Friday, April 03, 2009

Stock Market Indexes Put In Another Very Bullish Session On Much Higher Volume But Leaders Continue To Lag BADLY

It was another great day for the stock market which took off on the back of an excellent session in both Asia and Europe. The best part of the rally is that volume was, once again, very large on the rally. This means that the March pattern of higher volume on the rallies and lower volume on the pullbacks. This is the exact kind of pattern is what you want in a market that you are going long in.

Despite all the fireworks in the stock market, I still have one major issue that I just can't ignore. That is leading stocks. I am very happy and excited watching the Nasdaq rally in an exciting manner of higher volume on the rallies and lower volume on the pullbacks. Along with this action a lot of charts are starting to setup in nice patterns. But that is the problem in and of itself; the patterns are just nice.

There simply is not enough "near-perfect" to "perfect" setups (study my 'past big winners' to review what one would look like) to get me excited. Especially when you combine that with the leading stocks lagging the entire uptrend. The Nasdaq composite is up 26% this month off the lows, even outperforming the WORLD LEADING Shanghai Composite in China which is up 17% in March from its lows. Since the Oct/Nov lows it is the leading index but the Nasdaq has been right behind it, in world markets.

While that is definitely exciting about the Nasdaq some great detailed research shows a little disturbing pattern developing. It is clear to me that despite the vast amount of nice charts that I have been showing subscribers in my videos and post in the 'new longs' section, that these stocks are not leading the Nasdaq higher. So even with the Nasdaq having new highs dominating new lows, there is not too many stocks making 100% to 200% moves in a month or so (that isn't $10 or less). To find out where the move is coming from you don't need to look any further than six stocks. GOOG, MSFT, CSCO, AAPL, ORCL, and INTC all make up nearly 25% (23.8%) of the entire Nasdaq. These stocks are up 24%, 26%, 33%, 35%, 35%, and 27% respectively. Only GOOG has not kept up with the Nasdaq and it was only off by 2%. The rest of the big fat heavy giants (btw, how high can I jump? Not very high. So would you hire me to play Center on your basketball team?) outpaced the index and tells me that they have been completely leading this market higher.

This is disappointing for individuals like me that can read the market very well (reading it well doesn't mean you will make a fortune ALL the time-remember that) because we know that this means that the rally is in the hands of six stocks and if one has a real bad day the market will have a bad day. This would NOT be bad IF we had those "near-perfect to perfect" chart setups in more than one stock at a time. If I had "hot" stocks setting up, breaking out, and showing me 20% gains IMMEDIATELY (like ALWAYS HAPPENS TO ME in bull markets) I would be ecstatic about this rally. But the opposite is happening.

As this rally goes on, more and more of my "nice" charts are becoming "mediocre." This happens in either one of three ways. Usually when I go long a stock it is setting up in a chart pattern that has historically led to large gains. When this pattern comes with a LOT of green to max-green BOP, a RS line hitting a new high, and a moneystream line hitting a new high, I know that I have a VERY HIGH reward/risk situation. In 1999 and 2003, when the rally started, proving that it had lasting power, "near-perfect to perfect" charts were setting up and breaking out everywhere. This allowed my accounts to grow exponentially in a short amount of time. Those two years make up for over 70% of my gains. How? Because I knew we had "the moment" both years and went fully long on as much margin as I could get my hands on. If you have reviewed my 'past big winners' you know how large the gains were and what you could have made with margin. Obviously, these patterns work, when they show up!

This rally, as it goes along, kept on producing more-and-more great looking charts with sound fundamentals or beautiful charts (not perfect) that had poor fundamentals. This started to get me very excited. Then I started to get more bullish as my longs went from just a handful to 20. But the last two days, with the strength the market has exhibited with the strong volume, has led to the opposite of what should be happening.

Instead, the stocks that I go long going from green to max green BOP (if not already there) are not making it all the way to the max 100 area. Instead they are getting near the max level and then slowly moving lower. During this time price holds and volume pulls back on low volume thus making the once nice setup now just mediocre. Also the recent longs I have taken breaking out to new highs or bouncing off key support on huge volume that do have max green BOP have also shown the similar pattern of staying max green for one or two days and then declining.

One particular long was looking "near-perfect" when I went long. Here we are about a week into the holding and the max green BOP is gone already. Now the max-green BOP could be back tomorrow as it was up over 9% in the after-hours market, according to someone I know. But if it is not max green, it is just going to be a long in my portfolio moving higher that I will need to treat like a CANSLIM long position as it does qualify as a CANSLIM long. Hopefully, though, tomorrow it will be max green again and I can squash my worry.

But besides my longs not moving up 20% in the first two weeks and 100% in the first three months, like they should and always have done in strong uptrends, another problem is with the longs setting up. There are so many on my watchlist right now that I WOULD LOVE to go long if they keep the green/max-green level of BOP, huge accumulation, and tight price action. However, recently, I have noticed some stocks losing their beauty. NAV is just one example I can think of today. There are many more.

We could focus on that negativity but I feel better "hoping" that the market will continue to rally on stronger volume and pullback on lower volume. While that happens I "hope" that more-and-more of the longs that I am watching that are starting to lose a little of their luster can kick-turn it right back around. That would be great and have me feeling much better that the rally can continue for the intermediate term. Stocks like CSTR, PEGA, ANV, and a personal favorite of mine that I am watching and praying can setup and breakout from a long enough base because the price, volume, and BOP action is just too good to be right. This stock begins with the letter C and subscribers in my chat room or even astute readers of my forums know what stock I am talking about. If these four stock can base, breakout with huge volume and max green BOP, and run higher around 20% in a couple of weeks I will then be FOR SURE that we are in a "legitimate" bull market. However, if that doesn't happen, I am preparing myself to get short again.

I currently have 20 longs and 28 shorts. All it will take to cover the shorts is for another rally on very large volume with BOP going green. If that happens, I will be taking my profits. However, all that has to happen for me to cut my losses in my longs is for the market to have a nasty selloff on higher volume with all my green and max-green stocks turning into yellow and red filled charts.

I am ready for this market to do anything and I am positioned in the strongest stocks for a new bull market and have my shorts that are not only rallying but will outpace the market to the downside if we fail the rally. This is the ONLY way to approach the market as the market doesn't care about your opinion and especially doesn't care about mine.

Great luck out there and ALOHA!



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