Saturday, January 24, 2009

Stock Indexes End The Day Mixed But Finish Down On Higher Volume For The Week

A weak start to Friday's session had the feeling of a painful day to come. However, the market found its lows near the opening and managed a nice rally most of the day, until the last couple of hours. All indexes were green at one point in the day but a decent pullback that was followed by a little EOD rally kept the DJIA from closing green. Overall it was yet another bullish session preceded by a negative session.

That has been the pattern since last week when the market broke down away from the 50 day moving average on January 14th. Following that break down, stocks bounced back the next two days on higher volume. This was not was supposed to happen according to textbook stock movements.

Normally, when the market breaks away like that from a key moving average and many "attempted leading" stocks have big reversals, you usually do not see a halt in the decline so quickly. So after those two days of prices holding it then appeared that the market might be able to turn and give us the low volume uptrend we are waiting for so we can load up our shorts when the market fails at the 200 day moving average. So no big deal. We have a new plan.

Then on Tuesday, the market tanks on the inauguration. No big deal now we are only back to being in our confirmed downtrend and now we know the Thursday and Friday support was just temporary and not anything important. With Tuesday's breakdown a more shocking situation occurred; we were given seven clear "get short" signals.

With those seven short signals it now is clear to me the market is ready to break down. Right? Wrong. LOL. Instead the market held in there with a stronger volume rally. But a very important data point occurred on this strong up day. What was it? All of my shorts from the day before held in and not a single one gave me a FULL COVER and only one gave us a PART COVER signal. This indicated to me that the short side was still probably the right side.

That was then confirmed on Thursday with the bearish session the market put in, with my new shorts and old shorts going down along for the ride. And on Friday, thanks to a weak open, stocks did not gain much ground and my shorts continued to look like great money making positions. The other good news to go along with our winning shorts, is that on Wednesday, the day after we got seven short signals, we got two new long signals. One long is up over 4% since our purchase and the other one is hanging in with nice price/volume/BOP characteristics. That good news along with one of our long-term (6 1/2 months) shorts hit the 85% gain mark intraday this week makes this an overall great week for me while the market did nothing.

The interesting part about this week to me though was not necessarily the overall stock market. It was some individual sectors that stuck out. For the first time in a long-time, that I can remember, we got some speculative action on a few stocks related to stem-cells. ASTM, STEM, and especially GERN saw some great price action this week as the work on embryonic stem cells get under way. Another exciting group from a leadership standpoint is the education stocks.

The good news about the education stocks, for the bulls, is that some of these stocks are heavily shorted as hedge funds release info about the number of enrollments at these universities being exaggerated or made-up. Well, I hope these shorts have a lot of money, because if big institutions keep buying them like they have recently there will be a lot of short-squeezing that follows. Stocks like ESI, COCO, LOPE, APOL, CECO, DV, CPLA, and others have very bullish chart patterns. But they don't necessarily have buyable patterns. While I am long one leader in this group already, there are at least three other leading stocks I would love to get long if they setup. However, they have to setup. And as long as the rumor mills keep pumping out deadly short stories during a time when the big boys are loading up on these stocks, you know you got some great money that can be made.

The last sector I want to talk about is a sector that I really love not just for when they setup and breakout but for the long-term till-you-die kind of investing. That is gold/silver. For readers that do not subscribe to my site, you might not be familiar with my love of gold. What is sad is that I have not put my money where my mouth is. But back in 2002, shortly after the 9/11 attacks I had a very blunt conversation with a gold dealer on Maui. I told him "to buy as much inventory as you can now because gold is going to be the "US Dollar" of the future." I told this man (Mike X at Kula Gold) that he should buy gold and lock it in the future for this price and short the dollar as the dollar is no longer the "safe currency" it looked like before 9/11. Post-9/11 I told Mike I believe that Gold would go higher in value as more people found safety in it.

Now when I told Mike this I had NO CLUE that our government would be so inept as to actually give tax cuts WHILE INCREASING SPENDING AT THE SAME TIME!!!! Now the Fed is printing Dollars like it is worthless paper and Obama believes he can spend trillions of worthless Dollars to get us out of this mess. I hate to tell everyone this: THIS IS A GLOBAL ECONOMY NOW. The government is spending money like there is still a bull market of 1999 out there. Where are they going to get this money in the future? Companies are moving to Dubai to avoid the HUGE corporation taxes the USA has on OUR OWN businesses. The government keeps raising our taxes so that we can't put our FREE dollars into the market and have people exchange them for the goods and services that THEY choose to use. Instead our hard earned money is confiscated via the income tax and the people that work hard for their money are FORCED (not willingly allowed to donate to who they want, like most great people do) to give their money to some people who will use it to buy heroin and crack (I am from St. Louis--I am not a blind fool!) with the money our government gives them.

Also how can we be giving tax rebates to people who don't even pay taxes???? Has this country lost its freaking mind? Are we controlled by people who want to take all of our wealth??? To me it looks like it and I tell you what I have about had enough! You can tax me on what I want. But to tax me on WHAT I EARN VIA MY HARD WORK and then take the money and use it on things I DONT WANT MY MONEY USED ON is pure THEFT!

So instead of being a slave to the almighty dollar that WILL lose its value more and more LIKE IT ALREADY HAS SINCE WE WENT OFF THE GOLD STANDARD, I am going to do something about it and begin to put SOME (not all--SOME!) of my IRA money into Gold stocks, Gold mutual funds, Gold coins, Gold bullion (I'll pray for this), or Gold ETFs. I am upset I did not do this in 2002 when I first made this gut call and I am even upset for not doing this two weeks ago when I told all my members in my chat room that I would be doing this. However I am going to make my move now. I have plenty of money to actively invest in the stock market to put into stocks like LMLP, HIL, FMDAY, EGHT, TASR, AAPL, IST, AFSI, HRZ, and many other great past winners I have been blessed to be a part of. So a little bit into gold will be worth it just in case Gold goes from 900 to 9000 in the next so many years. That little bit I have will pay off.

I know stocks can go to zero. I know fiat money printed on paper can go to zero, I know even great mutual funds can go bust and go to near zero...but the last time I have checked, gold has NEVER been worthless and even when it was cheap and looked like it was a bad investment it sure looks like a smart one now. :) This isn't 1999 anymore and it never will be again. I just thank God above that I was blessed to have known the CANSLIM system in early 1999 and had my price bounces-breakouts/volume surges/max green BOP charts down by 1998. This allowed me to be fully ready for both 1999 and late-2002, 2003. 1998, 2004, 2005, and 2006 were good years too but nothing was like 99 and 03. I know 1999 can't happen again as that was a BUBBLE beyond any bubble ever seen in the US stock market COMBINED with the Y2K fear and a flood of money from the Fed. But I do know that 2003 markets come all the time when bear markets turn from a bear market to a bull market you will always see charts go from ugly to beautiful as leaders take control of the market. It just takes time.

Make sure you stay patient with this market and even though in the past three months it has basically gone NOWHERE (from 10/27/08 to 1/23/09 the Nasdaq has moved -1.9% and the NYSE has moved -0.02% during the same time). Take a look at those market moves the past three months and tell me that you don't understand why longs or shorts aren't making a ton of money. Well that isn't too difficult to figure out so let me just get it out of the way.

Three out of four stocks follow the general trend of the market. In this downtrend from the October 2007 highs, it has been around four out of five. So obviously it has been very important to follow the market and do what it wants to do. The only bad thing is that some stocks want to breakdown and produce some big gains, it seems like, but they are just holding in that holding pattern that you are in waiting for it to either break lower or give you that FULL COVER signal. Until the stock tells us what to do, you stay in that pattern and wait to make your big money. If a better faster moving stock shows up, don't hesitate in moving the money from the lame-o stock to one that is working on volume.


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