Saturday, January 03, 2009

Is It Healthy When A Market Rallies On Low Volume After A 50% Selloff? Of Course Not

Today sure did seem exciting didn't it. I mean all over the boards and TV I saw the same headline of "the bottom is in." My question is "do these people ever look at volume" or are they just blinded by price action alone.

I guess this method works for short-term traders that have USUALLY poor results over the long term. But from someone coming from my end (a market historian going back to 1880) I believe that my analysis is all I need to believe that this rally has not a snowballs chance in Hell of succeeding for more than a few months.

The biggest problem I saw today were people actually bragging about a 3% gain today, after they lost 30% to 50% last year. Uhm, hello, (pardon the french) douche-bag, you are still down 27% to 47% the past 12 months. Nice job (sarcasm heavy). The real investors took shorts before September and went a little long off the November lows and are looking to go short when the market rallies back to the 200 DMA's of these indexes.

Now some of you have told me that the 2005 rally and 2006 rally started on low volume. Yes, that is true. However, can't you see that we were in a CONSTANT uptrend from October 2002 and that the low volume rallies followed low volume selloffs that were natural pullbacks in a long uptrend. The simple fact is, going back to 1880 on the DJ, you can not find one major long-term selloff that was followed by a low volume rally that put in a real bottom for a bull market to come out of.

In fact, the only low volume follow-through days I have found that have worked are like the ones in 2005 and 2006. They are ONLY coming from previous uptrends on long-term time frames. Long-term downtrends that have low volume rallies from the DAWN OF TIME has led to a further selloff.

So what is it going to take for me to get bullish? Duh. The same thing it has always taken: "hot" stock charts in top speculative and in top CANSLIM stocks. Both need to be setting up beautiful bases with low volume pullbacks, high volume rallies, and green BOP. Not only do we need bases, we need major volume on the indexes on the uptrend to give us the true support that is needed to keep stocks rallying.

This does not mean that we have to wait for the market to get above both the 50 and 200 DMA before we go long. All we need to do is see a real follow-through day with strong volume that clearly shows institutional investors are ready to get into this market. Subscribers know that I still don't see any beautiful accumulated stocks out there besides two (M*** and A***). In the 2002-2003 bottom process at least 20-30 stocks were setting up with proper volume and BOP characteristics. This still isn't the case.

The also thing that I have noticed is skipping from some people's minds is that they do not understand why you can not have the gains in 2008 like we did in 2003. Well, sheesh, let's look at a simple stat. Stocks over 100% for the year 2008 vs. the year 2003. In 2008 there were ONLY 22 stocks over 100% with the best stock EBS up 416%. In 2003 there were 898 (that remain; it was over 1,000) that were up 100% or more. How many were up over the best stock of 2008? 115 stocks. How many stocks were up over 500% in 2008: zero. How many were up in 2003 over 500%: 82 (that still exist; it was over 95). And obviously you now know nothing was up 500% so nothing was up 1000%. How many were up 1,000% in 2003: 12 (there were 15 in 2003 before some delistings).

This clearly shows that if any of you thought you could produce the same returns as I did in 2003, you simple do not know market history. 22 stocks to 1000, 0 stocks to 95, and 0 stocks to 15 when we look at 100%, 500%, and 1000% returns. So if you don't get why 2008 could not create the 2003 gains you simply have no clue about how the market works and when and where you should invest.

At the same time (I have not looked yet) we can compare the amount of stocks down 50% in 2003 to stocks down 50% in 2008 and believe you will clearly see being short was right this year and stupid in 2003.

I am still not sure why some of you that are here focus so much on the daily action. This is not another lame daytrading site that shows up for three years then closes. This is a real active investor that knows how to make the big money when it sets up. When it is not there, I am not a dumb-a** and know better than to force a trade just to keep up with a few people on one day. Everyone that beat me today with their gains, had horrible 2008s. Meanwhile I have capital gains taxes I will be paying for 2008 and have TONS of subscribers up over 10% for the year. So for those of you cocky daytraders that are reading this...I would LOVE to see your financial statements. I am pretty sure I will see a 30% to 50% loss for 2008 followed by a 3% gain for today. Congratulations! Ugh.

Personally, I don't care about any rally off the lows when it has below average volume almost EVERY SINGLE day. If we do not come back on Monday through Friday with strong gains on strong volume there is no way I will be thinking of going long anything in size. The difference between a $1000 investment and a $100,000 investment is COMPLETELY in the chart. There is not a single freaking chart out there that is worth $500,000 much less $100,000. I will continue to keep my longs/shorts during this range bound market the past two months that hold resistance/support levels. But new longs/shorts will continue to be small until one of these two scenarios happen.

One: either the stock market will stop rallying on low volume and will start to rally on heavy volume which then starts to build more and more charts with beautiful correct bases. Two: the low volume rally continues and sucks in all the suckers who have no idea how to read a weekly or a monthly chart (some don't even know what a daily chart looks like--LAME) and volume. They will buy stocks on low volume that are beaten up as bargains thinking they have a steal of a deal. Well, for those that do this, I want you to watch interviews on CNBC and in the WSJ about MSFT, DELL, INTC, CSCO, JDSU, and QCOM. Back then in 2000 to 2002 and even when the 2003 rally got started, everyone was recommending these past loser laggards as longs. Here we are six years later and I believe EVERY SINGLE ONE is down over 50% from their highs in 2000. Great call (sarcasm)!

Those that invested in those OLD leaders lost getting long SINA, SOHU, NTES, SSYS, GRMN, USNA, EPIC, SIGM, HIL, FMDAY, IST, GNSS, LMLP, HRZ, AFSI, APPY, PDO, TASR, and DGLY which all returned huge returns over anything out there. TASR broke out nine months AFTER the bottom and went on to run 2,400% in nine months. So in nine months I made 2,400%, while the "geniuses" who nailed the bottom ended that run with a 20% gain from their laggards that produced minor gains.

I don't know about you but when the next rally comes I don't want to go long GOOG, BIDU, RIMM, AAPL, or any other PAST big leader. These stocks are all too big and I have NO interest in any of them anymore except to short every low volume rally in these stocks till they make their way to the teens. What goes up and then moves in a parabolic fashion usually leads to a full retracement of previous gains.

If you want to be the best and get long the Past Big Winners that I have been blessed to hold onto, you will need to learn how the market really works. Not how CNBC and the Wall Street Journal tell you they way it should work. It might need to work that way. But the real money by the best investors of wall street all-time come from going long new "hot" innovative companies that have stocks breaking out of perfect to near-perfect chart patterns with the stock having strong to growing fundamentals.

Remember, for all of you guys with a 3% gain today, big deal. I have a 52% gain in ANCI in six months for one long and a 74% gain in SDA from a short in four months. My TASR 2,390% gain in nine months didn't come in one day so why are you daytrading? Just be patient, keep that cash heavy, and unless you can get in and flip out with 20% gains there is NO reason to be getting heavily long in any stock. My hottest holding is up 21% in less than a month and continues to have max green BOP in it as it climbs higher. If you know this stock and/or are a subscriber, you may study it to see what we need to see before we go long. However, AIPC is the perfect current example of how a new purchase should act the whole way it moves up. AIPC 6/18 move to now is loaded with green to max green BOP. AIPC in June is what you want to see when you go HUGE into a position. It is a breakout like that on max green BOP with RS and Moneystream hitting new highs when you want to put 20%+ in one position. However, right now, we have to wait for something like that June/August ANCI setup and AIPC 6/18 setup.

Getting the big gains takes patience. But if you don't know why holding cash and leaving with a 0% flatline instead of a 40% loss followed by a 3% move in one day is a good way to invest well then you are not going to be involved in the stock market much longer. Those patterns of EPIC, HRZ, AFSI, TESO, TASR, LMLP, GNSS, MRVC, PDO, DGLY, and FMDAY will show up again and instead of having my money tied up in some BS municipal bond fund, I will wait for the next "perfect" setup like AIPC on 6/18.

I wonder how many OTCBB stocks might have looked like that or might look like that now???? Too bad I will never know thanks to the greatest software out there for under $500 being so far behind the curve on keeping up with the times. How much can it cost to add OTCBB. So what if it is scammy. As long as it builds the charts that I KNOW lead to huge 100% to 1000% gains, we can make big money. AIPC is a lesson for us that we are in fact missing great longs in other countries that setup in the patterns that I see before HUGE gains come. So thank you Telechart for having a great product but a VERY LAME stock exchange service. OTCBB and Toronto stocks should be on this system, bottom line.

My bottom line is have a wonderful weekend and I will see you on Monday. Unless you are in the chat room or forums. Then I will see you every moment I am not shopping, surfing, or relaxing on the beach.

top longs/(shorts) w/ total returns UP today: (SDA 74% SPG 36% CASY 19%)



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