Monday, December 15, 2008

Late Day Rally Saves The Market From An Ugly Close But Stock Indexes Still Finish Lower On Lower Volume

Today's action was not that exciting as no real big news item came out today to bring any dramatic action to the tape. However, quiet pullbacks when a market has been moving higher in the short term is always a welcome thing to see if you are a bull. However, if you are a bear then you are comforted by the fact that the indexes are still unable to get above the 50 day moving average. Either way we look at it, right now, the indexes are not doing that much.

Instead the indexes continue to meander around this trading range that it has been in from the September to December period. This sideways movement has made it both difficult for longs and shorts to really take any positions recently and gain any kind of significant worthwhile reward. However, with the market coming up on a holiday shortened week next week, you would think that the path of least resistance would be up. At least for now.

If that were to happen and we would take out the 50 day moving average in a manner like that, I am sure a lot of technicians will jump the gun way to quick and declare the bear market over. Folks, can you do me a favor? Go look at the downtrend in 2008 on the NYSE and Nasdaq and ask me what happened every time you bought the index above the 50 DMA alone, with the 200 DMA ahead of it.

As you will clearly see, your investment soon turned into losses as the index would constantly roll over and soon be in another downtrend. Jumping the gun early has been a key reason people continue to lose money left and right in this market. They are still trying to pick "bottoms" and as long as they keep trying to do that they are going to get caught in more and more pitfalls before they actually hit the bottom. By then, I am sure both legs will be broken and a lung will have collapsed as your portfolio will be a shell of its one self.

So don't fall for the bottom is in rhetoric that you will likely hear on CNBC if the 50 day moving average is taken out on the indexes. This rally will more than likely just end up setting us up for a better short opportunity, if the rally happens. If it doesn't, that should be a real bad indication as markets are always supposed to go up in holiday shortened sessions due to the seasonal bias. If we go down on low volume, then come back and selloff on heavier volume. That would really put a damper on the prospects of a great 2009 start.

In my personal experience, the sad truth is, no bottom can be formed when people are looking for a bottom. It is only once the regular bottom caller finally sees what he thinks is a bottom and says to himself "I am not getting fooled this time." When he says that, then and only then do you have a bottom.

Right now, honestly, too many people are looking for that bottom and by looking for that bottom when we do not have ANY stocks setting up in very pretty bases, we do not have ANY shorts that are long term winners giving us full profit taking signals, and every new long we take ends up working for more than two days and they give us fast 20%+ gains then and only then will I be confident that we have a bottom.

Before that bottom comes a lot of stocks will be climbing off lows with strong accumulation and green BOP that will turn into a near-perfect to perfect calm flat base with some accumulation and green to preferably max green BOP. When these bases and breakouts start showing up everywhere then I will go ALL-IN long in the best of the best and then start rotating my money to hot stocks that still have not had their run.

No matter what happens tomorrow in this market, you are completely prepared for either outcome. We continue to have our shorts do very well and we are still praying for the few longs we snatch up to actually make us some big money. Maybe our new long will. Its first day in our port has it looking better than it did on Friday. That is always a good sign. The most important question is how long is this going to last? Let's hope a LOT longer than our AXYS long attempt.

Right now the name of the game is being short. If you don't believe me, look at these returns. It says it all.

top shorts w/ total returns UP today: ARB 78% SDA 76% MOS 63% SPW 68% RIMM 62% CYT 61% GGB 56% SBAC 52% APD 47% AMX 42% ATHR 44% AAPL 41% OKE 38% IPHS 35% SPG 38% TITN 35% CPRT 26% LLL 28% RDK 20% CEO 26% PLCE 25% K 15%

Part One and Part Two of the Stock Market Wrap videos are available in full screen on the Gold Forums. Part One Youtube version will be posted shortly:

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