Thursday, January 15, 2009

Stock Indexes Reverse Off Their Lows On Strong Volume But The Damage Has Already Been Done

A lot of people, including myself, were expecting for the market to puke it up, after yesterday's very bearish session. However, the market, like it always does, proved the majority wrong and gave us a bullish close on all the indexes.

The only negative about today's bullish session is that is following a session that officially killed a few nice longs we still had and killed a few of the remaining nice charts out there. However, I have to admit it was very nice to see the support and to see this support come with volume. Too bad that volume is still well below the levels that preceded it on its way down from September to November. So obviously today's bullish session did not have the volume needed for today to be a capitulation day. Besides the volume the intraday range also was not enough to call a capitulation.

What today was, in the scheme of Technical Analysis, is day one of a new rally attempt. Even though we did not breach the November lows, using the facts that we have had a multitude of distribution days in the indexes since the November lows combined with the lack of stocks either building or breaking out of nice bases, it is easy to come to the conclusion that this market has to reset back up and follow-through to make me confident enough to go long.

Sadly, I don't think that is going to happen. What I would love to see is for us to rally here for the next few months. That ensures that our remaining positions and the few new positions we pick up along the way will make us money, while we wait for the shorts to reset up. This will require a low volume rally from now till the indexes can get close to their downtrending 200 day moving averages. If the market can break this key average, then we can forget about going short and look to start getting much more long as an index above the 50 and 200 day moving average is a must to get the big powerful move in our longs. However, if the rally does come on low volume and is followed by a heavier volume reversal then we can look to reload on our shorts.

As you can see I am prepared for both a bullish outcome and a bearish outcome. But at the same time, while I am ready to go long or short, I also assume that we could go sideways for a long time. If that is the case then I must admit to myself that the "hot, nice, and pretty" charts will not return us anything around that 300%-1000% that we are looking for. Instead, I will have to settle for gains around the 25%, 50%, and 100% marks and so on. It isn't as much fun but the point of the stock market for me is not to is to make money. And it isn't to just make a little money but a lot of money when the time is right. When the times are not right, I am fine just making some money or protecting all of my money.

I hope everyone is ready for either outcome to come to fruition, but I have to be honest, if we don't see volume on a possible rally, you should know that that means to look for those shorts when they do reverse at key resistance levels or the 200 DMA. Subscribers, there are about 40 names on the short side that we are watching to get short. Compare that with about 10 stocks that look like they could be "hot" soon and it is clear which side the market seems to be on. It doesn't help that I also had MORE shorts in my scans than longs--on an up day you would expect to see a lot more. Those long scans still can't get more than 10 in them when they used to have 200+ in the bull markets from 02-07.

Since I have more shorts that are working to longs and since I have a lot more shorts on my scans and watchlist than longs, I think it is safe to say that the smart money is short. If the smart money are still not buying stocks and are instead selling stocks heavier than accumulating them even on up days then I know I have to lean to the bears and not the bulls.

Don't let this fool you. I have NO BIAS in the stock market. In fact, I LOVE the bull side and loath the short side. But the market doesn't care how I feel about my Past Big Winners of my longs vs. the Past Big Winners of my shorts. The market only cares about where it is going now. It doesn't care about how much I loved the HRZ and MAMA charts of 2006 (MAMA is now CNIC) or how much I loved my first true heavy homerun in LMLP in 1999, it only cares about what it wants to do now. My opinion is like a sewer: they stink! And that goes for everyone. The charts may not tell the whole story but it tells you enough to keep your butt out of the bad times and in during the good times.

Averaging down is for people that like to add to mistakes. Averaging up is for people that like to add to their successes. Those that average down are going against what history has PROVEN to be the correct strategy which is averaging up--not down. CANSLIM combines both fundamentals and technical analysis. Why does it have to be technicals vs. fundamentals? Why not grow a brain and try the radical idea that IBD's founder William O'Neil has used and PROVEN to be the best methodology for selecting STOCKS: CANSLIM (a marriage of fundamentals and technicals). What a crazy concept!

Stay positive everyone and take comfort in knowing that today both our shorts held in there well and our longs did very well. For the longs that we have, three did amazing today, and this is how all of my longs should act right after we get long. I know that some of my subscribers are new to this site, and if you have not reviewed my Past Big Winners in my Longs section or seen my long returns in my blog post during the 2005-to-now period, I recommend that you take some time this weekend and go look at my returns near the short-term market top in 2006, near the short-term market top in early 2007, near the REAL market top in late 2007, and even check out January-March to see the gains we made on the short side.

I think it is clear that when the trends are up and not sideways--like it has been from October to now--I can make a TON of money on the beautiful chart patterns or on the CANSLIM leading stocks that either breakout to new highs and/or bounce off the 50 day moving average, on heavy volume. So stay patient, stay positive, keep your head up, keep reviewing my past successes AND YOURS, and we will come and get them EVERY session. My vacation is the stock market! I will ALWAYS be here for you, even if my manners sometimes are not. Like the market, we are all works in progress. :)

Aloha everyone, have a great Friday, and I hope you have an enjoyable and profitable day!




No comments: