Saturday, November 22, 2008

Stocks Produce A Beautiful Rally On Mixed Volume; Yesterday Was Not Capitulation As There Was Not Enough Volume Or Fear

Friday was indeed a very bullish session and the good news to some market players was that volume was higher on the NYSE and almost at the same level as it was on the Nasdaq from Thursday. The other good news to some was the fact that most of the indexes made up all the losses from the day before. This all seems bullish on the short term but I think it is wise to look at the big picture before jumping to any conclusions.

First off, I don't want to poo-poo on the rally we had Friday as I will admit I am just happy to see more green with a pickup in volume. However, we have to be realistic and look at history as our guide for the now and future. If we study history we will see that the best bull markets do not start with a powerful day one. No, instead, history shows that most day ones are a quiet new low, reversal, and then a higher up day.

Where the big gains come is normally on day two of the rally or on the Follow-Through Day. The fact that we rallied so hard after such a big down day shows me that this market is not making a low and in fact is still extremely confused. The fact that volume was lower on the tech heavy Nasdaq proves that institutional investors were not stepping all over each other to load up on stocks. But the higher volume on the NYSE did indicate that big investors did find some bargains with the NYSE/SP stocks.

Now with Friday's gains I heard a few people make mention that Thursday was a capitulation day. I am sorry everyone, if you are not experienced it is not your fault that you do not fully understand a capitulation day. Luckily, for you, I do. And what a capitulation day would look like on the index would be similar to the price and volume action in ARB. Forgetting Thursday and Friday, ARB put in a very nasty selloff on HUGE volume after being in a downtrend for a very long time. This appeared to me to be capitulation on the stock. However, in a very weak market, they can keep going lower and this one did. But, if that volume surge would have come on the indexes on Thursday, that came in ARB on Wednesday, then after Friday's gains, I could probably say that "yes, indeed, this was a capitulation day." Too bad I can't do that with the action on Thursday.

So what does this mean? Easy, it means that we are still in a very vicious downtrend on all time frames except the most short-term. Besides this very short-term time frame, the trend is still very much down from the October 2007 highs and with the general stock market indexes being so extended from the 50 and 200 day moving averages, it is near impossible to think a healthy rally can start any time soon with all that resistance above.

If we can continue to move lower on lower volume and then base out near the lows for a while, I would be much more bullish in a resumption of an uptrend. However, the damage keeps coming and every stock that continues to hold up in this bear market eventually gets taken out. This kind of action keeps the despair rolling and ensures that the capitulation fear that we need will not come.

When you have the indexes with D accumulation/distribution averages and the leading IBD indexes with low C's, you can be sure it is not time to go long stocks. I mean heck only 4% of all stocks are above the 50 day moving average, with only 3% above the 200 day moving average. Combine that with the constant inability of any stock to make a new 52-week high and we are looking at a market that can still go much lower.

Don't forget as we hit new lows on the index, the amount of new 52-week lows has only expanded to 2,300. Back in October when we had over 4,700 new 52-week lows. So until this number can take out the 4,700 new lows set in October, I doubt we have this bottom some are looking for right now.

The other problem is that the VIX is still below the old highs it hit when prices were higher. Now the VIX did have a new closing high at 80 but it still has not moved above the 89 level it hit in October. So until we go over 89 I can't see that we got fearful enough to have a bottom.

The last problem with calling a bottom here continues to be the MAIN TELL of mine that we did not bottom in October with an 89 VIX or 4,700 new lows. What is that? That is the put/call ratio which has always been an excellent gauge for judging fear. The problem here is that since the downtrend went into major effect in September the highest it has closed has been 1.25 I believe on Wednesday of this week (if I am a little off, trust me it is OK). Now, while that is over 1.00 and shows some fear what it does not show is nearly the levels of fear that was in the market back in March of 2008. Back then when banks were falling all over each other and the collapsing of BSC and LEH started, the put/call hit 1.50 to 1.60 (I can't remember the exact number but I do know the range). This extremely high reading did not have new lows, VIX, and investors intelligence confirm with it to give us a new low.

However, recently, we have seen extreme levels in new lows, VIX, and until recently the investors intelligence survey. The only thing missing this time was the put/call. And without the put/call confirming a bottom with the rest of the indicators, there is no way we can look for or call a bottom here. Especially with the lack of "hot" stocks building bases out there.

If you are a Silver, Gold, or Platinum member you have seen either on the longs website, videos, forums, or in the chat room a few stocks that I am keeping my eye on for potential bottoms with the possibility of working on the right side of a base. There are a few stocks with very pretty chart patterns but they are way too early and until they setup correctly and A LOT MORE STOCKS start showing up in nice bases with green BOP and heavy accumulation with low distribution there is no way I can look for any bottom here much less want to get long anything.

I tell you what, while everyone goes broke trying to find the bottom, I will continue to let my shorts run, will keep new shorts small as they are not acting right IMMEDIATELY, and will watch my long scans that bring up stocks making nice bases for potential future longs. Until a better setup comes with shorts or longs, I will continue to be happy being in cash on the sidelines. It is not returning much but it sure beats being down over 50% like SO MANY MUTUAL FUNDS ARE THIS YEAR.

I will tell you all the safest thing you can do, if you feel antsy to get long. JUST WAIT! Be patient. Wait for strong accumulation to enter the indexes, wait for the 50 DMA to trend up with price taking it out on the upside, wait for beautiful chart patterns to setup in top notch stocks, and wait to go all-in on full margin in the next uptrend until a "perfect" setup comes and breaks out. If you will just be patient here, let the downtrend take care of our shorts, and then wait to get long when the time is right you will be a much more wealthier investor than if you listened to Cramer.

I know I am hard on Cramer a lot but that fool cost a LOT of people their jobs at TSCM that deserved to still be there. What makes it worse is that his Action Alert Portfolio is down almost 48% this year alone and his average annual returns since 2002 is a terrific -26% which has turned a starting balance of $3,800,000 into $1,900,000. Yet this guy post 10 blog entries a day, is on CNBC left and right, and tells people how to invest in over 8000 stocks. This jerkoff has cost a TON OF PEOPLE A LOT OF MONEY and I find it INSULTING beyond all comprehension that this is the crap CNBC gives the public.

However, the public is to blame just as much for letting someone like this guy actually control their investing life. The public is the one that decides to watch this annually -26% and YTD down -48% fool give them advice on stocks. How are all those energy plays working out?

I don't know folks but with me up almost 36% in my top account and down -7.4% in the account that was given to me on November 2007 which is also not a shorting account due to safety reason (real safe huh), I find it sad that I can not reach more people to save them from the LIES and 100% DECEPTION of Cramer. He says he wants to make you money. It sure doesn't look like it. I, on the other hand, want to make you a TON OF MONEY and save you a TON OF MONEY in a bear market. I don't want you averaging down in stocks like GS, XOM, C, PNC, and anything else that is falling like a rock. He is long around 40 stocks and every single one is down. I am long 3 stocks and 2 are up while one holds onto support with small gains. On top of that I am short 37 stocks with major gains. Where are these shorts with ANYONE on TSCM?

Folks, it is truly sad the way wall street is. These people know how to talk SMART about stocks. But they have NO CLUE how to make money in the market. Fleckenstein nailed the 2000 crash in 1998. Too bad he didn't go long any of the 500% to 1500% stocks that moved that much in months during 98-the top in 00. He was right, yet OH SO WRONG. Same thing with Peter Schiff. Way to go! You nailed the future. But why are you down 40% YTD?

These guys can be right about the future a lot and they get major media play when their predictions finally come to pass. But what the morons in the media forget to tell you is that there were a TON of stocks that made big gains in 98 and 99 and there were a ton of stocks that made big gains from 05-07. Too bad these guys were predicting the worst, which is coming to pass, without profiting from it at all. The bottom line is: if you can predict the future with such amazing accuracy, you shouldn't be losing money in the market. What good are your predictions, if you can't make money off of them? Peter and others have been right, yet OH SO WRONG FOR SO LONG. When will the public learn? I don't know but I thank God every day for those of you that are at least reading this. You will continue to be saved, as long as you operate like me. You go against what I say, then you deserve to lose money. I have not missed a major market turn, by using charts, since 1997. I think after 11 years of accuracy it is time for more people to make sure they are in lock step with me.

Have a great weekend everyone, enjoy the upcoming Thanksgiving holiday, stay positive, and I will be back here on Monday with Monday's market wrap and video. ALOHA and Happy Thanksgiving to all of those of you who will be traveling. Gobble, gobble!


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