Thursday, January 22, 2009

Market Gives Back Some Of Yesterday's Gains As The 50 Day Moving Average Continues To Be A Tough Resistance Point For This Market

I think it is fair to say that today was a very wild intraday wild for those that follow the market intraday. The market opened flat on the Nassy and SP 500 but gapped lower for the DJIA setting a negative tone in the AM. That was confirmed as stocks fell, making for an ugly morning, until around noon.

That is when stock roared back and came back to green for the Nassy and SP 500. However, the DJIA was still negative showing its negative divergence. Before the close, sadly for those looking for a bottom, the bulls could not hold on to the gains and the market closed in the red across the board.

While it was not a very bearish session, the damage was still done as the market failed to follow through on yesterday's gains just like on Monday when it failed the attempted reversal on Thursday and Friday. This is not the action that you normally would like to see in a market possibly putting in a low. Instead this is the action of a market ready to continue on its way lower. How can we judge what the markets next move will be? Well we can do that by looking at the index action and current stocks.

If we do that we can see that the market attempted a rally from the November lows that took most indexes up between 20% and 30%. However, this rally came without something that we have seen in most bear market rallies. That is a leading group setting up and breaking out of a hot chart pattern in a few stocks. Sadly, this last rally was full of ONLY stocks that were pulverized in the 2008 downtrend. Any stock down 75%+ from their 2007/2008 highs seemed to get a nice bid during the bounce. Since these lame stocks bounced and leading stocks, at the time, did not do well, it was clear that this bounce would fail faster than the length of time that it would work upward.

That was proven in early January when all of a sudden I had some newly crowned "wise" investors lose their wise heads and start complaining that they felt bad being left out of a rally their friends were in. Then when I find out more I learn that those same friends hooting and hollaring about the rally are the same investors that bought C, BAC, BSC, and LEH all the way down buying the bargains one dollar lower each time. Of course, these guys are going to brag on a small rally!!! They need you to get excited about this market so that they can get you to help bid their stock up. Sadly you can't do that but they like to believe you can.

In a good bear bounce, the IBD 100 and IBD 85-85 will lead the market higher on a % gain basis and should have heavier volume than the 50 day volume aveage. If this is the case, you can normally find a few CANSLIM quality long setups with proper characteristics and then you can sometimes find some "hot and pretty" charts with perfect BOP/volume/price setups in leading sectors. When you see this, yet see low volume on the market general indexes, then you know you have a good bounce. However, without these nice setups, like August to October 2007, we are not going to find APPY "hot and pretty" charts or DRYS "perfect CANSLIM setups" that return 100% in a couple of months. So make sure you check the stock quality during a bear market bounce.

Now, if your rally is coming after a very low volume market downtrend, you can see some max green BOP bases in nice tight price patterns setting up, with some of those having strong CANSLIM traits, you can see some CANSLIM charts setting up and breaking out, and the general market uptrend is coming on higher volume on the follow-through day and the days following, you know you have a bullish market setup showing up. If this beautiful setup happens and more and more green to max green BOP filled charts setup with great price and volume traits get ready to get 100% or 200% to 400% invested on margin if you have it.

Right now, going that long isn't going to happen, but every subscriber should understand that after we were handed seven new short positions we did not have to give A SINGLE ON back up yesterday. That followed by today's turn lower has all seven of our shorts in profitable positions to go along with our other 35 shorts. This should be the time to make big money on the shorts side or else we will have to engage in a major short covering campaign to avoid losses. So where we are at right now we can make good money on our 10% (to possibly 20% for some of you) shorts or we can get out fast and keep our losses EXTREMELY SMALL by getting out of dodge if we are wrong. And if that happens our longs will be there to make up for that side. But hopefully, if everything works out right, we are about to make some major profits in some to all of our shorts. After that, we can then get our "pretty and hot" setups to get very long and make some big money on those longs and our current few.

Stay positive, remember FOR NOW cash is KING!, and a new dawn will come where we can go fully margined long and make big money. Until this happens, let's profit as best as we can on the short uptrends and big downtrends. Stay flexible, stay cash heavy, and stay ready! We can all do this!



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