It was a very ugly day for the stock market today but I have to admit that me and my subscribers were very happy as not only did 37 of our 39 shorts make money but our two biggest gold positions were up 9% and 3%+ today. So it is safe to say today was a very bullish day for subscribers and all I have to say is that IT USED TO ALWAYS BE LIKE THIS from 1996-2007. Only recently has things been turned upside down and even then our shorts are doing WONDERFUL proving that the trend will FOREVER be your BEST friend.
The one problem I have had with the downtrend is that unlike the 1997 pullback, 1998 pullback, or the 2000-2002 bear market, this is the first time (besides the March to May period in 2008 which was lame!!) where I have seen the market go so long without rewarding momentum/growth investors with at least a few "hot" stocks where they buck the major downtrend (like CRUS in 2000 or GNSS in 2001--both tech related). This downturn has been so harsh and has hit the whole macro-economy that NO stock is avoiding the downturn. There are a few but compared to any other year I have been doing this it is PATHETIC! Luckily, right now, stem-cell, pasta, and gold all have some momentum and these areas could still make us money if the market doesn't breakdown too much more. However, if the market falls apart, you can kiss these speculative leaders (stem cells) and real leaders (gold) goodnight.
It is possible gold, silver, and platinum stocks can do well. However, I think we need to have some better counter-trend rallies to really get any upside momentum that will allow us to make the 100%+ gains that I was used to getting before 2008 hit us. Gold, silver, and platinum might do well if the world doesn't feel safe buying our debt anymore but the actual stocks on the exchange will still be at the whims of the buyers (demand) and sellers (supply) forces of the market. Gold will replace the Dollar in some countries holdings as they diversify but I doubt those same countries will buy AEM, NEM, GG, ABX, or GOLD instead of the actual bullion.
This is why I think it is safe to buy Gold, Silver, and Platinum on pullbacks but NOT the stocks that are involved in those markets. They are still STOCKS and, since weak holders and small money goes into stocks more than futures, they are at the mercy of supply and demand imbalances caused by a fund liquidating or a big investor jumping ship. In the Gold market, if that investor decides to dump, I am pretty sure, RIGHT NOW, you will not have any problems finding a foreign buyer out there for the Gold. But for NEM or ABX? I doubt it.
Bottom line is this: the market is very ugly and the trend is now down on all four major time-frames that I use. This means that you should either be in cash waiting for the market to turn on volume so you can go long and heavily long on margin if we have leaders break out. Or it means that if you are experienced you should be looking to go short the low volume rallies. Just like we did today on two stocks that freshly broke down from low volume rallies. Take that along with another speculative stock on the long side and you have three new positions for tomorrow which is just as many as we saw TOTAL last week.
Last week we had ONLY 3 shorts. Those three shorts are all three lower than where we went short. Sadly one did swing us out of it with a TINY ITTY BITTY loss but NOW it is working. The other two are working really well and now even if they reverse we will be leaving with profits. The most important thing is that LAST WEEK I did not issue A SINGLE NEW LONG. By doing that I saved you from today's major collapse. Not only did I save you from today's major collapse by not getting you long but you made money by being short the recent short positions I have given out (with all my long-term winners posted below). The best part today, however, was seeing our longs net-up today with our two gold stocks (my two biggest long positions) having VERY bullish sessions today. So not only can we get it right on the short side, but as you can see (and how it was for over 10 years), even when it is a nasty day, we can get it right on the long side too.
Have a great Wednesday everyone. I will see you after the bell, on this .net site, tomorrow! Aloha!
top longs/(shorts) with their total returns MAKING ME MONEY TODAY: ANCI 57% (CEDC 80% CETV 90% CEO 30% IPHS 38% RIMM 55% GGB 58% MOS 54% OKE 40% AAPL 41% CPRT 27% MCY 22% LLL 19% SDA 77% PG 21% CASY 28% PRGO 20% PLCE 28% K 19% ARB 71% APD 44% AMSG 20% AMX 48% CYT 66% SPG 57% TITN 52% POT 51%)
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Showing posts with label IBD. Show all posts
Showing posts with label IBD. Show all posts
Tuesday, February 17, 2009
Monday, February 09, 2009
Stocks Put In A Very Impressive Bullish Session On Friday, Sadly, With The Leading IBD Indexes Lagging; Leaders Are Leading For The First Time Since A
Stocks ended the week with a little bang as the Nasdaq went out with a 2.9% close, the NYSE had a 2.8% close, the DJIA had a 2.7% close, and the SP 600 led the way with a very impressive 3.6% move. There were two slight "bummers" to today's rally. The first was that volume came in lower than the day before. But, honestly, the volume difference isn't enough to have an argument over it. It was basically the same as the day before just slightly lower. The more important problem was that for the second day in-a-row, even with small-cap stocks doing relatively well, the IBD 85-85 lagged the general market with only a 0.3% gain today. Add that .3% to the SP-600 3.6% and Thursday's IBD 85-85's gain of 1.1% which lagged the Nasdaq's 2.1% gain and the SP-600's 1.4% gain and you have leading stocks not leading this rally.
Why is this bad? It is only bad, for now, because new LASTING stock market rallies need leading stocks to be leading the market higher for the market to sustain a long-lasting rally. Do we have leading stocks leading the way higher? Yes. Gold, Security, Medical, Stem Cells, Software-Medical, Education, Food, Utility, Telecom-Wireless Equipment, and Retail/Wholesale groups and their leading stocks are moving higher. This is the first time since the August to October 2007 small rally where leading stocks actually have gone up with the market. The entire year of 2008 was just a changing of guard at the top constantly from one new leader breaking down to the next. While that has set us up in a better market has that put us in the clear? The answer is not yet.
Why? If we were in the clear, the groups that I mentioned earlier would not be filled with what are considered as "boring" groups during this upturn. Instead, besides stem-cells, we would have many more innovative and technology driven groups. However, facts are facts and groups like Banks, Retail, Transportation, and Homebuilders did better than the new leading groups. This tells me, just like yesterday, that we are still in a rally where vultures are definitely out there trying to pick the dead carcasses off the road of the laggard stocks.
When you look at the simple ETFs of the most beaten up sectors you can see how they are leading. XLF the financial ETF was up 7.6%, XHB the homebuilder ETF was up 7%, and XRT the retail ETF was up 4.3% on Friday. So it is clear to see the two most beaten up sectors, which are banks and homes, are once-again, so far, leading us higher and this tells us that a new bull market is probably not going to start here with these laggards leading.
There is, for the first time, like I mentioned earlier, some great news in that leading stocks in leading sectors are finally moving higher with the market during the pullbacks and rallies. This is the first time this has happened in the market since August 2007 to October 2007 when stocks like APPY DRYS and FSLR put in strong gains for us in short amounts of time. So obviously there is something bullish that could turn out for this rally. Sadly we are missing something that we DID HAVE in 2002 while we were bottoming. Those were hot charts! Even though we have a lot of nice charts the amount of perfect charts shows that this is probably not a bottom. "Bottom" line is that we should have charts like GERN with a lot of max green BOP, heavy volume surges, and a nice flat perfect price action setup like it is currently going through. When max green "hotties" like this start to show up in my scans as we rally higher I will then get more and more bullish. But for now I have to take it easy.
Conditions could be right for those type of stocks to setup soon as most traders and investors are starting to lose their faith in a market rally. I have heard a friend recently say "the next rally I see I am shorting the pants out of it." I think that since people I know that barely know how to invest are now making comments like this, it is safe to say that maybe shorting isn't the safest play RIGHT NOW. A lower volume rally on this rally attempt to the 200 day moving average might make some stocks worth a short play.
But right now the market's movement is clearly mixed with the long-term trend down with the market down over 43%, the intermediate term is down with the market down over 38%, the sub-intermediate term is FLAT FLAT FLAT with the market going nowhere from 10/23/08 to 2/6/09 on the Nasdaq as it has returned a dead -0.76% during that time (zzzzzzzzzzzzzz...), and the NYSE has had the same luck with a +0.88% return from 10/24/08 to now. So obviously over the past few months it has been pretty boring as the market has basically gone nowhere. Short-term the trend is now up for me and not sideways thanks to the last two-days.
I want to remind everyone also that you do not need to buy the exact bottom of this low if you think a new bull market is ready to be unleashed. If you go back and study my best longs from 2003, 2004, 2005, 2006, and 2007 I think it becomes OBVIOUSLY CLEAR that you NEVER have to buy the exact bottom of the stock market to come out a huge winner. Just ask everyone that bought TASR in July of 2003 which was nine months past the 2002 lows and then after the July buy made a near 3,000% gain in nine months.
Knowing history and how the greatest stocks work can greatly help you relax and stay calm when everyone is running around like a chicken with its head cut off. There sure are a lot of wild and crazy traders that really think they need to know the future to make big money. The best investors/traders that I have met in my life are NEVER worried about the future. They are only prepared for it. They are prepared for a bull market, a bear market, or a range-bound market. The best are never off with their market calls. Why? They never make calls. They just move with the trend. Just like the best new market students do.
Since I have not gone over the stats for the week I think I should do that now to revisit the fact that we simply do not have leading stocks blasting away higher. While these are necessary, like I said, for long lasting bull markets. Heck, if you are happy with just a few months of a rally right now then things will be fine. But when the week ends out with the Nasdaq up 7.8%!, the SP 600 up 5.9%, the NYSE up 5.4%, the SP 500 up 5.2%. But the DJIA only came in with a weak 3.5%. So if the DJIA was weak you would think small-caps would be strong...and they were up 5.9%. However, in a shocking development, even though nice charts started showing up in my scans, the IBD 85-85 kept lagging only rising 1.2% on Thursday when everyone else was up 1.6% to 2.1% then on Friday it was only up .3% on a day when the indexes were up 2.7% to 3.6% on Friday. These lame returns are just a hint that those nice leading stocks are going to either not lead us up and then fail and help lead us down to new lows or else they are going to have to reverse their lagging status and become leading stocks.
Only when leading stocks like the IBD 100 and IBD 85-85 are leading the overall market higher can you be completely confident that the rally attempt is not just an attempt but is in fact a start of something new. The other KEY important development that must occur is for "hot" charts like SINA, SOHU, NTES, USNA, GRMN, and UNTD show up in those green BOP to max green BOP charts loaded with accumulation. During the 2002 lows they were looking good and were leading industries at the top of the list of IBD's leading industry growth. Now we have leading industries with charts that are lame. Some do look good like Gold and Education stocks. However, a lot of Gold stocks are not yet showing massive accumulation with max green BOP and huge accumulation. However, with them rising to the top of the charts and with a few showing these very nice chart patterns it appears soon Gold will move.
Not only is Gold moving but Education stocks are too. I am long a recent education stock but do not have more do to the fact that the charts are not LOADED with green to max green BOP right now.
Well I have gone very long in my analysis for tonight and would like to continue with this tomorrow. I am sleepy and have loaded this area with information. Great luck this coming week and if you need any extra help that is what the subscriber longs and shorts pages, videos, forums, and chat room are for! Have a wonderful Monday. I will see you here after the Monday stock market session.
Some other key points that I don't have time to go over but want to post before the market opens includes:
--Futures not looking good in the AM. But remember futures don't usually matter because most of the time if futures are green you get a red close and when futures are red you get a green close.
--Shanghai Composite is the only index up with a 2%+ gain at my last look. If you look at the Chinese Hang Seng and Se Composite you can see the market is rounding out and moving higher on strong volume. The leading innovative fundamentally strong stocks in that market are going to make their investors very wealthy.
--I still believe that since the amazing accumulation that I have seen in Gold, Silver, and Platinum since September that there is some amazing long-term accumulation in these metals going on. Therefore, any bounce off the key 50 and 200 DMA (or even the 21 DMA) or even breakout to new recent highs above key resistance levels.
--some leading stocks to watch that were mentioned in IBD that I don't like but we'll see they are acting in a few week to months include SQM RDM SYT TNDM UPS FDX AAWW. I only don't like them because their charts are jacked a little. RGLD would be great to get long soon!
--IBD called this a FTD on 1/28. I called it a "technical" one but it was so ugly I said it would fail. I was right and it did fail. However, on Thursday we had a FTD on the fourth day of the recent rally attempt from the 1/30 short-term lows. The higher lows combined with the big day on Thursday coming on day four of that rally attempt gives me a sign (since CANSLIM stocks are moving up; HOT, pretty, maxed out green, and sexy beautiful stocks are not though) that this rally could have some legs. And we need a rally not only to make money now but to either have it turn into a real bull to make some 200% to 1500% to maybe 2400% gains again or to rally on low volume back to the 200 DMA so we cant get short the past laggard stocks that are now back near their recent 52-week highs. Eiher way a rally here is good. Good for the bulls now and good for the long term bears later.
--There were 3 clearly bullish reversals this week in the stock market. Study 2/2, 2/3, and 2/5 to see how a market should be acting if it has good news possibly coming.
--put/call is .71 signaling the option market players are complacent/bullish
--Investors Intelligence shows 35.2% bulls to 36.3% bears. So it is neither bullish or bearish.
--despite the impressive Friday gains there were still ONLY 10 new 52-week highs compared to 67 52-WEEK LOWS.
--YTD the Nassy is up .93%, the SP 500 is -3.8%, the NYSE is -4.9%, and sadly the IBD 85-85 is -5%. The good news is that I am beating the overall markets with a LAME (this is what happens in dead markets that go nowhere since October) 2% gain thanks to my recent longs and all those profits I took on shorts this year. I don't have a lot of shorts (37 total but 37 SMALL positions) and my 10 longs (10 longs 10 small positions but dollar average is the same as shorts) aren't that huge. So that must mean...
--CASH IS STILL KING!!
--don't fool yourself. This is one of the MOST DIFFICULT markets ever. The beautiful or nice chart setups I saw ALMOST ALL the time from the age of 16 in 1996 to 2006 were like golden tickets. Then in 2007 it got much harder as stocks like AFSI, TESO, APPY worked but stocks like FALC and INXI really fooled us with their SUPER HOT and AMAZING green to max green BOP filled charts. They failed and thus the pattern on those hotties failing more to working started. It seems to be coming back but there are not enough of the charts I like to see with strong enough fundamentals to get me excited here.
--I will need to continue to see volume and hotter charts on the rally or else I will look to be going short the rally with a heavy volume failure at the 200 day moving average. For now, I feel a lot better about the stock markets chance to rally. But still I need better charts to believe it can stay.
ALOHA!!!
Top longs/(shorts) with total returns MAKING ME MONEY on Friday: ANCI 55% (OKE 36% LLL 16%)
FREE YOUTUBE VIDEO:
GOLD AND PLATINUM MEMBERS YOU CAN FIND VIDEO ONE, VIDEO TWO (15 MINS), AND VIDEO THREE (22 MINS) IN THE GOLD FORUMS. MAHALO!
Why is this bad? It is only bad, for now, because new LASTING stock market rallies need leading stocks to be leading the market higher for the market to sustain a long-lasting rally. Do we have leading stocks leading the way higher? Yes. Gold, Security, Medical, Stem Cells, Software-Medical, Education, Food, Utility, Telecom-Wireless Equipment, and Retail/Wholesale groups and their leading stocks are moving higher. This is the first time since the August to October 2007 small rally where leading stocks actually have gone up with the market. The entire year of 2008 was just a changing of guard at the top constantly from one new leader breaking down to the next. While that has set us up in a better market has that put us in the clear? The answer is not yet.
Why? If we were in the clear, the groups that I mentioned earlier would not be filled with what are considered as "boring" groups during this upturn. Instead, besides stem-cells, we would have many more innovative and technology driven groups. However, facts are facts and groups like Banks, Retail, Transportation, and Homebuilders did better than the new leading groups. This tells me, just like yesterday, that we are still in a rally where vultures are definitely out there trying to pick the dead carcasses off the road of the laggard stocks.
When you look at the simple ETFs of the most beaten up sectors you can see how they are leading. XLF the financial ETF was up 7.6%, XHB the homebuilder ETF was up 7%, and XRT the retail ETF was up 4.3% on Friday. So it is clear to see the two most beaten up sectors, which are banks and homes, are once-again, so far, leading us higher and this tells us that a new bull market is probably not going to start here with these laggards leading.
There is, for the first time, like I mentioned earlier, some great news in that leading stocks in leading sectors are finally moving higher with the market during the pullbacks and rallies. This is the first time this has happened in the market since August 2007 to October 2007 when stocks like APPY DRYS and FSLR put in strong gains for us in short amounts of time. So obviously there is something bullish that could turn out for this rally. Sadly we are missing something that we DID HAVE in 2002 while we were bottoming. Those were hot charts! Even though we have a lot of nice charts the amount of perfect charts shows that this is probably not a bottom. "Bottom" line is that we should have charts like GERN with a lot of max green BOP, heavy volume surges, and a nice flat perfect price action setup like it is currently going through. When max green "hotties" like this start to show up in my scans as we rally higher I will then get more and more bullish. But for now I have to take it easy.
Conditions could be right for those type of stocks to setup soon as most traders and investors are starting to lose their faith in a market rally. I have heard a friend recently say "the next rally I see I am shorting the pants out of it." I think that since people I know that barely know how to invest are now making comments like this, it is safe to say that maybe shorting isn't the safest play RIGHT NOW. A lower volume rally on this rally attempt to the 200 day moving average might make some stocks worth a short play.
But right now the market's movement is clearly mixed with the long-term trend down with the market down over 43%, the intermediate term is down with the market down over 38%, the sub-intermediate term is FLAT FLAT FLAT with the market going nowhere from 10/23/08 to 2/6/09 on the Nasdaq as it has returned a dead -0.76% during that time (zzzzzzzzzzzzzz...), and the NYSE has had the same luck with a +0.88% return from 10/24/08 to now. So obviously over the past few months it has been pretty boring as the market has basically gone nowhere. Short-term the trend is now up for me and not sideways thanks to the last two-days.
I want to remind everyone also that you do not need to buy the exact bottom of this low if you think a new bull market is ready to be unleashed. If you go back and study my best longs from 2003, 2004, 2005, 2006, and 2007 I think it becomes OBVIOUSLY CLEAR that you NEVER have to buy the exact bottom of the stock market to come out a huge winner. Just ask everyone that bought TASR in July of 2003 which was nine months past the 2002 lows and then after the July buy made a near 3,000% gain in nine months.
Knowing history and how the greatest stocks work can greatly help you relax and stay calm when everyone is running around like a chicken with its head cut off. There sure are a lot of wild and crazy traders that really think they need to know the future to make big money. The best investors/traders that I have met in my life are NEVER worried about the future. They are only prepared for it. They are prepared for a bull market, a bear market, or a range-bound market. The best are never off with their market calls. Why? They never make calls. They just move with the trend. Just like the best new market students do.
Since I have not gone over the stats for the week I think I should do that now to revisit the fact that we simply do not have leading stocks blasting away higher. While these are necessary, like I said, for long lasting bull markets. Heck, if you are happy with just a few months of a rally right now then things will be fine. But when the week ends out with the Nasdaq up 7.8%!, the SP 600 up 5.9%, the NYSE up 5.4%, the SP 500 up 5.2%. But the DJIA only came in with a weak 3.5%. So if the DJIA was weak you would think small-caps would be strong...and they were up 5.9%. However, in a shocking development, even though nice charts started showing up in my scans, the IBD 85-85 kept lagging only rising 1.2% on Thursday when everyone else was up 1.6% to 2.1% then on Friday it was only up .3% on a day when the indexes were up 2.7% to 3.6% on Friday. These lame returns are just a hint that those nice leading stocks are going to either not lead us up and then fail and help lead us down to new lows or else they are going to have to reverse their lagging status and become leading stocks.
Only when leading stocks like the IBD 100 and IBD 85-85 are leading the overall market higher can you be completely confident that the rally attempt is not just an attempt but is in fact a start of something new. The other KEY important development that must occur is for "hot" charts like SINA, SOHU, NTES, USNA, GRMN, and UNTD show up in those green BOP to max green BOP charts loaded with accumulation. During the 2002 lows they were looking good and were leading industries at the top of the list of IBD's leading industry growth. Now we have leading industries with charts that are lame. Some do look good like Gold and Education stocks. However, a lot of Gold stocks are not yet showing massive accumulation with max green BOP and huge accumulation. However, with them rising to the top of the charts and with a few showing these very nice chart patterns it appears soon Gold will move.
Not only is Gold moving but Education stocks are too. I am long a recent education stock but do not have more do to the fact that the charts are not LOADED with green to max green BOP right now.
Well I have gone very long in my analysis for tonight and would like to continue with this tomorrow. I am sleepy and have loaded this area with information. Great luck this coming week and if you need any extra help that is what the subscriber longs and shorts pages, videos, forums, and chat room are for! Have a wonderful Monday. I will see you here after the Monday stock market session.
Some other key points that I don't have time to go over but want to post before the market opens includes:
--Futures not looking good in the AM. But remember futures don't usually matter because most of the time if futures are green you get a red close and when futures are red you get a green close.
--Shanghai Composite is the only index up with a 2%+ gain at my last look. If you look at the Chinese Hang Seng and Se Composite you can see the market is rounding out and moving higher on strong volume. The leading innovative fundamentally strong stocks in that market are going to make their investors very wealthy.
--I still believe that since the amazing accumulation that I have seen in Gold, Silver, and Platinum since September that there is some amazing long-term accumulation in these metals going on. Therefore, any bounce off the key 50 and 200 DMA (or even the 21 DMA) or even breakout to new recent highs above key resistance levels.
--some leading stocks to watch that were mentioned in IBD that I don't like but we'll see they are acting in a few week to months include SQM RDM SYT TNDM UPS FDX AAWW. I only don't like them because their charts are jacked a little. RGLD would be great to get long soon!
--IBD called this a FTD on 1/28. I called it a "technical" one but it was so ugly I said it would fail. I was right and it did fail. However, on Thursday we had a FTD on the fourth day of the recent rally attempt from the 1/30 short-term lows. The higher lows combined with the big day on Thursday coming on day four of that rally attempt gives me a sign (since CANSLIM stocks are moving up; HOT, pretty, maxed out green, and sexy beautiful stocks are not though) that this rally could have some legs. And we need a rally not only to make money now but to either have it turn into a real bull to make some 200% to 1500% to maybe 2400% gains again or to rally on low volume back to the 200 DMA so we cant get short the past laggard stocks that are now back near their recent 52-week highs. Eiher way a rally here is good. Good for the bulls now and good for the long term bears later.
--There were 3 clearly bullish reversals this week in the stock market. Study 2/2, 2/3, and 2/5 to see how a market should be acting if it has good news possibly coming.
--put/call is .71 signaling the option market players are complacent/bullish
--Investors Intelligence shows 35.2% bulls to 36.3% bears. So it is neither bullish or bearish.
--despite the impressive Friday gains there were still ONLY 10 new 52-week highs compared to 67 52-WEEK LOWS.
--YTD the Nassy is up .93%, the SP 500 is -3.8%, the NYSE is -4.9%, and sadly the IBD 85-85 is -5%. The good news is that I am beating the overall markets with a LAME (this is what happens in dead markets that go nowhere since October) 2% gain thanks to my recent longs and all those profits I took on shorts this year. I don't have a lot of shorts (37 total but 37 SMALL positions) and my 10 longs (10 longs 10 small positions but dollar average is the same as shorts) aren't that huge. So that must mean...
--CASH IS STILL KING!!
--don't fool yourself. This is one of the MOST DIFFICULT markets ever. The beautiful or nice chart setups I saw ALMOST ALL the time from the age of 16 in 1996 to 2006 were like golden tickets. Then in 2007 it got much harder as stocks like AFSI, TESO, APPY worked but stocks like FALC and INXI really fooled us with their SUPER HOT and AMAZING green to max green BOP filled charts. They failed and thus the pattern on those hotties failing more to working started. It seems to be coming back but there are not enough of the charts I like to see with strong enough fundamentals to get me excited here.
--I will need to continue to see volume and hotter charts on the rally or else I will look to be going short the rally with a heavy volume failure at the 200 day moving average. For now, I feel a lot better about the stock markets chance to rally. But still I need better charts to believe it can stay.
ALOHA!!!
Top longs/(shorts) with total returns MAKING ME MONEY on Friday: ANCI 55% (OKE 36% LLL 16%)
FREE YOUTUBE VIDEO:
GOLD AND PLATINUM MEMBERS YOU CAN FIND VIDEO ONE, VIDEO TWO (15 MINS), AND VIDEO THREE (22 MINS) IN THE GOLD FORUMS. MAHALO!
Saturday, December 08, 2007
SP 500 And Nasdaq Pullback In A Calm Fashion On Lower Volume, While The DJIA And IBD Indexes Continue To Rally
SP 500 And Nasdaq Pullback In A Calm Fashion On Lower Volume, While The DJIA And IBD Indexes Continue To Rally; Where Is The Volume And Where Are The New Leading Stocks?
December 7, 2007
Overall, it was a pretty choppy and inconsistent day on Friday, but it was still a good day when we take it and consider that we continue to hold well in the face of all the bad news from the subprime area of the economy.
I heard many complain that we did not finish higher today on the Nasdaq. I, however, disagree with them and find it more bullish that we finished a tad lower. That shows me that we are consolidating the gains, since the November 28th follow-through day from the IBD indexes, quite well. If we would have sold off today on heavier volume, then I wouldn’t consider the days action bullish. But the fact the we sold off a little and the volume was lower is exactly how you want to see the market pullback after adding on some solid gains.
Don’t forget that the DJIA finished higher, even though volume was extremely low, and that the IBD 100 and IBD 85-85 indexes finished higher. The big caps and leading stocks seemed to hold up well on a day of profit taking. So the people that were not happy with the Nasdaq do not have to look too far to find some other positives in the market.
The fact that we have not sold off at all since the follow-through day has to be taken as a great sign for the bulls, considering that the market was starting to look like it was read to fall apart. Even though we have not had an up day where volume was just simply huge, the market is still offering up enough stocks with solid fundamentals that the rally is working. Obviously, if there was more volume, the gains would be bigger and the longs would be more interesting. Right now, there are very few longs that look beautiful. Instead most only bring a little smile to my face. I still do not see anything out there that makes me want to jump up and down full of joy.
This market, this year, has taught us all something very important that I am not sure many appreciate. The market this year has looked like it is going to top multiple times and every time that it looks like the market is about ready to break wide open it almost always goes on to rally. During the years of 2004-2006 I had to convince people over and over that the market was not done rallying. Every time we would start to selloff, everyone would tell me that “this is it, it is all over.” But every time we would selloff, I would see many new top stocks with pretty bases setup.
That continued until this year. When stocks started selling off in February, very few fresh new longs showed up. Instead it took a while but eventually the market got its legs together and then some new longs showed up. The exact same thing happened in August except the lows in August were decently easy to spot since sentiment got so poor and there were a lot of charts holding up well into the selling. The rally that came off those lows, as many subscribers know, produced many quick big gains from top stocks that took off immediately. All the laggards however were quick to rollover.
So when the selling started in November it appeared that the top was finally in as all our leading four-horseman stocks started selling off on heavy volume for the first time. There was no time before when all these leaders sold off on heavy volume. However, as soon as these stocks started selling off, the stocks that were breaking down started to hammer out short-term lows putting a floor in this market which then turned the leaders around and now have them back into high ground or near high ground. If this hasn’t just been amazing to everyone, then it is obvious you have not been watching the market close enough.
Those that have been watching this market know that the constant rallies in the face of this strong distribution is just amazing. However, the new highs in the leading stocks are coming this time without something: volume. Where is the volume? Where is the accumulation? There is none. What we have instead is a market that seems to have been so oversold that a rally had to happen.
The past few weeks I went out of my way to show you the sentiment in the market on almost a daily basis. Well I do that during bad markets because it is very important to follow. When a real bottom is put in there are a lot of sentiment indicators that hit certain levels that confirm the price and volume that a market has probably put in a low. Well if we use the August lows as the bottom, then the market is still in a period to continue to rally. But if we count the selloff from November as negating the August rally, which is what I believe we have to do when you look at the SP 600 and Russell 2000, then we simply have not had the bearish or fear needed to put in a bottom.
Instead we have put in a short-term bottom due to the market being extremely oversold. If that is the case, then the low volume on this rally makes perfect sense. If this rally was on huge volume, I am sure I would have a lot of pretty green BOP filled charts that work (like RICK) instead of charts that are working but that don’t look at hot (like ELMG and its yellow BOP). So the fact that there are so few hot charts and new leaders breaking out from sound bases and that the current leaders off the 2003 lows (GOOG RIMM BIDU AAPL AMZN) that are now hitting new highs with negative divergences in almost every technical indicator including overall volume.
The first stock we can look at is GOOG. If you notice that GOOG is very close to its November highs but look at the bottom part of your charts. Where is the volume on this rally? Now look at the RS. Do you notice that it is well below the old highs? Then look at the moneystream. Notice its negative divergence. Now look at the BOP. Notice the negative divergence? This is just one example.
The next weak past winner I am watching is RIMM. I technically should be short a little of this stock but my luck on the short side has been iffy recently and almost all of my nicer looking longs have been producing solid gains during the market’s uptrend. As long as the market continues to drift higher, I have to stay away from shorting RIMM until it sets up in a picture perfect historically high odd trade.
Right now, the stock is weaker than all the others as it put in a lower high at the end of November with the RS line coming in well below the old high in early November. That high came with four days of distribution that has been followed by a few days of a low volume rally. If the stock fails again, I might begin to poke a little and try another round of shorting this former leader. However, it would probably be wiser to wait for the 200 day moving average to catch up more to price before getting too big on a short in this stock. If you look at the moneystream you can see that it is making new lows well below the early November s lows. This, despite the price being above the November lows. Also the BOP is red and ugly still just like it was when it started selling off. So it is obvious there is not a lot of accumulating interest in this stock anymore. A weekly chart shows three weeks of distribution the past four which clearly tells you what is going on with RIMM.
BIDU is another leader that is at the old highs in early November but yet nothing else about the stock is. There are negative divergences in almost every indicator with the RS well below the early November highs and moneystream is even in worse shape. The only thing going for it is that BOP is turning green but with the rally coming on lower and lower volume BIDU appears to be headed the same fate RIMM and GOOG are headed for soon.
The strongest leader relative to the market is AAPL with its RS line well into new high ground. While the RS line is deeper into new high ground than price it isn’t by much and then the moneystream is still no where near new highs. That line is still well below the old highs in November. The BOP has also turned negative to where it was still dancing around the zero line early in November.
The point of this is to show you that the leaders that everyone is still talking about as the for sure thing that is a safe haven in any market are all starting to weaken. This is the first time they have sold off on heavy volume and rallied on lower volume to such extremes with all the technical divergence. This action in the leading stocks along with the weak rally in the market with few hot new longs is what continues to keep my mind cautious on the rally. However, even though I am cautious and I expect this thing to fail it sure doesn’t mean that I am just going to ignore the long side and miss gains in stocks that can rally fast in a short period of time.
Sure there are not a lot of RICK stocks out there but there are plenty of EGN stocks out there. And being long EGN is a lot safer than being short stocks that are not moving down. I know a lot of people shorting banks, home builders, and mortgage stocks down here. It is just shocking because most of these stocks have been destroyed and have no chance of going to zero. However, what is obvious to everyone usually no longer works and I think those short sellers are in that situation. Not only are they in that situation but those that continue to believe that AAPL, RIMM, BIDU, and GOOG will always be a safe place to put money to continue to rack up gains are also in that situation.
The best bet is to keep bets small, keep them focused on the long side in the top stocks in leading industries until we get some real distribution in this market, cut your losses fast if they don’t move up immediately, and do not focus on the short side just yet. There are markets that are meant to be traded and then there are market that can be traded but shouldn’t. That is what this market is to newbies. This is not the market where we are going to get a TASR or TZOO. We are not going to get those until we have a serious selloff in equities.
I know some think that we have had a real selloff already. But no real selloff is under 20% and no real selloff comes with a bottom without fear. Where is the fear? It sure seems pretty darn complacent to me. As long as the complacency continues to reward the longs I will be complacent and ride the trend up with my friends like EGN RICK FFH and OTEX. Now if only the speculative former max green stocks like AGX would move like the other slow safe Utilities, Telco, Soap, and Insurance stocks. Then we could have some fun. Instead we must be happy with a 25% gain in all the stocks that give us that. We will not be getting many 100% to 300% gains in this choppy market. Enjoy what you can get when you can get it. This is not the type of market to be on full margin. The 2005 lows was the last one that had enough fear to produce a gain like 550% in six months in ERS. Since then, there has been nothing.
Aloha and I will see you in the chat room where I will do my best to find the next TASR. Just don’t expect me to find it until after we have a real bear market. ALOHA!!!
top current holdings: ICOC 88% YGE 70% FSLR 262% MTL 92% MA 322% MOS 343% ATRO 55% CNH 138% ZIXI 181% RICK 97%
December 7, 2007
Overall, it was a pretty choppy and inconsistent day on Friday, but it was still a good day when we take it and consider that we continue to hold well in the face of all the bad news from the subprime area of the economy.
I heard many complain that we did not finish higher today on the Nasdaq. I, however, disagree with them and find it more bullish that we finished a tad lower. That shows me that we are consolidating the gains, since the November 28th follow-through day from the IBD indexes, quite well. If we would have sold off today on heavier volume, then I wouldn’t consider the days action bullish. But the fact the we sold off a little and the volume was lower is exactly how you want to see the market pullback after adding on some solid gains.
Don’t forget that the DJIA finished higher, even though volume was extremely low, and that the IBD 100 and IBD 85-85 indexes finished higher. The big caps and leading stocks seemed to hold up well on a day of profit taking. So the people that were not happy with the Nasdaq do not have to look too far to find some other positives in the market.
The fact that we have not sold off at all since the follow-through day has to be taken as a great sign for the bulls, considering that the market was starting to look like it was read to fall apart. Even though we have not had an up day where volume was just simply huge, the market is still offering up enough stocks with solid fundamentals that the rally is working. Obviously, if there was more volume, the gains would be bigger and the longs would be more interesting. Right now, there are very few longs that look beautiful. Instead most only bring a little smile to my face. I still do not see anything out there that makes me want to jump up and down full of joy.
This market, this year, has taught us all something very important that I am not sure many appreciate. The market this year has looked like it is going to top multiple times and every time that it looks like the market is about ready to break wide open it almost always goes on to rally. During the years of 2004-2006 I had to convince people over and over that the market was not done rallying. Every time we would start to selloff, everyone would tell me that “this is it, it is all over.” But every time we would selloff, I would see many new top stocks with pretty bases setup.
That continued until this year. When stocks started selling off in February, very few fresh new longs showed up. Instead it took a while but eventually the market got its legs together and then some new longs showed up. The exact same thing happened in August except the lows in August were decently easy to spot since sentiment got so poor and there were a lot of charts holding up well into the selling. The rally that came off those lows, as many subscribers know, produced many quick big gains from top stocks that took off immediately. All the laggards however were quick to rollover.
So when the selling started in November it appeared that the top was finally in as all our leading four-horseman stocks started selling off on heavy volume for the first time. There was no time before when all these leaders sold off on heavy volume. However, as soon as these stocks started selling off, the stocks that were breaking down started to hammer out short-term lows putting a floor in this market which then turned the leaders around and now have them back into high ground or near high ground. If this hasn’t just been amazing to everyone, then it is obvious you have not been watching the market close enough.
Those that have been watching this market know that the constant rallies in the face of this strong distribution is just amazing. However, the new highs in the leading stocks are coming this time without something: volume. Where is the volume? Where is the accumulation? There is none. What we have instead is a market that seems to have been so oversold that a rally had to happen.
The past few weeks I went out of my way to show you the sentiment in the market on almost a daily basis. Well I do that during bad markets because it is very important to follow. When a real bottom is put in there are a lot of sentiment indicators that hit certain levels that confirm the price and volume that a market has probably put in a low. Well if we use the August lows as the bottom, then the market is still in a period to continue to rally. But if we count the selloff from November as negating the August rally, which is what I believe we have to do when you look at the SP 600 and Russell 2000, then we simply have not had the bearish or fear needed to put in a bottom.
Instead we have put in a short-term bottom due to the market being extremely oversold. If that is the case, then the low volume on this rally makes perfect sense. If this rally was on huge volume, I am sure I would have a lot of pretty green BOP filled charts that work (like RICK) instead of charts that are working but that don’t look at hot (like ELMG and its yellow BOP). So the fact that there are so few hot charts and new leaders breaking out from sound bases and that the current leaders off the 2003 lows (GOOG RIMM BIDU AAPL AMZN) that are now hitting new highs with negative divergences in almost every technical indicator including overall volume.
The first stock we can look at is GOOG. If you notice that GOOG is very close to its November highs but look at the bottom part of your charts. Where is the volume on this rally? Now look at the RS. Do you notice that it is well below the old highs? Then look at the moneystream. Notice its negative divergence. Now look at the BOP. Notice the negative divergence? This is just one example.
The next weak past winner I am watching is RIMM. I technically should be short a little of this stock but my luck on the short side has been iffy recently and almost all of my nicer looking longs have been producing solid gains during the market’s uptrend. As long as the market continues to drift higher, I have to stay away from shorting RIMM until it sets up in a picture perfect historically high odd trade.
Right now, the stock is weaker than all the others as it put in a lower high at the end of November with the RS line coming in well below the old high in early November. That high came with four days of distribution that has been followed by a few days of a low volume rally. If the stock fails again, I might begin to poke a little and try another round of shorting this former leader. However, it would probably be wiser to wait for the 200 day moving average to catch up more to price before getting too big on a short in this stock. If you look at the moneystream you can see that it is making new lows well below the early November s lows. This, despite the price being above the November lows. Also the BOP is red and ugly still just like it was when it started selling off. So it is obvious there is not a lot of accumulating interest in this stock anymore. A weekly chart shows three weeks of distribution the past four which clearly tells you what is going on with RIMM.
BIDU is another leader that is at the old highs in early November but yet nothing else about the stock is. There are negative divergences in almost every indicator with the RS well below the early November highs and moneystream is even in worse shape. The only thing going for it is that BOP is turning green but with the rally coming on lower and lower volume BIDU appears to be headed the same fate RIMM and GOOG are headed for soon.
The strongest leader relative to the market is AAPL with its RS line well into new high ground. While the RS line is deeper into new high ground than price it isn’t by much and then the moneystream is still no where near new highs. That line is still well below the old highs in November. The BOP has also turned negative to where it was still dancing around the zero line early in November.
The point of this is to show you that the leaders that everyone is still talking about as the for sure thing that is a safe haven in any market are all starting to weaken. This is the first time they have sold off on heavy volume and rallied on lower volume to such extremes with all the technical divergence. This action in the leading stocks along with the weak rally in the market with few hot new longs is what continues to keep my mind cautious on the rally. However, even though I am cautious and I expect this thing to fail it sure doesn’t mean that I am just going to ignore the long side and miss gains in stocks that can rally fast in a short period of time.
Sure there are not a lot of RICK stocks out there but there are plenty of EGN stocks out there. And being long EGN is a lot safer than being short stocks that are not moving down. I know a lot of people shorting banks, home builders, and mortgage stocks down here. It is just shocking because most of these stocks have been destroyed and have no chance of going to zero. However, what is obvious to everyone usually no longer works and I think those short sellers are in that situation. Not only are they in that situation but those that continue to believe that AAPL, RIMM, BIDU, and GOOG will always be a safe place to put money to continue to rack up gains are also in that situation.
The best bet is to keep bets small, keep them focused on the long side in the top stocks in leading industries until we get some real distribution in this market, cut your losses fast if they don’t move up immediately, and do not focus on the short side just yet. There are markets that are meant to be traded and then there are market that can be traded but shouldn’t. That is what this market is to newbies. This is not the market where we are going to get a TASR or TZOO. We are not going to get those until we have a serious selloff in equities.
I know some think that we have had a real selloff already. But no real selloff is under 20% and no real selloff comes with a bottom without fear. Where is the fear? It sure seems pretty darn complacent to me. As long as the complacency continues to reward the longs I will be complacent and ride the trend up with my friends like EGN RICK FFH and OTEX. Now if only the speculative former max green stocks like AGX would move like the other slow safe Utilities, Telco, Soap, and Insurance stocks. Then we could have some fun. Instead we must be happy with a 25% gain in all the stocks that give us that. We will not be getting many 100% to 300% gains in this choppy market. Enjoy what you can get when you can get it. This is not the type of market to be on full margin. The 2005 lows was the last one that had enough fear to produce a gain like 550% in six months in ERS. Since then, there has been nothing.
Aloha and I will see you in the chat room where I will do my best to find the next TASR. Just don’t expect me to find it until after we have a real bear market. ALOHA!!!
top current holdings: ICOC 88% YGE 70% FSLR 262% MTL 92% MA 322% MOS 343% ATRO 55% CNH 138% ZIXI 181% RICK 97%
Saturday, December 01, 2007
Stocks Hold On To Gains To End A Very Bullish Week On A Positive Note; New Traders Should Understand That The Market Is Not Always Easy.
F***!!! The damn site switched servers now I don't know what i was writing So I am starting over with whatever I have left in my mind. I am very upset!
The market started the week off on a very bearish note which made it look like the market was going to continue to selloff very hard. But proving that it is never a smart idea to short a market that is breaking down below support, rather than short low volume rallies to resistance, the market snapped back producing a very strong bottom in the short term.
Many traders were caught off guard by the quick snap back but the market is never easy and those that do not subscribe to IBD, it is possible they will miss this rally if it continues.
Most traders are waiting for a follow-through day on the NYSE, Nasdaq, SP 500, or the DJIA. However, those that have IBD know that the IBD 100, 85-85, and New America index have confirmed that we are officially in a "confirmed rally."
When the stock market sold off on Monday and sent the major market indexes to new lows, a peculiar thing happened on the IBD indexes. None of them hit lower lows which meant that there attempted rally with the gains on Friday were still alive. After the up day on Tuesday (day three of the rally attempt) we then were looking for a gain of 1.5% on higher volume the next seven sessions. The very next day the IBD New America jumped 3.3% and the IBD 100 and IBD 85-85 both lept over 4% on higher volume, officially ending the "correction."
I know some traders that are hard-core about the follow-through happening on the major market indexes and if you are one of those people you are currently on day four of your rally attempt and day five will be tomorrow. The best rallies that have the highest chance of succeeding come with follow-through days between day four and day ten. Anything after ten is riskier and the chances of the rally succeeding are lowered dramaticaly. For those that do not adhere to the IBD indexes, I would reconsider and think about changing your bearish bias on the short term. If you don't you risk missing some good gains in some nice stocks as three out of four stocks follow the general trend of the market.
Speaking of the general trend, a lot of people are confused as to what trend we are in. I do not blame them, if I was not a seasoned professional there is an almost 100% certainty that today's market would be driving me crazy as there are very few chances to hit huge winners with such a low VIX and a lot of stocks are very volatile on the short term making buying right ever more important in this market--something new investors almost never do correctly.
The key to markets like this is to not trade them. The smartest traders of all-time like Jesse Livermore would not be trading markets like this. If they were, they would be trading like I am. That entails keeping longs very small, keeping shorts very small, keeping tight cut losses, and making sure to only enter in the direction of the trend of the market. This is what has many confused because the trend of the market seems so choppy. That is your clear tell to stay out of the market, when you feel like you do not have an edge.
I think the proper way to look at this market right now, except the Russell 2000 and SP 600 which are both very ugly, is that on the short term we are bullish, on the sub-intermediate term we are flat, on the intermediate term we are bearish, and on the long term using the 200 dma as my guide we are bullish. So it is clear we are in a veyr mixed enviro.
When all trends are down, it is easy to short and make money (very rarely happens) and when the trends are all up, it is very easy to go long (not as rare but 1999 and 2003 are the only two periods I can say were easy). Most of the time the market is not in these positions which makes it very important to be very vigilant with cutting your losses.
When you do this, you enable yourself to cut the bleeding in the stocks that are not working--and there will be plenty in choppy markets. This then enables you to continue to keep cash on hand for those perfect or near-perfect setups. It is these setups that must always be taken, even if you take small hits every once in a while.
I know that some think it is very important to be in cash in periods like this. But my argument is what if we have seen the bottom and stocks are not going to pullback again. If that is the case, I sure wouldn't want to be out of all the longs like FSLR, MA, and IHS which act like there is ONLY a bull market and nothing else. This is why it is important to always be trading. You should never stop taking your signals. The day you decide to stop taking your signals, I guarantee, will be the day that your longs or shorts breakout/breakdown and run producing huge gains.
RIght now in this choppy market, I continue to find both longs and shorts. However, it is becoming clear that I am finding more longs and that my current holdings of longs are doing very well. Comparing this to the new shorts I find and their recent performance leads me to believe that it would be foolish, for now, to pass up on stocks like EGN, ELMG, PEG, SHEN, DAR, and some others that are offering such great reward to risk ratios.
If all of these fail, what, I lose 5-7% most on any of them. If they succeed I am expecting minimum 25% moves in this environment. So the odds are well in my favor. Especially with longs working right at this moment. If my shorts were still moving lower and all of my new longs were not moving higher with green BOP with the current trend, then obviously I would be more focused on the short side.
Instead, my last four shorts have all had poor outcomes as two have immediately needed most of it covered as it hit cut loss areas. If this market was really that bad, my new longs would ALL act like SIRT did and all of my shorts would act like XLNX has acted since I went short.
This is why I feel like even though this market has a high chance of failing in the near future, that it is foolish to not play the oversold bounce in case that is all this is. No matter if it is a start of a new bull market or an oversold bounce, it always pays to invest with the trend. Do you think that just because I was FOR SURE that we topped in March 2000 (that is when I moved to Maui, remember, since I knew it was over) that I did not play the long side from April 2000-August 2000 which is when the REAL selling started? Of course I did. One of my better longs during that time that still exist was EXTR. From July 20 to Oct 16 it produced a 66% gain. This long was held despite me knowing that the real top was in for good and that the market was rolling over in September before my final October sell.
If this doesn't prove that it is smart to play the stocks and not the market, I don't know what will. There are stocks like MA hitting all-time highs that have given me a 300% gain. Do you think that if I would have believed everything Doug Kass or Barry Ritholtz would have told I would still be long this stock? Of course not. That is why I can not stress enough to NEVER marry a side of the market and that you should ALWAYS be flexible and even if you were bullish one day there is ABSOLUTELY NOTHING wrong about being bearish the next day if in fact that is what the market is doing. Going with the trend is how every single one of the greatest traders traded. Why would you want to do anything different? Are you smarter than the greatest? I didn't think so.
So while the market continues to act in this choppy fashion, I believe it is smart for all traders to either keep all longs/shorts very small or just not even trade at all. There are simply too many whippy stocks that are breaking down then coming right back or are breaking out then falling right back down. That is a clear sign that traders should not be involved in the market.
I continue to trade because I believe I have an advantage as I clearly understand which stocks look better than the others and then can judge exactly how much I want in this market environment. If you still have trouble distinguishing between a bull market or a bear market, then you definitely should not be trading a heavy amount here. Smart traders know when to keep the trading small and then when to press the margin. Right now is not the time to press the margin. It is simply too risky and there are too many stock not acting right.
Some encouraging technical signs that are showing up now is that the amount of new highs are starting to slowly expand again and on the NYSE are now beating the amount of new lows. This is a big change since the top in November. The other clearly bullish development is that the ACC/DIS rating on all the indexes were D to E's. Now every index has a B, except the Nasdaq which has a C. The point is, however, that the trend of the accumulation is in the right direction. This market could have rallied and the ACC/DIS could have stayed below a B or even C, as long as the rally had no volume. So the fact that the ACC/DIS has changed proves that buyers are back in control for now.
The million dollar question though is for how long? Obviously, no one knows that answer but to answer it we have to look at the market from two different areas. One is that if the August lows was a significant bottom then yes the market will indeed continue to rally. If however the November highs were a significant top then there is no way we will get above those highs and instead we should see the August lows again. Why? Because there is always fear at major market bottoms. There was ABSOLUTELY no fear off the November 28 follow-through.
The VIX never got above the August highs, much less the 30 level, on this trip down. The put/call ratio never touched 1.2 during the entire pullback and the bears never crossed the bulls in the investors intelligence survey. Considering that the VIX almost always gets over 35, the put/call hits 1.2, and the bears beat the bulls in the II on every bottom, it makes sense that we did not see one.
Even if the August lows were a bottom the chances of it being a real one are very low in and of itself considering that the bears NEVER crossed the bulls. This has always led to a market rally and the last time I can remember this happening was in Oct 05 right before the rally to the highs in April 06. Since then we simply have NOT seen the level of fear in this market that is typical of bottoms.
I am not sure how we can rally much more from here, considering this insane goldilocks bull market has lasted since October 2002, but eventually it has to come to an end. So while I continue to operate from both the long side and small on the short side, I believe that eventually this short-term rally will fail too.
We simply have laggard sectors leading and former three year plus bull market leaders selling off. When we look at all of the biggest winners from the 02 lows to the 07 highs, you can see that all of the leaders are showing signs of major distribution. Until a new batch of leading stocks with excellent CANSLIM traits show up, there is no way I can believe that this bull has much less.
For now, I continue to believe we saw a high in November, but if all of these indexes can retake their 50 day moving averages and the RUT and SML can retake the 200 dma, then I will obviously fully embrace the bull side. For now I feel like I am riding a bear market rally to eventual resistance, where most of these new longs will fail but some will succeed. Stocks like EGN and PEG in the utilities sector should continue to rally when this market decides it is done.
If I can think of anything else to add, I will. If you have any comments or questions feel free to leave them below in the comment area (comments only received at bigwavetrading.com). Aloha and I will see you in the chat room!!! ALOHA!!!!!
The market started the week off on a very bearish note which made it look like the market was going to continue to selloff very hard. But proving that it is never a smart idea to short a market that is breaking down below support, rather than short low volume rallies to resistance, the market snapped back producing a very strong bottom in the short term.
Many traders were caught off guard by the quick snap back but the market is never easy and those that do not subscribe to IBD, it is possible they will miss this rally if it continues.
Most traders are waiting for a follow-through day on the NYSE, Nasdaq, SP 500, or the DJIA. However, those that have IBD know that the IBD 100, 85-85, and New America index have confirmed that we are officially in a "confirmed rally."
When the stock market sold off on Monday and sent the major market indexes to new lows, a peculiar thing happened on the IBD indexes. None of them hit lower lows which meant that there attempted rally with the gains on Friday were still alive. After the up day on Tuesday (day three of the rally attempt) we then were looking for a gain of 1.5% on higher volume the next seven sessions. The very next day the IBD New America jumped 3.3% and the IBD 100 and IBD 85-85 both lept over 4% on higher volume, officially ending the "correction."
I know some traders that are hard-core about the follow-through happening on the major market indexes and if you are one of those people you are currently on day four of your rally attempt and day five will be tomorrow. The best rallies that have the highest chance of succeeding come with follow-through days between day four and day ten. Anything after ten is riskier and the chances of the rally succeeding are lowered dramaticaly. For those that do not adhere to the IBD indexes, I would reconsider and think about changing your bearish bias on the short term. If you don't you risk missing some good gains in some nice stocks as three out of four stocks follow the general trend of the market.
Speaking of the general trend, a lot of people are confused as to what trend we are in. I do not blame them, if I was not a seasoned professional there is an almost 100% certainty that today's market would be driving me crazy as there are very few chances to hit huge winners with such a low VIX and a lot of stocks are very volatile on the short term making buying right ever more important in this market--something new investors almost never do correctly.
The key to markets like this is to not trade them. The smartest traders of all-time like Jesse Livermore would not be trading markets like this. If they were, they would be trading like I am. That entails keeping longs very small, keeping shorts very small, keeping tight cut losses, and making sure to only enter in the direction of the trend of the market. This is what has many confused because the trend of the market seems so choppy. That is your clear tell to stay out of the market, when you feel like you do not have an edge.
I think the proper way to look at this market right now, except the Russell 2000 and SP 600 which are both very ugly, is that on the short term we are bullish, on the sub-intermediate term we are flat, on the intermediate term we are bearish, and on the long term using the 200 dma as my guide we are bullish. So it is clear we are in a veyr mixed enviro.
When all trends are down, it is easy to short and make money (very rarely happens) and when the trends are all up, it is very easy to go long (not as rare but 1999 and 2003 are the only two periods I can say were easy). Most of the time the market is not in these positions which makes it very important to be very vigilant with cutting your losses.
When you do this, you enable yourself to cut the bleeding in the stocks that are not working--and there will be plenty in choppy markets. This then enables you to continue to keep cash on hand for those perfect or near-perfect setups. It is these setups that must always be taken, even if you take small hits every once in a while.
I know that some think it is very important to be in cash in periods like this. But my argument is what if we have seen the bottom and stocks are not going to pullback again. If that is the case, I sure wouldn't want to be out of all the longs like FSLR, MA, and IHS which act like there is ONLY a bull market and nothing else. This is why it is important to always be trading. You should never stop taking your signals. The day you decide to stop taking your signals, I guarantee, will be the day that your longs or shorts breakout/breakdown and run producing huge gains.
RIght now in this choppy market, I continue to find both longs and shorts. However, it is becoming clear that I am finding more longs and that my current holdings of longs are doing very well. Comparing this to the new shorts I find and their recent performance leads me to believe that it would be foolish, for now, to pass up on stocks like EGN, ELMG, PEG, SHEN, DAR, and some others that are offering such great reward to risk ratios.
If all of these fail, what, I lose 5-7% most on any of them. If they succeed I am expecting minimum 25% moves in this environment. So the odds are well in my favor. Especially with longs working right at this moment. If my shorts were still moving lower and all of my new longs were not moving higher with green BOP with the current trend, then obviously I would be more focused on the short side.
Instead, my last four shorts have all had poor outcomes as two have immediately needed most of it covered as it hit cut loss areas. If this market was really that bad, my new longs would ALL act like SIRT did and all of my shorts would act like XLNX has acted since I went short.
This is why I feel like even though this market has a high chance of failing in the near future, that it is foolish to not play the oversold bounce in case that is all this is. No matter if it is a start of a new bull market or an oversold bounce, it always pays to invest with the trend. Do you think that just because I was FOR SURE that we topped in March 2000 (that is when I moved to Maui, remember, since I knew it was over) that I did not play the long side from April 2000-August 2000 which is when the REAL selling started? Of course I did. One of my better longs during that time that still exist was EXTR. From July 20 to Oct 16 it produced a 66% gain. This long was held despite me knowing that the real top was in for good and that the market was rolling over in September before my final October sell.
If this doesn't prove that it is smart to play the stocks and not the market, I don't know what will. There are stocks like MA hitting all-time highs that have given me a 300% gain. Do you think that if I would have believed everything Doug Kass or Barry Ritholtz would have told I would still be long this stock? Of course not. That is why I can not stress enough to NEVER marry a side of the market and that you should ALWAYS be flexible and even if you were bullish one day there is ABSOLUTELY NOTHING wrong about being bearish the next day if in fact that is what the market is doing. Going with the trend is how every single one of the greatest traders traded. Why would you want to do anything different? Are you smarter than the greatest? I didn't think so.
So while the market continues to act in this choppy fashion, I believe it is smart for all traders to either keep all longs/shorts very small or just not even trade at all. There are simply too many whippy stocks that are breaking down then coming right back or are breaking out then falling right back down. That is a clear sign that traders should not be involved in the market.
I continue to trade because I believe I have an advantage as I clearly understand which stocks look better than the others and then can judge exactly how much I want in this market environment. If you still have trouble distinguishing between a bull market or a bear market, then you definitely should not be trading a heavy amount here. Smart traders know when to keep the trading small and then when to press the margin. Right now is not the time to press the margin. It is simply too risky and there are too many stock not acting right.
Some encouraging technical signs that are showing up now is that the amount of new highs are starting to slowly expand again and on the NYSE are now beating the amount of new lows. This is a big change since the top in November. The other clearly bullish development is that the ACC/DIS rating on all the indexes were D to E's. Now every index has a B, except the Nasdaq which has a C. The point is, however, that the trend of the accumulation is in the right direction. This market could have rallied and the ACC/DIS could have stayed below a B or even C, as long as the rally had no volume. So the fact that the ACC/DIS has changed proves that buyers are back in control for now.
The million dollar question though is for how long? Obviously, no one knows that answer but to answer it we have to look at the market from two different areas. One is that if the August lows was a significant bottom then yes the market will indeed continue to rally. If however the November highs were a significant top then there is no way we will get above those highs and instead we should see the August lows again. Why? Because there is always fear at major market bottoms. There was ABSOLUTELY no fear off the November 28 follow-through.
The VIX never got above the August highs, much less the 30 level, on this trip down. The put/call ratio never touched 1.2 during the entire pullback and the bears never crossed the bulls in the investors intelligence survey. Considering that the VIX almost always gets over 35, the put/call hits 1.2, and the bears beat the bulls in the II on every bottom, it makes sense that we did not see one.
Even if the August lows were a bottom the chances of it being a real one are very low in and of itself considering that the bears NEVER crossed the bulls. This has always led to a market rally and the last time I can remember this happening was in Oct 05 right before the rally to the highs in April 06. Since then we simply have NOT seen the level of fear in this market that is typical of bottoms.
I am not sure how we can rally much more from here, considering this insane goldilocks bull market has lasted since October 2002, but eventually it has to come to an end. So while I continue to operate from both the long side and small on the short side, I believe that eventually this short-term rally will fail too.
We simply have laggard sectors leading and former three year plus bull market leaders selling off. When we look at all of the biggest winners from the 02 lows to the 07 highs, you can see that all of the leaders are showing signs of major distribution. Until a new batch of leading stocks with excellent CANSLIM traits show up, there is no way I can believe that this bull has much less.
For now, I continue to believe we saw a high in November, but if all of these indexes can retake their 50 day moving averages and the RUT and SML can retake the 200 dma, then I will obviously fully embrace the bull side. For now I feel like I am riding a bear market rally to eventual resistance, where most of these new longs will fail but some will succeed. Stocks like EGN and PEG in the utilities sector should continue to rally when this market decides it is done.
If I can think of anything else to add, I will. If you have any comments or questions feel free to leave them below in the comment area (comments only received at bigwavetrading.com). Aloha and I will see you in the chat room!!! ALOHA!!!!!
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