Friday, November 14, 2008

A Potential Relief Bounce Gives Way To A Very Ugly Close; At Least Volume Was Lower Than Yesterday

I know it is not much of a consolation for those who were wanting more than one up day but at least we can say volume was lower on today's selloff. Still that doesn't mask the pain that some people (not my subscribers) are suffering as the market retreats to a near 50% decline on all the major market indexes. Those that are forced to be long in either retirement plans or via the direction of their stockBROKErs are hurting badly in this market and today did nothing to make them feel better.

The only thing that I can say about today is that it was not necessarily completely unexpected. While the rally yesterday was a beautiful way to start a rally attempt it was still only day one and like I said yesterday one day does not a new rally make. The fact is we have to see another up day then on the fourth to seventh (or even the tenth) day of the rally attempt we have to see a day where the indexes are higher by a very strong amount and do so on volume much higher than the day before.

Some people get excited over any and all follow-through day attempts. But when you come from a selloff on heavy volume, then have an up day of only 1%, and volume is only slightly higher than the day before, the chances are high that the follow-through day will fail. So you have to remember that this is a science and an art. I have learned how to correctly identify good rallies and bad by being involved in the stock market for almost fourteen years. The recent action yesterday was bullish but today was disappointing but not a final nail in the coffin.

What it was was a nasty pullback but not a deadly pullback. The trend all year long has been down and once again today was an extremely profitable day for my shorts (33 shorts and 32 produced gains! and this comes after the 32 for 32 winners on Wednesday) so you think I would be very happy that today was such a nice down day. That is the case for me monetarily but overall I am getting a little glum looking at all the red.

The worst part is that there is not a single one of my shorts that is giving me a full cover signal. Even after yesterday's rally attempt, there was a huge clue that the market was not going to blast off immediately. That clue was found in my personal shorts. Since almost all of them show decent to large gains, most of them are in a position where they are down enough that if a new rally were to start some obvious reversal patterns would emerge with huge price reversals, strong volume, and BOP going positive or green or even max green. when I see this I know it is time to leave my shorts. Yesterday, I did not see this and thus only covered a partial amount of my shorts and not covering the full amount of any of them. This payed off nicely today helping put my account at new YTD highs with a 31% gain.

I will admit that I am very disappointed with my gains because as you can see via my individual shorts I should be up over 100% this year had I used full margin. Here are the individual returns of my shorts after today. Included in the list is one long that was up today. ANCI 49% (SDA 72% SPW 71% SPG 35% GGB 60% ARB 46% RIMM 59% CPRT 20% TITN 50% RDK 15% MOS 62% PLCE 18% OKE 38% AMX 44% AZO 14% AAPL 44% CETV 80% ATHR 50% CEO 40% CYT 57% POT 56% CAJ 32% CEDC 56% APD 43% IPHS 23% LLL 26% SBAC 51%).

As you can see I have done very well this year shorting the market. If I would have used puts, I would have done even better. So why am I not up over 100% this year? Because the most short I have been in my accounts is 20%. I have not gone over 20% short because I was waiting for a "perfect" short setup like I saw in 2000, 2001, and 2002. So far I have not seen a "perfect" setup and thus have not taken a huge short position yet. They have all been moderate to small. This has cost me a lot of potential profits and I should easily be up over 100% this year.

Even though I am disappointed in myself, there are three subscribers that are up over 60% this year, that I know of. Wutan, Author Ego, and Axman are all up over 60% with a couple of them up 80%. This is due to them using a lot more of their account when they went short either the stock picks I made or the stock picks they made. Rather it was my pick or their pick, the bottom line is that they did everything right. They traded with confidence and kept their cut losses. I, on the other hand, decided that cash was the best bet as a bull would be here sooner than later. Now I am kicking myself for not being 200% to 400% short since the January to April rally fizzled. Live and learn, yes. Live and learn. Chances are very high that I will never be this cautious again. Especially in the next bull market. I will be very aggressive just like I was the last bull market.

Right now the market is still in a very deep down trend and until that trend changes there will be not a lot to do on the long side. I still think it is VERY IMPORTANT to keep your watchlist up to date with the top CANSLIM quality stocks just in case you get a great setup. Even in this market I still had a new long on Thursday. While it was not CANSLIM quality it was still a nice selection and with a good lower open today the stock stayed in a tight range with BOP slightly increasing. That is all I can ask for on such a nasty down day. Have a great weekend!

I have made two videos for Monday. The first one is 10 minutes and the second one is 16 minutes. Both are full of very important information that you need to know for this market. Gold and Platinum Members can view these full size version in the Gold Forums right now. The Free YouTube version of part one for Free and Silver members is available here:

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