the world is messed up. No sir, you should know the market tops when earnings look the best. It always has and it always will.

The bottom line is is that these indexes are all in downtrends and being short is now going to pay off more than being long. This also helps seperate the leaders from the losers and eventually allows us to see which stocks are starting to form bases for the next bull run. If it takes a long time for the Nasdaq favorites, oil, ag, manufacturing, and metals stocks to selloff then some very nice long-term bases are going to be made for us that could be the next big leaders in the next bull market.

But some of you seem to think this delays a bottom. I hate to remind you, ONCE AGAIN, that this bull market STARTED in October 2002 and really took off offering up TONS of HOT! and MONSTER STOCKS around March 2003. When you come into the market in 2007–four years after the market started its uptrend–you can be sure that you don’t have much more time for a bullish stock market. But since you entered late and your entry marked a top you can use the next 3 months to 3 years (YES, it could take that long) to study all of my past big winners and all the past big winners of 1890-1996 and see how to hold the 100% to 5000% winners when the market is in a strong uptrend. If you look at China in 2006 and 2007, you can see the exact same pattern that our Nasdaq had in 1999 and 2003. The gains in the Chinese stock while China’s regular market went up 400% prove that when the markets are in an uptrend and stocks are breaking out on huge volume going long is right as long as they are above the 50 and 200 dma and 30 week moving average.

There is nothing that has changed much as all indexes are still in downtrends. The SP600 looks the best but when that index looks good the IBD 100 and IBD 85-85 index looks horrible and are trending well under the 50 and 200 day moving average. That tells you how weak the LEADING stocks are. Combine that with the Nasdaq that can not rise because the leading 4 letter stocks–AAPL RIMM BIDU ISRG GOOG MSFT ORCL CSCO ORCL YHOO–that make up large portions of the index and represent some leaders of the past bull market should show you how weak the market is as these stocks (not all; but most of them) are just now breaking down and even though volume doesn’t seem high. Those that know history know that low volume can start a selloff and then the volume can increase as the stock continues to selloff. I think the market overall was just a good example of that as the Nasdaq started selling off recently with two days of lower volume selling that was followed by two days of above average selling. Now today the index opens strong sells off but can’t get back to much of the loss as it tried to rally late in the day.

This still gives the overall markt a negative look despite some DJIA stocks doing well. The leaders are in the SP 600, the Nasdaq, the IBD 100, and the IBD 85-85. None of these indexes are in the proper trend of trending above the 50 DMA with the 50 DMA above the 200 DMA. No instead, all of these indexes, except the SP 600, are going the exact opposite way.

That is why shorting has been my main way of attacking this market recently but I still am holding a lot of cash as I just can’t trust this market at all as it is still pretty much going nowhere. But with so many trends now below the 50 DMA with the 200 DMA I believe it is safe to go short the leading stocks that have made 100% or more gains during the past bull market from 2002-2007 as long as they setup from a proper short pattern–most look like a heads-and-shoulder top. When the market was going nowhere we did nothing. But now it is trending a bit down and some shorts have definitely started to add up in the portfolio. We will be quick to cut the loss if they do not work, but with the market now trending below the 50 DMA with the 50 DMA below the 200 DMA and all the market leaders breaking down on heavier volume after making ugly bases I am praying the part of my portfolio that is short will make enough money to make up for the heavy cash level that I think is wise to have while the market still is not trending VERY CLEARLY. We are trending down but so many people are still trying to call a bottom that I think we might have a lot more to go to make a five year bull market and the constant bottom callers who just joined the market will not stop trying to call a bottom. Until they shut up and realize they missed the start where the BIG MONEY IS MADE, they will never be able to make the BIG MONEY in the MONSTER STOCKS. Those will be reserved for the best active-investors.

Those that make it through this bear market that study the videos and the rest of my longs and past shorts will be VERY READY for the next bull market. You just have to remember that you can NOT give up during this bear. PATIENCE, PATIENCE, PATIENCE, and more PATIENCE will be required for the selloff to do what it has to do. FNM and FRE going below $1 is not going to put in a market bottom. It is time to get a little more real in this world where reality is the truth. And part of that truth is John McCain overtaking Obama in the latest Gallup poll 48% to 45%!!!!! Now that is some great news to end the day on!!! ALOOOOHA!!


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