Saturday, December 27, 2008

Stocks Stall On A Very Quiet Post-Christmas Session

I have been around the stock market now for almost 13 years and I must say that I do not quite remember a Friday so slow after a Christmas holiday. I am used to seeing lower volume every session after Christmas but not quite this quiet.

I would assume the very low volume was the result of wall street just wanting to take a very long extended vacation here at the end of the year after the year we just had. However, I also believe a lack of funds that are out there are obviously a cause of the slow trading.

Even though the market was up on Wednesday and Friday on extremely low volume it wasn't that big of a deal as for the entire week all the indexes finished in the red. Now this is not a bearish development, it is in fact a bullish move.

A down week on lower volume with tight price action and bullish tails (Nasdaq shows it the best) are bullish. What we want to see now to have a real possibility of a bottom is up weeks on stronger volume and down weeks on lower volume. Right now we have volume pulling back overall the past two months compared to the huge selloff that preceded this attempted bounce.

The volume during the selloff was so much that for us to actually have a capitulation bottom we would have needed to seen a very big down day that reversed intraday either closing up or closing slightly down after being down over 5%. We had a wild day on 11/20 where the market finished down 7% which was followed the next day with the market up 6% on higher volume (using the NYSE for the example). Some might have thought this was a capitulation (two) day. However, the volume in October was MUCH larger and even larger in September. So how was that a capitulation day? It wasn't.

Could it have been a bottom? Sure. But to be a bottom that we are for sure about we should be seeing a few things right now. First, we should be seeing a market rising on higher volume on the up weeks and volume then declining on the down weeks, as we move higher. It started off OK with higher volume on the up weeks followed by lower volume on the down weeks. But by late November the up weeks on strong volume ended. And it continues to fall as we move on in these holiday shortened weeks.

What is this telling us? Not much. It is telling us that if we do have a bottom, we still do not have the volume on the upside that is required to be a FOR SURE bottom. We wouldn't need a TON of upside volume had there been a real capitulation day but sadly without the volume being higher than September or October it was not a capitulation day. But if it would have been, volume up or not, we would have the foundation for a real bottom in the indexes.

Right now, we don't have a capitulation day or huge volume up weeks. We have a mediocre rally that has about 200 stocks looking like they MAY have put in a bottom. Some of those are very pretty but sadly only 2-3 are loaded with max green BOP and huge accumulation. So for those of you that wan't to say now is similar to December 2002, you are so wrong it isn't funny.

First, the volume on the downside, that led to the rally at the end of the year, came on very low volume. Then the volume off the low volume lows was very heavy. Second, leading stocks such as internet-ISP group had "hot" stocks like NTES, SINA, and SOHU setting up and breaking out. Then by December, as you can see in my Past Big Winners, stocks like GRMN, UNTD, JCOM, ERES, USNA, and many others were rallying on max green BOP, strong volume, and breaking out of VERY SOUND price patterns. Right now, I am sad to say, we don't have that. So I can not join EVERYONE on CNBC and the message boards in calling a bottom.

Your biggest clue that we have not probably seen a bottom is the fact that everyone on every message board and everyone on CNBC (besides Schiff and the other usuals) says that we have seen a bottom and are repeating the EXACT SAME THING i heard in 2000. People are talking about RIMM, BIDU, GOOG, and especially AAPL just like they were about DELL, MSFT, INTC, and CSCO in 2000. I guarantee these once great leaders from 03-07 will turn out just like the old leaders from 95-99. History always repeats itself. Always.

Everyone that is a member of this site has done very well this year, compared to the "professionals" and I want you all to be proud of yourselves. I am VERY PROUD of you all. Now in case we have a bottom coming soon in the market, which I doubt with all the horrible economic numbers out there, I have made five videos going over around 200 stocks that are building "bottoming" patterns. These stocks have the characteristics that I have seen in all of my Past Big Winners.

The sad truth, however, is that 90% of these will probably fail before the 50 can setup above the 200 and the price pattern can setup in a correct base to buy. Still the 10% that we will probably see again we will recognize and be more confident in going long since we have seen it and found it off its lows. Using the knowledge that we remember it from when it was "possibly bottoming," with the information that we gathered when it was setting up in a base (fundamental and technical), we can then go long without hesitating when the breakout or bounce does occur.

There is a reason for everything that I do and even though this took a long time to make (the videos) it was worth it to help teach all of you what you want to see as the initial signs of a stock possibly bottoming.

I know I have scans that catch the stocks before the breakouts, while they are in the base, and on the breakout, but it is very important to teach you what they will look like when they possibly bottom.

I hope everyone had a VERY MERRY CHRISTMAS!!! I will see everyone on Monday and see some of you this weekend. Aloha, Merry Christmas, Happy Chanukah, and Happy Holidays everyone!!!!!!

top longs/(shorts) with total returns up today: QCOR 33% (CEDC 63% RIMM 58% CAJ 32% ARB 73% PLCE 24%)


Video one on the general market:

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