Wednesday, November 12, 2008

Another Day, Another Selloff; Higher Volume On The Selloff Indicates Fear Is Rising

It was yet another day of huge losses for the stock market as most indexes are now down over 45% for the year. This kind of market action is enough to make a lot of people sick. But the last thing you want to do here is give up by getting sick of the market, especially with the selloff starting to slightly hit panic levels.

Now, I am not saying that we are near a bottom what-so-ever. But what I am saying is that we are getting a little crazy with the selling and that should lead to a rally in the near term. However, before that rally occurs, I expect that we will more than likely set new lows on all the indexes.

One of the reasons I believe that is possible is because after today's session I saw that ZERO stocks on the NYSE or Nasdaq hit new 52-week highs, while over 415 stocks on each index hit new 52-week lows. This number of new lows expanding along with the non-numbers in the new highs is my warning that the market is not done with the selloff, even though it has been going on for a long time.

I will know when it is time to go long again as my scans will start to produce some stocks building nice bases with excellent accumulation patterns. Right now, sadly, scans that usually have 50-300 stocks in it during bull markets only have 5-10 in it now. This is not only some of the lowest numbers I have EVER seen in my long scan but I am in a unique position myself with my own longs.

I am currently long only two stocks right now, after having to cut my loss on DMND. With me only having two stocks this now officially makes it the LOWEST number of longs I have ever held at one time SINCE I STARTED IN 1996. When I started I bought somewhere around 3 stocks and ever since then I have built upon longs since I learned to buy new highs right when I started off. I have always been a breakout buyer and I was blessed to have started in 1996. Not perfect timing as IOM had its huge 5,000% gain in 1995 but still early enough to have been lucky and come out on top. It took me three years to learn how to sell correctly and if you can do simple math you will know that in 1999 I had my sell discipline down.

With that in mind it was no problem taking longs off as the market sold off in 2000. However, there were still a few stocks that either held up or that showed up as longs (like CRUS and GNSS, for example) during the two year bear market. This allowed me to almost always have AT LEAST 5 longs. At the start of the March 2003 rally I had around 20-30 stocks and by the end of the year had over 65. All of them were great longs. But since the market continued to move up with no real pullback over the next five years by the time 2007 came I was long 200 stocks which mainly consisted of a TON of 10% remaining holdings as they would never break the 200 day moving average (where the last stop always goes) and a few stocks that would make up 2% to 10% of my portfolio (like GIGM, HRZ, AFSI, etc..).

We are a long way from those bullish days of 2003 and the end of those bullish days in 2007. Now we are in a year long-plus bear market and a lot of people have suffered quite a bit. I too am no stranger to the suffering as I have one account down 7.4% and another down 1.8%. The good news is that both of those accounts are small and only have $10,000 in each. The good news is that my main account with six figures is up almost 30% this year. This was helped a TON today as I was only up 25% before the closing bell. After the closing bell, when I went to check my accounts I was very happy to see that I was 31 for 31 in my shorts today while 0 for 3 in my small longs. The shorts are bigger than the longs and the money made compared to the small losses helped my account grow almost 5% today while the market lost 4%. Quite a great day and more proof that by not using your opinions and instead using the charts and trends, you can make a lot of money.

There is still a lot of fear in this market as the VIX is over 60 and the put/call ratio is hitting 1.2. The bad news is that I still do not see capitulation via volume on the indexes with these readings. Since we have already seen a 1.7 put/call in March and a 89 VIX last month, it is safe to say we have had some huge fear in the market. The sad part is that this is the first time that much fear has been around yet no bottom has been put into place yet. This can also be confirmed by looking at the investors intelligence survey.

That survey shows bulls rising to 31% from 21% and bears falling to 46% from 54%. Somehow despite falling over 10% on the indexes the past week, professional newsletter writers have increased their bullishness and weakened their bearish posture. This to me is a classic sign that we are not right for a bottom. The bulls should be dropping to 10% and the bears rising to 70%, with the put/call around 2.0, and the VIX hitting 100, if I am to believe in any bottom without volume.

As long as we are selling off on lower volume, trending below the 50 day moving average, with the 200 day moving average over the 50 day moving average, there is no reason to go long this market. I mean when 197 out of 197 industry groups fall and 31 out of my 31 shorts rise, you can bet this market is not one to get long.

Stay short or HEAVILY in cash and remember this bear market will pass. It might last longer than others but that is OK. Have you seen my returns on shorts that I have taken since March? Have you seen my short returns from November to January on my free blog? Have you seen all of my Past Big Winners from 1999-2008? If you answer no to any of these questions and you are down more than 10% this year, I suggest you take some time to go over all my Past Big Winners and other free sections of this site. And honestly if you want to make money, I dare you to find anyone else producing as many stock winning ideas as I am producing right now.

I do all of this for you. I do not do this for me. If that was the case I would trade out of my own accounts and NEVER show you the same charts I look at to grab my edge. I would never disclose that info. However, I have learned helping others is 1000x more important and meaningful than making a lot of money all alone. Mentoring young guys and helping people survive these tough times is what it is all about. I love everyone reading this and want to remind everyone to keep your heads up and if you are not a subscriber making money with us on our short, you might want to consider it. Only because I know so many people losing money and you can ask any member of the Platinum or Gold levels we are making good money.

My only regret this year is that I did not believe in my own short convictions and instead of using full margin on these shorts I instead only got up to 20% short and now hold about 9% short thanks to the recent shorts that are doing very well. There is another 1% in ANCI and QCOR and that leaves 90% just waiting for either a new round of shorts or God willing another big bull market that will produce huge gains thanks to the high VIX.

Great luck everyone, keep smiling, cut those losses fast, do not go long "bargains," and take profits in your shorts as they have big selloffs daily. The bigger the move, remember, the more you want to take. If you look below you can look at the returns of almost all of my shorts since March. I have failed very few times this year in my selection of shorts. Yet at the same time I feel I failed by not going fully margined on my short picks. I guess it beats a 45% loss in the market, or a 40% loss by following Jim Cramer's Action Alert portfolio, or even holding one of the best growth mutual funds with a 20%+ loss.

Have a great day/afternoon/evening/night everyone! :) Gold and Platinum members can watch the full size version of part one and part two of my nightly videos in the Gold Forums. Free youtube video:

top shorts and their total returns: POT 56% CEDC 55% SDA 72% SBAC 55% CPRT 17% CEO 43% AAPL 44% APD 44% RDK 16% GGB 61% CYT 57% ATHR 46% SPG 38% MOS 65% PLCE 21% CAJ 32% AMX 46% ARB 44% RIMM 57% OKE 40% SPW 70% IPHS 26% TITN 53% CETV 79%

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