Monday, December 08, 2008

Impressive Rally Across The Board On Higher Volume Sends The Indexes To Their 50 DMA; Some Stocks Are Looking Much Better And Making Bases

Today was very impressive. I was so nervous early on for the market that I actually stepped away for a few hours to take a big long nap. Thankfully, when I woke up, I saw the market holding the gains but sadly EVERYONE and their mom was calling a bottom. That makes me think twice about the longevity of the rally in the future. However, for now, it was very nice to see.

Some of you may be a little confused with me being happy about a rally since I have so many shorts to longs. You have to remember that I am in 90%+ cash and now carry as much short as I do long even though I have 7x more shorts than longs. I have taken most of the BIG gains of 50%+ off the table and now only have a portion of the remaining shorts short to possibly take advantage of another selloff.

However, at the same time, I have five longs that are looking good and would prefer to rally much higher as the long side historically provides much larger gains. Considering my best short ever gave me a 98% gain and my best long gave me a 2,390% gain tells me that I should look to the long side for big returns over the short side.

Still, I am an unbiased active-investor that makes all of my decisions based on the fundamentals and technicals of stocks in the broad market. If the market is moving up on heavy volume and nice charts with great technical patterns and strong fundamentals abound, I will be margined to the T long. If the market is moving down on heavy volume and ugly charts reign supreme, then I will be short and in cash, until things look better.

Right now, the market is in a downtrend on a long-term, intermediate term, and sub-intermediate term time frame. The only time frame the market is up is the short-term time frame. So there is no way I can get extremely bullish here when only 1 of the 4 trends in the general market are up. To go along with that, the indexes are running into resistance right at their 50 day moving averages. The DJIA went above it but closed right on it, the SP-500 was halted right at the line intraday, and the Nasdaq/Nasdaq 100 are still slightly below the average.

With this being the case, there is no way ANYONE should be VERY BULLISH YET. If all of these indexes close over the 50 day moving averages, then yes I can understand SOME turning bullish. But still with the market in such a heavy downtrend the past year, you have to be smart and take the uptrend as it is. It is a start of something. It is not a proven rally yet. To be that we need to see the indexes above the 50 and 200 day moving averages, with the 50 DMA attacking the 200 DMA, and leading stocks in leading sectors (more than one sector at a time; multiple leading industries) moving higher out of proper patterns.

So for now, we have something to work with but it hasn't proven itself to be a bottom yet. The most important tell for a bottom that I have EVER had was with my long-term shorts that have produced gains of more than 50%. I have about 25 out of 35 shorts up over 40%+ and not a single one of them retook the 50 day moving average today on HUGE volume or closed above the 200 day moving average.

When the market is ready to bottom, not only will I see a lot of potential future longs setting up in beautiful bases but I ALWAYS have long-term winning shorts give me FULL COVER signals by having huge up days on huge volume or closing above the 200 day moving average. The fact it was such a strong day in the market, and so many more stocks are showing up in my scans with potential bases, yet none of my big winning shorts gave me full cover signals is a big hint to me that we probably have not seen the bottom just yet.

Do I hope that we have? Of course. Review all of my Past Big Winners that I have posted (I have many 100% winners from 03-07 not posted that can be found and reviewed in my past blog postings at If you do that you can see some of the HUGE gains in short amount of times you can get when charts and, most of the time, fundamentals line up.

I am going to cut this short tonight as I have made THREE videos. The first one is on the general market, the second one is on the longs building potential bases, and the third is on the leading industry in this current rally. All three videos are available in their full size on the Gold Forums and the free YouTube video of part one will be posted soon below. Have a great night!


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