It was a fitting end to a week that saw emotions pull dramatically at first to the bear side then to the bull side before the week came to end. Today, like yesterday, saw the market selloff early on only to see the bulls pull out an amazing display of confidence as indexes reversed and closed in the green on both Thursday and Friday’s trading session. The same market action that was seen on Thursday and Friday was also seen this week during the past five session.
Stocks started the week on a very weak note, sending me from 11 small longs to 5 smaller longs as some recent stocks that I went long gave me signals that they were not ready to blast off and make runs higher quickly. But there was a slight hint that the turn down might not last long. What was that hint? It was the fact that I could only generate ONE NEW short position during the first three days of this very weak week. The Nasdaq fell 5.2% but I only had ONE NEW short that setup in what I consider to be a very high reward/low risk pattern.
After these three ugly sessions, we saw the bullish reversals on Thursday and Friday, that helped confirm why we only had ONE new short and not 10 new short positions during those three days. If the market was ready to crack wide open IMMEDIATELY we probably would have had at least a new short a day. However, that isn’t going to happen when so many stocks are so far extended from their 200 day moving average.
I guess I forgot how extended stocks were on the downside until I noticed in every single one of my short scans (four of them) every single day this week showed the SAME THING. That is that every stock that still has a big previous uptrend to give back from the 02-07 rally is currently too far extended from their 200 day moving averages to be safe shorts. Most of these stocks have broken down and look ugly. But they will not be shorts until they can catch back up with their 200 day moving averages.
This means that we could have a few weeks to a few months where stocks rally. Whatever stock sets up and breaks out during that time, I will be more than happy to get long and take some profits on the way up, if we get this rally. However, I honestly believe the more prudent and profitable trade will be what follows the uptrend that we could be in store for. That will be the resulting failure of prices around either key resistance points in the index charts or their 200 day moving averages. Where the index 200 DMA’s are most stocks with excellent possible setups for future shorts are also.
Now make no mistake about my stance on the market. I am NOT a perma-bear. I only follow the market’s overall trend as that is what has proven to make the big money time-after-time. The smart investor knows that having a bearish bias is foolish because the market trends higher most of the time historically and you are never going to find a short that can produce a 2,390% gain in nine months like TASR did in 2003 for me. The best you will get with a short is 99.999%–you can not do better than this. So obviously the smart money is going to be very bullish in uptrends with volume and bullish in uptrends without volume.
Therefore, I assume we are only going to have a counter-trend rally (ie…bear market rally) that will eventually die out. Why do I believe this? Because, the setups for longs are pathetic. While I have only 5 longs what is worse is that only ONE looks pretty. And this one pretty long is no where to being perfect and is close to losing its “pretty” status. This is the OPPOSITE of what you see BEFORE big rallies that HOLD. Before the 1999, 2002-2003, 2004, 2005, 2006, and 2007 uptrends, you could see “hot, nice, pretty, CANSLIM quality, and perfect” setups in more than five places in the stock market. Right now, these high-quality charts are NO WHERE to be found. When these charts and CANSLIM quality longs are no where to be found, and bank stocks are leading the way down, you can almost be 100% sure that any rally that starts now will not last long.
This is why I only expect a short-term rally that will only allow us to take profits in at 25%, 50%, and 100% in the great longs that we get. I truly doubt a rally, with the lack of leadership that we have–sorry, folks, education and small bank stocks do NOT cut it for REAL leadership–in the stock market I doubt we are going to get any 1000% runs in any long right now. However, a 100% gain in three months would be FANTASTIC right now as I have almost forgotten what it is like to be long, be right, and make a lot of money from that correct decision.
No matter, with that. The most important thing is to make money now and not just some money but enough money that you and I can make a living doing what we love. After you make the money, you can donate it to charity or to whoever you want. But when you are out there going for the big money you have to go get it! That means going with the trend, as this is obviously where history has told us the big money is made. This means, more-than-likely, that we should continue to hold our long-term shorts that are still giving us huge gains like our short in CETV (80% in six months), SDA (76% in four months) or even AAPL (48% in four months) until we get a clear signal via a huge volume move above the 50 day moving average or a move above the 200 day moving average. Once that happens, I have no problem getting out of my shorts and then HOPEFULLY turn bullish. But until that happens, I am holding my shorts.
Also, the fact that I have very few longs that look beautiful and/or have that CANSLIM quality strength in it with a proper base combined with so many potential really strong short candidates and it only makes sense to lean still to the short side.
But ultimately whatever happens will happen. I am ready for a dead market where we continue to go nowhere any time soon (11/14/08-1/16/09 the Nasdaq has moved .82%), I am ready for a potential low volume bull run here (I would prefer a heavy volume breakout that starts a new bull market–but I am VERY REALISTIC and NOT hopeful), and I am ready for the low volume rally to fail and lead to a better shorting setup with a lot of stocks that I have listed on my New Shorts page. The bottom line: I am prepared for anything and everything. No matter what this market does I am ready. And like I said earlier, it sure isn’t doing much the past three months at all. In fact, it has been rough for bulls and bears recently which is why I continue to recommend that everyone take SMALL positions in stocks right now until a PERFECT setup shows up on either the longs or shorts. Until that perfect setup comes, it is too random of a market to be “cocky confident” in either a long selection or a short selection when you hold positions for more than a few weeks like I do.
If you are a short term daytrader that loves to play support and resistance levels, this is your kind of market. But for those of you that like to go long, sit back, and watch the stock rise steadily higher keeping you in it in a nice calm fashion, it might be a little while before that game comes into play. However, I am sure that sometime soon (because it has been a long time already) we will have a beautiful long setup with the right Technical and Fundamental characteristics.
The most important thing right now is to KEEP YOUR CASH LEVELS VERY HIGH, invest wisely using tight stops and smaller positions than you would normally take in a bull market, and constantly keep your watchlist updated. This updating process will keep you wise to when the leaders change and then you can see that strength in the price/volume/BOP levels on our charts. If we can then confirm that with fundamentals things will be going very well! Right now, there is no doubt about it, in this market environment, with all of the random action, you must keep your longs and shorts to a manageable level. There are times to be 400% invested on margin and then there are times to be only 10% invested. This is one of those times to be invested in the 10% to 20% range. Trust me, when the easy uptrends (2003) come along that produce 300%, 500%, 1000%, and 2000% winners comes back we will be constantly 400% invested. Right now, you would be a fool to be that heavily invested.
There are a lot of negative economic reports out there and earnings season is turning into a very ugly affair. I understand contrarian investing but I still have a feeling once the buy the bad news crowd is done buying that the weight of these poor earning reports and guidance will final weigh on those stocks.
One thing I always tell my subscribers: from my own personal inventory in my head, I would say that 95%+ of the stocks that I have seen trade above $50 that then trade at $10 will usually hit $5. And then what is even worse (and is completely proven by looking at the bank stocks in this wrecking of our free markets by the bailouts) is that those stocks that were over $50 that are now $5 in about 95%+ of those cases then see the stock hit $1. Then once a stock hits $1, it has less than a 10% chance of actually survive a listing on the Nasdaq or NYSE. So for all of you wanting to buy these TOXIC ASSETS at bargain base prices…you might want to look at the history of stocks that have gone from 50 to 10 to 5 to 1…I think you will see C and BAC are the next BSC and LEH.
The only good long is a stock that is moving higher. The only good short is a stock that is moving lower. Adding to your losers is a stupid backwards way to invest. The intelligent and WISE investor adds to his winning stocks ON THE WAY UP and NOT on the way down.
Aloha everyone, have a great long weekend, and I will have video one, two, and three available for the Gold and Platinum members on the Gold Forums Sunday. I will also have the free video posted here before Monday. Aloha!
Top Short Holdings With Total Returns That Were Profitable Today: CETV 80% SDA 76% AAPL 48% AMX 48% CPRT 25%
New YouTube Video Part One:
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