Sunday, May 17, 2009

After All That Bottom Fishing The Past Two Months It Looks Like CANSLIM Stocks Are Ready To Lead Next; Stock Indexes Pullback On The Week On Lower Vol

Stocks pulled back this week and those that read this commentary daily know that we were expecting a pullback and we are getting it. If you remember I wanted the pullback to come on lower volume and that is exactly what we are getting on the IBD indexes, the Nasdaq, NYSE, and SP 500. If stocks continue to pullback this week, I will be more than OK with it as I think stocks are starting to look really good out there in the charting landscape. If this continues I am sure that we will be moving from trading everything breaking out in uptrends and downtrends and will be able to move on to going long the historical patterns that come about right before stocks go on major advances.

If you are not familiar with these chart patterns, you can find them on the 'past big winners' area at my .com site or you can visit the IBD Investors Education site and go over the historical chart patterns that lead to big gains there. If you are a subscriber you can also go all throughout the 'General Market' post to find a ton of beautiful chart examples of other past winners that I was not part of but have studied. The bottom line is that if you are a subscriber, you have no excuse to not know a chart pattern. We have example after winning example on the site and IBD's past studies to look at to know what we need to see before we go heavily long.

The good news is that thanks to the Nasdaq losing RS to the SP500 about two weeks ago and that turning into a pullback it has allowed charts to build better basing patterns. As the rally was moving along I was getting confused as to why the IBD indexes continued to lag while stocks coming off the lows were doing so well. I believe that the market was beaten down unlike anything ever seen and besides an initial oversold burst of breakout momentum most stocks simply can not sustain big uptrends with the weight of past resistance ahead.

The 200 day moving average has proven to be very tough for the indexes to break through. However, the more the indexes test the line the higher the chances are that we will break to the upside. The charts that I see in my scans are hinting that we will be able to make some good money on the long side very soon. While it is VERY NICE to get a 200% to 300% pop from beaten down stocks, the plain truth is that the best, longest, safest, and biggest gains come AFTER a stock has setup over the 50 DMA with the 50 DMA over the 200 DMA. The most important part of all of this is to have a market in an uptrend on strong volume. We are getting that but until the past week we were not getting any pullbacks. So it is nice to see pullbacks as you need these to help launch sustainable long term rallies.

Indexes can not just keep rallying without pulling back and be healthy. When that happens you get 2008. From 2003-2007 the DJIA didn't even pullback 10% ONCE! As you can see 2008 proved that "that" wasn't healthy at all. The gains were great but those that are clueless to cutting their losses or in their ability to spot a top lost a lot of money. Thankfully those of us at BWT went short in November and pretty much stayed cash/short until March. By April we had some longs but it was apparant the stocks off the lows with the "hot" chart patterns were working better than history's past big winners. However, this was because of the depth of the 2008 destruction.

If this rally continues to pullback on lower volume, can hold the March lows, and then make higher highs, I think we are going to see a LOT of CANSLIM quality longs and beautiful max-green BOP filled speculative stocks setup and breakout and work. If this rally rolls over I am ready to go short the new leaders and get short the past leaders that are still LOVED like AAPL and RIMM. The fact these are so loved prove to me that I want to continue to look to short these stocks. However, setups like the new short we have for Monday is the main bandit I will be looking for.

Still focusing on the short side should not be in the interest of momentum traders right now. If the volume would have been higher the past week than the previous few weeks with the 3% to 5% losses on the indexes it would have been very bearish and I am sure we would have more active short scans. As it is, even on a down 1% day there weren't even 10 shorts in each of my scans. Heck there was barely 10 stocks COMBINED in my scans. Still there was a new short but for it to be a short now, for me, it has to show negative divergences in its chart. Obviously this one does.

Don't get me wrong just because I am going short doesn't mean I am focusing on them. No; with the volume coming in lower on the indexes and the charts in my long scans expanding on a down day with more-and-more stocks ending up on my 'possible future longs' list, it would be a crime for this market to fail right now. Especially with so many green BOP filled charts that have very strong price and volume action. It has been a VERY LONG time since i have seen SO MANY green to max-green BOP filled charts. The best news is that these bases aren't the 5th stage or 6th stage bases you would find in 2007 and early 2008 before it all broke loose. No, these bases, our the fresh bases that come in the start of new bulls from downtrends.

I am not certain that this is a bottom at all. In fact, I still lean on the side of it being a bear market rally that will eventually lead to a wonderful shorting opportunity for me. The best thing about the CANSLIM methodology, however, is that my opinion doesn't mean crap. For all I know, we could have "the bottom" and we are about to see a lot of stocks setup in the max-green BOP, huge accumulation filled, and tight price pattern charts that we saw in 1999 and 2003. Every regular bull market looks like 2003 so that should give a lot of you comfort in knowing that if we are only weeks to months away from a real bull market we are going to be making a lot of money in leading stocks soon.

If, however, the economy is as bad as it looks and that the extremely foolish socialist policies of this incompetent administartion is going to continue, I can't see why stocks would rise for the long term. Still if stocks setup in base-on-base, double bottom, cup, cup w/ handle, ascending base, or high-tight-flag patterns with max green BOP and huge accumulation with "fresh" breakouts you better believe I will be putting my opinions on the backburner and will be having a grand ole typing profiting from another wonderful bull market. The charts look a lot better, this pullback has been very constructive, and now the next step is for breakouts and bounces off key support/averages to start happening rapidly everywhere. If charts continue to look the way they do I will soon be spending 3-4 hours scanning stocks. That is a good thing!

Overall, the market still could go any which way it wants. The bull is not strong enough to give me confidence higher prices are in the bag. Better charts, which are starting to try to show, would improve that outlook. However, the way the longs are holding up and still moving higher, with the lack of new shorts showing up or working when they do offer short positions, is a reason to lean to the long side. My mind might say no, but the charts are saying yes.

The current longs I have are weakening but the purchases I am making off the lows for trades still look good. When the proper breakouts start acting like FITB and HBAN did from the lows with their beautiful green BOP/volume filled charts, I will be giving you the clear sign that I am fully invested and holding on for the big gains. For now I say when you get some big gains make sure you take them in. If you go long (or short) and you do not see gains immediately, while we have a bit of a mixed market, make sure you take some to half to even all off. The only exception to hold on to a stock when it does not show you a gain immediately is when you get a very bullish intraday tail with it on volume.

As long as my charts look good, I feel good. My only beef is that the IBD indexes are lagging. I am not used to seeing these indexes lag and I am not used to being 1 1/2+ months deep into a rally and STILL not have ONE stock up 50%, after a breakout over the 50/200 DMA. The weakness is confirmed in the RS line and after reviewing all the big winners it is clear they are 99% from 52-week lows.

I am still going to focus on trading the bottoming stocks and I have two new longs we must watch for swing/day trading positions. I also have a list of longs for Platinum members, not listed to other areas, of stocks with very pretty charts I want everyone to watch off the bottom. One was up 8% immediately and while it isn't a RAD or CAR it has the start to be one. As long as these trading stocks want to rally from very oversold conditions I will continue to trade them in a bullish tape. When the CANSLIM and my 'Past Big Winner' max-green BOP stocks setup, then you can move your focus off the stocks from the bottom, because the only stocks that can produce 2,000% and 3,000% moves without whipping the hell out of you come after a base pattern is built and completed from a previous uptrend with the price above the 50 and 200 DMA. Another very important key to huge gains is huge EPS/sales growth. My best and greenest/prettiest longs in 2003-2007 almost all had very strong fundamentals either as a new company or a turnaround.

Great luck out there everyone. Subscribers you have four videos with over one hour of important stock market information in there and the longs and shorts analysis needs to be read before the start of the week. Great luck everyone, God bless, and ALOOOOOOHA from Maui where volcanic ash sure does make the daylight sky look very surreal. It also makes for killer sunsets!

top longs/(shorts) w/ TOTAL returns making me money TODAY: INOD 36% ASCA 24% FIRE 21% PALM 20% (CYT 59% OKE 39% PG 20% CHTT 15%)

FREE YouTube Video (part 2-4 in full size will be up SUN AM for subscribers):

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