It's About Time!; Stocks Breakdown From The Triangle Consolidation (NYSE Reverses Its Breakout), On Much Heavier Volume

Well, I guess, all I can say is, so much for that rally. There were a lot of people that were very confident that the lows in this market were seen on 1/22 and 1/23. Those people that believe that is the case still, are living in serious denial about the true problems this market has. Unless you are only focused on the oil, gold, steel, metal, food, ag, machinery, or chemical stocks, there is no way anyone can be serious when they say they are bullish on this market. Everywhere I look I see some big damage that was caused by today's selloff and the reality of the situation is very clear to me. This market is not a market to buy.

Today, stocks were crushed, as a raft of poor economic data and more subprime BS slammed the door in the face of the bottom-callers. Part of it was due to the consumer as for the third month in four their was no growth in spending. And for those that truly do not grasp how important that is, I hope I can help convince you, along with IBD, that it is indeed very important.

IBD echoes my feelings and they use 2001 as an example. If not for the spending habits of the consumer, there indeed is a high probability that we would not have rallied off that horrible time the way we did. We came back extremely strong and it might not have been that strong if not for the consumer. And after LTCM and the global crisis back in 1998, it was the consumer's spending, once again, that helped keep the economy going just enough to keep other sectors moving. If you want to know what it is like when people stop spending money, take a look at post-bubble Japan in the 1990s. This is a big deal and is just another piece of the puzzle that shows the economy is in a lot of trouble.

The bulls want to say that this is just a minor dip and that things will be better in the future. Realist look at that argument and immediately take a look at the books of the homebuilders and say "wait a minute." "This is just starting." Yes, in fact it is just starting. How do we know that? Easily. I call it common sense. Do you think the Fed is lowering rates because the economy is on fire? Do you think that when they are done the market is just going to say "thank you" and start running again?

Our GDP numbers have just started trending down and when you look at factory backlogs and activity it is almost impossible to say that this will correct in just a quarter or two. But on top of this poor GDP is the nasty PPI and CPI which show that we have real inflationary problems. With that inflation we have a big problem with jobs as joblessness is rising and wages earned is growing at its lowest level in a very long time. This is not the proper macro trend for our stock market. And all you have to do to confirm that the macro trend is not good is look at the stock market. A bullish market with a strong economy does not look like this. This is a market eerily similar to the late 1960s and early 1970s. For those that do not know their history, 1968-1980 was the equivalent of investor hell, as the DJIA moved -.22%. So basically it was twelve years of nothing.

However, not to fear, active investors, as many stocks made a lot of big gains during that time. If you backtest your charts of the DJIA you will see that there were some very serious trends back then that allowed us to make some good money on the long side (1968, 1970-1971, 1972, 1975, 1980) and good money on the short side (1969-1970, 1971, 1974, 1977). During these runs, many stocks, obviously produced some great gains. So if we are about ready to enter a period of stagflation or enter a recession, there should be plenty of shorts for us to profit off of. If you are too nervous to short or are too inexperienced, don't be shy about keeping those cash levels high. Most people, if they would have stayed in cash, during the past few months, would be sitting pretty with gains much larger than the market. I know a lot of people that have losses since the start of this year (like yours truly in 4 of 6 accounts) but the key is to see if you are beating the market.

A lot of people do not understand that just because you are down, does not mean you are a loser or a bad trader. If you are down 10% this year, you should not be upset. Instead you should realize that you are beating the Nasdaq by almost 5% and that makes you better off than well over 50% of investors out there. The best bet to do now is to make sure you stay locked in that cash. Let the mediocre stocks come flying by with their almost nice chart patterns that still fail in this choppy market anyways because 3 out of 4 stocks follow the general market. So if the market is going nowhere, chances are that your stock will not be going anywhere either, unless it is in one of the top 20 industry groups and only if that group has been climbing the list.

This is why I keep saying it is ok to be in cash. By going to cash, you can make sure you do not lose money while you learn how to trade and then when this crazy market is over and a new "real" uptrend starts instead of having $385,000 to try for that 1000% (which should be doable with 4 to 1 margin--study my 'past big winners!!') gain you will still have the original $500,000. And trust me more of you (like 99%) will end up with less money when you get out of this market environment.

Luckily for me, I still have a lot of short positions that did not signal any full sells while we had that very low volume drift higher. Those shorts piled it on thick today. Not only that, the longs that I own all pulled back on lower volume and still have nice chart pattterns--that is, of course, mostly the commodity stocks.

But there is a group of longs that I started to go long based on the strong fundamentals and charts. That is the medical stocks. However, after Friday, things have changed as HMSY, CMED, CHDX, and AMED all had to be fully sold today. This is kind of shocking, considering that medical stocks historically do well in bear markets. This along with the utilities falling in a bearish market environment has to be considered really bad.

I am not sure the reasons why these stocks are reversing. But what normally happens with stocks that everyone think should be going up but selloff on no news is that something bad is going on industry wide underneath but will not be known until much later. Taking those charts along with two popping into my head that I just saw (ELN XNPT) and I believe there is a deeper macro issue happening.

What I personally think might be happening here is one of two things, or both, or none. The medical stocks are selling off because consumers are so extended (130% in debt I recently saw) that they simple can not afford to frivolously use up their medical. Or it could be because the sector is looking ahead to a Barack Obama or Hillary Clinton winning and the taxes, trade barriers, and regulations that will be imposed on this industry, along with the insanity of the already-failed-in-Canada-and-England universal healthcare. No matter how you look at it, it is not good for this industry, and now the market appears to have recognized it.

Whatever the reason is the fact that these stocks are failing and reversing on strong volume and red BOP is very bearish. This leaves ONLY commodity related stocks that are moving up and to me that is scary. They are moving higher because it is obvious there is too much money chasing too few goods. This along with the horrible regime of Mugabe in Zimbabwe has helped to spur what could be 100,000% inflation by the end of 2008. But his is also impacting us here as corn is used for the ridiculous wasteful and "carbon emitting" ethanol fuel. This then effects the food chain and line. Combine this with some bad weather here and there and you get some real problems. Hence, all our great looking commodity charts and ugly everything else. There seems to be no end to higher prices in sight and the charts while going "exponential" are no where near at the end of a parabolic run.

Helene Meisler recently penned a piece suggesting they were parabolic. Well, my fellow colleague (who lives in St. Louis, where I was born; I think I got the better end of the deal ;)) Helene did not look at enough charts and if she would have overlaid the current ETFs over other parabolic runs she could see they are just starting. Fortunately, I am not the one that has to tell her this as Manning was immediately on top of this including his own conversation with Jim Rogers.

Jim believes we are only 1/2 way through this run and if it started in 1999 will last until about 2018. So take that for what it is. Jim is also short MSFT and so am I. So if the guy is long what I am long and is short what I am short, who am I to argue with the man. The only amazing thing is that Manning can talk to Jim. LOL. I don't even think Jim would look at someone like me. Which is fine with me, by the way. I prefer to be the outsider looking in.

My returns with this CANSLIM system sure does prove that. These "professionals" couldn't even touch my subscribers with their money. For proof of that, Cramer's Action Alert Plus has an unbelievably pathetic 30% return since 1/1/02. Now I know that is wrong to say something like that and I do apologize for being a jerk. The truth is that he should have doubled his money. Look at the IBD 100, look at the IBD 85-85, look at the returns from the AAII screen that runs the CANSLIM system, look at Ken Heebner, and look at me, axman, market, and wutan (and many others). 30% is terrible. Yet I am sure for those that ONLY watch Cramer on CNBC, it is incredible. Not good.

Now, I will admit, I do not have the money Cramer has, but I lived in Manhattan and Manhattan prices have nothing on West Side Maui prices. Everything I earn almost goes into my cost of living, so it is going to be hard to be worth what Cramer is worth now. But when I am as old as Cramer is, trust me, my Action Alert portfolio will be doing a lot better than his. Mark my words, mark my 'past big winners.' The only ways it couldn't be is if we never have another bull market ever again or if we are nuked. Either way I am screwed and at least I know how to surf. If there is no stock market, at least there might be waves. If there are no waves, there is still plenty to do in the ocean.

Getting back to this market, I want to go over some internal numbers that caught my attention today. First off, besides the NYSE and SP 600 which only barely made it over the 50 DMA, the rest of the indexes spent five weeks basing BELOW this key moving average and that combined with today's crack on 20% higher volume is bearish. On top of that, new lows killed new highs by a wide margin of 39 new highs to 360 new lows. This is not what you see if the pullback was just a normal pullback in a market that had in fact bottomed. If that was the case we would have seen the new lows stay around the number of new highs since they were close the past few days. This expansion confirms the weakness.

Now, there are a couple of things that indicate there was some fear in this selling. This can be seen in the VIX that jumped 11% to 26.50 which is a good pop but still a weak reading as it is still almost 100% away from the 50 needed to signal a GREAT BOTTOM. On top of the VIX, the put/call ratio jumped to 1.21 which indicates there was a good little amount of fear in the market today. However, with the put/call, big jumps usually don't matter unless the stock makes a big move lower and then puts in a very bullish intraday reversal closing higher. The near 3% move just is not enough to signal a day full of capitulation. So 1.21 is just not high enough. When we see another day similar to August 16th, along with the put/call hitting 1.5, then I may declare a bottom.

For now, however, without an extremely high VIX around 40-50, a put/call around 1.5, or the investors intelligence showing more bears than bulls, there is simply no way I can believe 1/22 and 1/23 are bottoms and today's swoon along with all the ugly stock charts and fresh breakdowns signals to me to be ready for new lows. If that happens, I guess the bottom callers will give it another shot. They sure do think we are going to forget that they keep calling these out. They will continue to be wrong, until you do not hear any more bottom calls.

Once you stop hearing those bottom callers and start seeing more SWIR EGHT USNA EPIC EVOL TASR FMDAY DITC FLML SIGM MOBE from 2003, IST (MT) from 2004, LMLP LPTH MRVC PARD CAMP NEWP CRGN from 1999, HRZ from 2006, AFSI from 2007 and maybe, just maybe, CMP in about five weeks. It would need to continue to move sideways on low volume (with maybe a few big accumulation days in between) and max green BOP. If it could do that we might have our first "HOT" chart since APPY on September 19th and 21st (was too speculative to load up).

But if we continue to selloff and we do not see those pretty charts setting up then what I will be doing will be the same thing I was doing shortly after this market topped. And that is shorting stocks of these high priced ex-leaders that are clearly breaking down. Right now, almost every single stock that I am monitoring as a short is no where near being in a position to short. Most still are not close enough to the 50 and 200 day moving average to warrant any big short position.

Recently, I have been very lucky and two stocks have setup in good short positions two days in a row. What makes this even better is that I was already long these stocks going into Thursday's session. Those that are silver to platinum know which two I am talking about and if you study those charts you will see two stock that have done everything right when it comes to being a good short position. It has topped, broken down on huge volume through key moving averages, rallied on lower volume back to the moving averages, and breaks down again on strong volume. To go along with that I like to see red BOP throughout the chart and see the RS line making new lows before price.

If I continue to find charts that are red and setup like this, instead of the usual "green" subjects, I will obviously be focusing on the short side and not the long side. However, right here, there are not a lot of stocks setup right as many are either down too much already or the stock did not rally back far enough to key resistance or the moving averages. So right here, you are basically still in no man's land as it is hard to short and hard to go long.

Now, with all of this being said this weekend from me, it is probably obvious that I am very bullish on commodities (via the charts) and very bearish on the economy (via the charts and macro data). And even though I know we have not seen any real fear with the VIX failing to hit 40-50 and the put/call refusing to print a ridiculously high number, I do not deny the fact that we could see the lows shortly, if indeed this is just a minor blip in the world economy and not a major setback that will take years to fix.

If that is the case, and the market puts in a powerful follow-through day on huge volume (which it NEVER did off the 1/22 reversal), then my short side bias will obviously drop. It will drop further if I can find some more charts that are looking like CMP and SWC. You already know about CMP, but if SWC can chill-out for five to seven months and create a nice quiet base, just like CMP, SWC could easily be a huge winner. It has already built a right side of a base on mostly green BOP running up almost 150%. If it can build a high tight flag, flat base, or another base on top of it, I would be very bullish on this stock. And if I see more stocks like these then I will be very happy. The last thing that would have to happen to get me fully bullish would be for the remaining shorts to have an extremely bullish day (basically following-through off the lows) that lets me know that the easy gains are over.

I have no problem with being a bull here, but to do that I will need reasons to be. I am not just going to be a bull for the sake of being one. I don't need to call a bottom. I don't have to impress anyone, my accounts give me enough feedback that tell me all I need to know about what being a bull is all about here: ignorant pain. That is unless you are long the commodities. But besides the gems, there is nothing out there with "hot" chart patterns that are slowly and steadily climbing the 50 DMA and 200 DMA higher.

When I have proof and reasons to be bullish I will be bullish. Give me a high VIX, more bears than bulls in the investors intelligence survey, a high put/call ratio, a stock market follow-through day with a HUGE price and volume gain, and a couple of handfuls minimum of stocks that look like my 'past big winners' and how CMP is starting out and I will be more than happy to come down with a case of "irrational exuberance."

Until that happens, chances are very low that you are going to get any kind of rally that has any kind of legs. Yes, we have the commodities moving but unless you are experienced and know how to hold through some volatile trending there is not going to be a lot of gains to be had by nervous traders who sell on any sign of weakness. There are sure to be some volatile movements in these stock prices if they continue to rally.

The best thing I can advise, once again, is that everyone keeps their trades very small, if you have to even trade at all. Keep the cash levels in your account very heavy. If you are experienced with the short side, then by all means take some of your favorites that are setting up in proper short positions short. If you are a newbie and you have not established a consistent long-term track record of making money on the long side, then please heed this advice and go to cash. Your account will thank you. It will be difference of starting the next bull market run, that could produce for you a 10,000% gain if you buy the next NTES, SOHU, and SINA and get those 2,500% returns in a year, with all of your starting equity (let's say $500,000) or just some of your equity (let's say after a year of trying to trade this market you are left with $390,000). $500,000 x a 10,000% return, versus $390,000 x a 10,000% return, is a much better way to start a new bull market.

What most fail to realize is that the chances of you losing money in this market is at least 75%, since three out of four stocks follow the general trend of the market. And that is why for one last time I am asking that newbies please keep their cash levels high here so that when the next trending higher, heavy accumulation, max green BOP, perfect fundamentals stock comes along you will have all of your money to put into it instead of some.

Most traders are churning their accounts slightly lower here. Including yours truly as I have some accounts down for the year. However, being down 1%-5% is A LOT better than being down 15% like the Nasdaq is near. There are a lot of bear market where some sectors do extremely well. That sector, for us, is commodities. Besides maybe poking a few tiny longs here and there, please keep that cash level high, so that when the next 1998 or 2002 bottom occurs, you will know that it is time to start looking and to start actively investing on margin.

I hope you all had a great week and that Friday did not get any of you leaning too heavily one way or the other. If you got caught, at least you can't blame me. In my RealMoney columns and on this bronze commentary, over and over, I have advocated new active investors to raise cash. If you are listening to what I am writing, then you are sitting pretty and should be very excited for when that next bull market comes. I know all I have to do is stair at my 'past big winners' for a little while and the joy and passion I had during those times hits me like a great acid flashback (is there such a thing?).

Have a great weekend, don't forget to read my RM column. It was posted late due to internal website problems. Aloha and I will see you in the chat room where it is always a bull market somewhere. SURFS UP!!

top current longs (shorts) and their returns since purchase: EBIX 130% CCC 95% MCF 109% PTEC 109% RICK 85% CPHD 81% IHS 227% AUXL 83% MA 281% (CBEY 56% GRMN 36% GS 21% AAPL 30% GOOG 28% BEN 23% ATI 22% CLP 24% COH 27% MSTR 30% SGMS 39% RYAAY 25% SHOO 37% PSYS 21% TSRA 35% LFC 32% ASF 29% MI 31% FTEK 20% HIG 22% ING 21% PRU 21% PVH 23% LVS 26%)

Worst Week For Stocks In I Believe Five Years Leaves Behind A Wasteland Of Broken Charts

January 19, 2008

There is no other way to describe what happened this week as anything other than a major breakdown in all the major market indexes. The worst part (if you are a natural bull) is that the breakdowns now have every single major index with the 50 day moving average below the 200 day moving average. The Nasdaq was the last index to accomplish this “death cross” feat.

To make the declines this week worse, the averages sold off on heavier volume, with volume Wednesday, Thursday, and Friday on the Nasdaq reaching levels we have not seen since the mid-August sell off. The indexes are under major distribution by large institutional investors and there is no way with this amount of slow distribution (instead of a one day crash) is going to be followed, right away, by large amounts of accumulation. This market has cracked and broken wide open.

For those of you who are still bullish out there, it has to be due to ONLY one reason: you are a complete neophyte to the stock market. There can’t possibly be ANYONE who has been involved with the stock market for over a year that wants to load up on stocks here–that is except Doug Kass, my fellow colleague at RealMoney, who wants to load up on stocks here. Is he an idiot or what? This guy has been a hardcore! bear for over two years missing out on a TON of good gains (like MOS and TNH) all the while screaming about the upcoming recession. Now FINALLY he is right and he is now bullish? If there is anyone who you should probably NOT listen to about the stock market it is Doug Kass. The guy is brilliant at finding great short candidates but when it comes to the market he is about as in tune as WillPS (I love you Will, you have to realize this is for your own good but I really do want to see you succeed which is why you are being mentioned so much!!).

Something that I think bears much more hardships for the market is the way it reacted to the news by President George W. Bush. He announces a stimulus plan the size of $150 billion which is 1% of the GDP and the market takes its gains and turns it on its head leading us to close lower on the day? That is definitely a market I want to stay away from. There is no way news like this should have been received the way it was. It is a clear sign that ANY good news, besides bad news, is going to be sold.

Bush’s tax cuts in 2003 helped launch one of the most resilient bull markets we have ever seen. However, now, the market only laughs and instead of rewarding the stimulus package just says “sorry, nothing you do is going to save you from this.” This market has topped and if you need any more proof than this and your dwindling capital in your trading/investing accounts, you have some serious psychological problems and need to probably A) start reading all the books in my book list B) stop trading for now or C) stop trading forever.

Another thing I keep hearing from the foolish newbie crowd or the gambling buy-and-hold crowd is that these winners are going to come back as they are at “bargain” levels. What these dolts refuse to see is that this is the same BS we heard just seven years ago. Where in the heck are their brains or their history books. Have they not learned their lesson or not learned the lesson of history?

I remember clearly in 2000 how every single dip in YHOO EBAY MSFT CSCO QCOM JDSU AMZN was a “bargain” to be bought for the huge gains that would be coming again. Why don’t some of you go check your long-term weekly charts and tell me how those stocks rebounded. Then I want you to do a % return scan on your charting softwares and see how many stocks in each year went up over 100%. As you would see, if you actually did this exercise, there were a TON. By buying the bargains you prevent yourself from buying the next big winner. By the way, how is TASR and TZOO doing. I remember how AFTER the stocks topped how everyone said every pullback was a bargain. Wasn’t there even a TASR ticker on CNBC at the end? I could be wrong but for some odd reason I thought there was. I was playing more poker than watching CNBC that year.

By the summer, we will probably be up-to-date on most of my past big winners with HOT charts in my ‘past big winners’ section. Once it is updated, you will quickly learn that most of my big winners were fresh brand new stocks that almost no one has ever heard of. JUST LIKE CANSLIM TEACHES US. And those gains in those stocks NEVER had severe selloffs from climax runs like many stocks this year have. There are climax runs everywhere and almost 99% of those stocks will NEVER come back to be a huge winner. The bottom line: You are NEVER going to find a RIMM, GOOG, BIDU, or FSLR after they have already had one huge bull market. The exception, you might say, is AAPL. But technically Jobs rebuilt that company and turned it into a NEW COMPANY. The IPO was basically in 2001 and by 2004 we had one of the best stocks of the five year bull market setup and break out of a beautiful base. Sadly I only received 200% of this 1000% gem.

So now that I have convinced you–probably not the newbies but you know what I can’t care when their ignorance blinds them from the truth–that you can not buy the next big stock market leader from a group that was once part of the last big bull market, maybe that can convince some of you to stop trying to buy the stupid dips in stocks like DRYS, MOS, IHS, MA, and GOOG and instead to start looking at rallies as places to short.

Even if we put in an oversold rally that last for months (just like the rally in 2000, early 2001, after 9/11, and the small one in the summer of 202), there will be chances to make money on the green charts, like FFH, in select defensive stocks like Medical and Food stocks. And even right now Medical stocks are good areas to go long as 10 of the top 20 industries based on six-month price performance in IBD are Medical groups. Quite an impressive showing for a sector! But with the rally in Medical stocks, the losers that have topped will also rally. Those are the stocks you must not get fooled into buying back, thinking you got a “bargain” or a “value.” Those are the stocks the talking heads on CNBC want YOU to buy so that the smart money can unload on your not-so-smart behind. Why people keep falling for it is beyond me. But when you don’t take the time to learn about either politics or the economy, you deserve what you get. You fall for the BS, you deserve the punishment. Being “ignorantly bliss” is the equivalent to a horrible disease. I know I don’t want to get infected by it.

As long as you newbies can not fall for the crap you hear on CNBC and learn that REMEMBER!!! we buy new 52-week highs, NOT LOWS, then you will save yourself a lot of pain. If you ignore my market battled-and-tested warnings you will pay for it dearly when the market finally has enough of you. It will chew you up and spit you out.

Recently, I must admit, I have hit a major funk of depression, just as I have been asked to work for RM. Thankfully, that gig is working out but for the past three months I have been in a trading funk UNLIKE ANY TIME SINCE MY FIRST MONTHS OF TRADING. I was blessed to learn the CANSLIM strategy first and it IMMEDIATELY made sense to me so I was blessed in that market environment. I could do no wrong and I lost enough money in the 97 and 98 pullback that by the time the 2000 top came I already knew how to protect gains. Not only that but my shorting worked perfectly in 2000. But what I keep forgetting is that from April to August I did have a rough time as I was only going long stocks again and while I got a few winners (go check the past winners section) on about 70% of what I bought I was cut out of rather fast and with decent losses. But the trend turned back down and I went back to shorting which at the time could do you no wrong.

The one difference from then and now is that I keep loading up on the wrong stocks. These exact same perfect setups or really strong setups has worked for me for twelve years but now all of a sudden I can’t get anything I buy in bulk to work. My last large trade was AFSI which I still only put 5% of my account in after a teaser buy of 1% of my account. 6% is not a big position. The last time I went to 10% of one was HRZ in late 2006. That pattern is the one you should burn into your head. That HRZ pattern simply does not get any better than that and the next time I find one like that 20% of my account will go in it. But if that pattern showed up tomorrow, I probably would not buy 20% of it.

For the first time that I can remember, I am having my third straight month of horrible performance. Now, by horrible, I know me and you have two different definitions. You might think horrible is losing 20% while the market lost 10%. Well, this year the market has lost almost 12% by the Nasdaq while I am down 4% on the year. Now I know some of you must not understand how that can be when I have these kind of gains in short positions: (FAF 28% FRT 20% CLP 32% ASF 25% FDX 23% ESI 20% XLNX 24% COH 40% MI 35% FTEK 30% MSM 26% HUBG 21% PVH 27% ATI 34% LVS 34% MSTR 26% CBEY 22% RNT 33% SGMS 46% BEN 28% MHGC 21%-in-four-days). But the matter of the fact is that I did not consider any of these to be fully perfect shorts so I did not load up on any of them. What have I loaded up on? Well I will tell you one perfect short setup that failed (AMX) while keeping the rest secret to this section as I have become paranoid that if I talk about them they will go the wrong way. However, AMX perfect setup on 1/2 failed on 1/10 but immediately freaking rolled over becoming a candidate on 1/15. Of course I passed again and now it is down almost 7% since then.

Then we have FFH long. I was long that stock but at the start of the year it took me out. Now look at it!! Another perfect move over the 50 day moving average (not a perfect setup–don’t get that confused). So, once again, I have been whipped. The bottom line is that things are not going well in my trading and it seems that if the pattern is extremely nice (and I am sure no one else has their charts like mine that have millions and millions) and near-perfect to perfect it fails. And if the pattern is good to really good then it acts like the stock was perfect. I think that if this was a bull market now and HRZ setup in its 2006 pattern, it would fail. So my psychology is off. I know how to fix it and it is to step away but I can’t do that so instead am going to keep everything small until I can load up my shorts in GOOG RIMM AAPL BIDU FSLR MOS TNH etc when they setup in their perfect short setups. If you don’t know what they are….BUY THE BOOK HOW TO MAKE MONEY SELLING STOCKS SHORT by WILLIAM J ONEIL. The two books he has written on the markets, if you read them slowly or read them a LOT, will completely change your life and make you a stud when it comes to trading stocks.

When it comes to trading futures, don’t ask me. Ask David, in our chat room. I do not have a lot of interest and I believe that he is beyond qualified to teach you this professional technique. If you are a newbie and can not even make money going long stocks, don’t you dare think about trying futures. It is much harder than trading stocks. It moves a lot faster and has much higher risk as you can borrow a lot of money for a little money.

Is there anything that makes me think we are going to put in a real bottom any time soon? LOLOLOL. Are you crazy?

Is there anything that makes me think we could put in an oversold rally on the short-term. Absolutely and the first thing that excites me is that the VIX is finally moving. The fact that it has just started moving higher is probably not good for finding a low just yet. But a little more of a rise in the VIX to the August highs could lead us to an oversold rally. But hopefully it will not last long because we need to really wash this market out of weak hands and set up and start the process of stocks building nice long max green BOP filled bases. These beautiful long term bases are what leads to market like 2003.

This market is way too far down right now to have a 1999 type rally but that market had shallower bases but the stocks that were momentum favorites and in top industries pulled back on no volume with BOP staying max green or just green. Do you see any max green BOP filled stocks that trade over 100k a day and are over $10 a share? Nope. Do you see any that are pulling back into nice tight bases, besides Medical stocks and FFH? nope.

Chances are that this is going to be a very long drawn out bear market that is sprinkled with a recession on top. You better take those bull goggles off amateurs. You are hearing this from someone WHO WAS A BULL FROM THE OCTOBER 2002 RALLY TO THE NOVEMBER 2007 TOP. DURING THE PULLBACKS IN 2005 AND 2006 WHEN EVERYONE WAS CALLING A TOP I CONTINUED TO NOT CALL A TOP BECAUSE HOT GREEN TO MAX GREEN FILLED CHARTS EXISTED. In 2007, I was premature a couple of times, but as soon as the lows and a follow-through day were printed I immediately turned and helped you make money on stocks like TESO AFSI DRYS FSLR, and APPY to name just a small amount. When November’s selling came, I saw something very different. And I still see this now. No green and all red. This is going to take a long time to fix.

Aloha and I will see you in the chat room where hopefully I can get over my small losses and realize that I am still beating the market by a significant amount. Even though all of you are crushing me. I still feel like a loser and I am still upset over it but don’t think for ONE SECOND that I am not completely stoked and happy for you all. I am so proud of all of you that are making money in this market. I remember the 2000 market and the whole situation like it was yesterday. I remember watching $500k turn into $11k in some peoples accounts as they bought every dip and refused to short the rallies. I am so proud of you all (not you WIllPS…yet) and continue to wish you all the best in trading. I hope I can make you all filthy rich and as a byproduct I pray my trading turns around and the next HRZ, TASR, or even FMDAY (2006,2003,and 2004) will blast off to the sky just like they did last time and that my confidence will be up to the point that I can put 25% in each of these bad boys. I am in a major funk but am only down 1% from the November highs while the market is down 18%.

It is very disappointing to have this run but preserving chash ALWAYS KEEPS YOU IN THE GAME TO FIND THE NEXT TASR OR LMLP (1999). Once again, aloha!

Oversold Bounce Has No Bounce As Stocks Selloff All Day Long On Lower Volume

The stock market ended the week the exact same way it started and that is with a lot of selling. On Monday the market found support intraday to stop it but on Friday there was none of that support as the market took the bounce that started on Wednesday and slammed it to the ground.

Now, I know a lot of people that are chart watcher want to be real bearish here, especially since the retail public has been brainwashed to buy these dips, but the fact is that we are still above the Wednesday’s lows and that the market’s bounce is in fact still intact. And the other item I see is that volume was lower on today’s move lower than on the previous two days of gains.

But there is one obvious problem I already see with this bounce. There are still no fresh stocks breaking out of beautiful properly formed bases on strong volume. Therefore, there is no way that we can expect anything more than an oversold bounce right now.

I have discussed this market so much the past week here in this little blog that I am finding almost impossible to say anything new about it. But I do see something that appears to me to be very bearish. In fact the bearish indicator is an indicator I hardly use but I put it on my chart for moments like this.

The moneystream line is an indicator that I almost know nothing about. What I do know is that when it makes very bullish or negative divergences it has a high correlation of hinting at a possible big move by the security or index. Well there are two indexes that I see with some amazingly huge divergences on the daily time frames.

The SP 600 and Nasdaq are both showing severe negative divergences in moneystream to price. The worst one is the SP 600. The price has just recently eclipsed the lows of November and December but the moneystream is well below its lows at that point. But even more noticeable is the moneystream at the November and December lows compared to the August lows. The moneystream was making new lows in November way before price was and by the time price went below the previous low the moneystream was waaayyyy below the August lows. This hinted at possible more declining prices then and it was right as the November and December lows have now been taken out. And the fact the moneystream is still hitting new lows confirms that the trend should continue after this bounce is over.

Not only is the moneystream leading price to new lows, the RS line is doing the same thing. The RS line hit new 52-week lows on 11/1 which was twelve days BEFORE!! the price hit new lows. On the December bounce where price went back to touch the 50 DMA, the RS line fell almost every single day. By the time prices turned lower again, the RS line was hitting new lows. It is also hitting new lows right now well ahead of its previous lows while price is just now breaking to new lows, confirming the weakness in this index. This bounce should fail.

The Nassy just recently hit a new closing low below the November and December lows on 1/4 and with that the moneystream followed but you will notice it is hitting a new low already. That is because back in November there were four consecutive nasty down days that took the index for an 8% decline. Even though the price was well above the August lows, the moneystream was already at the lows in August. After the weak bounce that started in November that just recently ended, the Nasdaq has resumed its selloff on higher volume. The moneystream with its huge negative divergence helped traders stay out of this nasty market. The little bounce we have had the past couple of days has been pretty weak and the moneystream is confirming this with it still riding the lows.

Sticking with the themes of new lows there were still an outstanding number of stocks making new 52-week lows compared to 52-week highs. There were 63 new highs to 453 new lows showing that this market is still extremely weak as every day this week had this kind of massive weakness.

On the other hand when it comes to looking for strength we continue to only see it in the safe/defensive sectors of oil, tobacco, metal-ore, chemical, household-consumer electronics, medical, retail-wholesale, consumer products, and foreign-banks. For some of you that are not familiar with these stocks you need to know that when all of these stocks are leading the markets are not bullish. They are normally in downtrends, just like this one is, and they normally stay in them for a long time. Since this leadership has just shown up, I think it is safe to say that this downtrend could last a long time. I wouldn’t go looking for a bottom any time soon if I were you.

Another clear sign that leadership is all wrong came when I decided to look at the industry groups making new highs or at the top of the list. When I did that I was surprised to see something that my scans are confirming (my scans ONLY look for strong stocks making strong gains). Medical stocks make up four of the top 10 industry groups in the IBD 197 industry group list. This is a CLEAR sign to me that we are in a bearish market environment where experienced investors should definitely be shorting the rallies and not buying the dips. Don’t try to outsmart the market. Better traders than you have tried to do this and have failed miserably!

There is even more evidence showing up that this market is weakening. Before when we were selling off all of the indexes would pretty much sell off at the same time, with exception to the two leading small cap indexes. Why leading? Because they were the two indexes that led us higher the whole way into the 2007 top. Only near the end did the big caps start to take a lead. Just like how they do near the end of every bull market. Now a few more indexes full of leading stocks are joining the small cap stocks in leading to the downside. Now we have both leading sectors leading us down. Not good.

The IBD 100 fell 2.3% and the IBD New America index fell 2.1% with the New America index Acc/Dis rating falling to D-. That goes along with the IBD 100 and IBD 85-85 indexes D Acc/Dis ratings. Those Acc/Dis ratings along with that kind of selling on a day the Nasdaq only fell .48% should be just one more red flag that keeps you out of this market on the long side. I just pray all of my subscribers have been listening to me and heeding my advice.

By the way to show you a bigger picture of the deterioration in the leading indexes you can take a look at this week. The IBD 100 fell 4.4% compared to the Nasdaq’s 2.6% drop, the DJIA’s 1.5% drop, the NYSE’s .9% loss, and the SP 500’s .8% small fall. The IBD indexes are not as bad as the Russell 2000 or the SP 600 the past six months or so but with a little bit more aggressive selling it could get ugly for those indexes. And that could happen sooner than later with a little bit of complacency coming back into this market.

The put/call fell to .89 which is not really complacent but it definitely is not fearful right now. Combine that with the important sentiment indicator from the investors intelligence survey showing bulls still around 50% at 48.4% and bears still around 25% at 25.8%. There is still no fear there and without that fear there can be no bottom. Speaking of fear. Where is it? The VIX at one point, intraday on Friday, was down while the market was down. But by the end of the day it closed up almost 1% to 23.68. The point is is that there is absolutely no way any meaningful low can be made until this thing hits 35 (like in August that gave us a lot of nice big winners in a short time) or any real long-term low can be made until we hit 50 like we did in October of 2002. So either 35 for a short term rally and if when that happens there are no HOT charts the next real great low comes with 50 and if still no HOT charts…look out below.

And confirming my look out below comments is the fact that when we look at the leaders like JDSU, EBAY, YHOO, QCOM, MSFT, CSCO, and ORCL back in 200 and compare them to the way they looked at the top to the way SPWR DECK MA MCD FSLR CMG ISRG STP PCLN WFR GOOG RIMM GRMN BIDU look now, you can see that they all look extremely similar. This weakness is just now starting to show up in most of these leaders and you have to remember GRMN was one of the very first leaders in 2002 that continued to rally all the way into 2007. Notice it was the first one to top and how violently it has sold off. When and if the other leaders look like GRMN and how the old leaders of 2000 did, this market will probably come in much lower than we are from now. Another thing to remember is that the leaders are just now starting to break down. This comes after the subprime, brokerage, and bank stocks have already came down. Just like how the internet stocks that were built on no earnings fell before the real leaders.

Oh how wonderful it is that history repeats itself and allows those that learn from the past the chance to profit in the future. Aloha and I will see you in the chat room, after a wonderful weekend of playoff football. GO GIANTS!!!!!! Giants vs Green Bay would be great. Indianapolis or San Diego (prefer SD) vs New England would be wonderful with a GB vs NE Super Bowl. That would be great. But Seeing the NY Giants in the Super Bowl sure would be great! Aloha!! Be careful out there new investors/traders!!

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!!!!!

Stocks Selloff The Day Before The Beautiful Thanksgiving Day Holiday, Surprising Most Stock Traders Who Are Used To A Thanksgiving Rally

THIS IS THE COMMENTARY THAT FOLLOWED THE CLOSE OF WEDNESDAY'S MARKET. THERE IS NO WEEKEND COMMENTARY FOLLOWING FRIDAY'S MARKET SESSION AS THE SHORT BULLISH SESSION WAS TOO IRRELEVANT TO ADD ANYTHING OF IMPORTANCE. ENJOY YOUR USUAL LONG THANKSGIVING WEEKEND. ALOHA!

November 21, 2007

Today sure was the opposite of what everyone was expecting and that is probably the exact reason we got a selloff. The market loves to do the opposite of what everyone expects and there was no doubt that everyone was expecting a pre-Thanksgiving rally. Instead they were served a big dish of frozen turkey as stocks sold off and though volume was lower it was actually decently heavy considering that this is a holiday shortened week.

The most significant technical breach that I saw today was that the Nasdaq has finally joined the rest of the indexes below its 200 day moving average. Now, while this average is a clear late signal to sell stocks, it is still a good signal in warning you to be prepared for a weak market. Bullish tapes full of big stock winners do not exist when every index is below the 200 day moving average. You can now say that we are officially in a bear if you are one of those that wait for every index to be below the 200 dma before you get bearish. You now have your signal.

After today’s showing by the market many pundits on TV were calling yet “another” bottom. Some weren’t, but there were more who were and that is the problem. You do not build bottoms when everyone is looking for one. And when talking heads from brokerage firms come out and tell you that we have great bargains and investors should start to “cost basis average” into the stock, you know we have more downside to go.

The other clear thing that should be worrisome is that everyone seems to think, for safety, that you must buy GOOG, RIMM, AAPL, and BIDU. That is a sure sign they are dumping them. To confirm this, go look at all of those stocks, you will notice all the above average volume the past two weeks. While all of this is going on the stocks have broken from their highs and are just churning around their 50 day moving averages. The problem with this is that if this was a bullish setup, volume would be low. Instead the “dumb retail” money is bidding enough for the stock and so are the bad mutual fund managers that the smart big-boys are dumping on them. Heavy volume after a selloff near the averages are not good in bear markets. It normally turns out bad.

Some other clearly obvious indicators that tell us we are not going to be putting in lows any time soon, along with all the ugly charts, is that the VIX, put/call, and investors intelligence survey all suggest there is no fear out there. Despite what some amateur market analyst are telling people.

There is simply no way to have fear out there when the put/call is only at 1.05 [.87 after Friday's session] which is below the recent highs of 1.19. The put/call today would have had to have been at least 1.25. Then the VIX is stuck around the 27 level [25.61 after Friday's session] with it being below its recent highs, also, at 31. Until I see at least a 35 reading, there is no way I can even consider a bottom. And then there is the investors intelligence survey and I believe that tells a more true picture of sentiment than the others.

If you look at your investors intelligence survey you will notice that back in August we almost had the bulls and bears cross when bulls got 41% and bears got to 39%. That was close enough to start a very bullish rally off the August lows. However, now that we see this rally fail, it becomes clear that August was not a real low-which the investors intelligence survey confirmed with it not having the bulls cross the bears. A real bottom almost always comes with this indicator ending up with more bears than bulls (ie…bulls at 35% and bears at 40%).

So if that was a good bottom and if we saw some fear back in August, then there is absolutely NO WAY we have any fear now. The investors intelligence survey currently shows 48% bulls and 27% bears. The DJIA is below its closing lows in August, ye the survey shows more bulls this time than last time and less bears this time than last time. No matter which way you cut that, it simply is not bullish for equities. There is no fear, sorry. People believe in buying the dips now. The 2005, 2006, February 2007, and August 2007 pullbacks were all called tops and people believed they were every time the media told us it was. This time the public “isn’t going to fall for it.” So they are buying the dips now. I guess after five years of a bull market, no matter what CNN tells you about how horrible the economy is, people finally believe stocks are worth buying. Too bad it is the top.

I want everyone to remember that when the stock market bottomed in November 2002 the Acc/Dis of the Nasdaq was a C+ and when it finally made its true bottom and followed-through on March 17th the Acc/Dis was an A+. So when the market bottoms you are going to have at least a C+ rating. Until you see that letter, there is simply too much distribution in the market to get any rally going. As I see it right now, on all the indexes, the ratings range from D- to D+. This is a clear sign that the sellers are in clear control and that NOBODY should be doing any “bottom calling” or knife catching with stocks.

Another clear sign that the market is in trouble and that we shouldn’t be looking for a real bottom any time too soon is that before the market even began selling off the new lows were expanding more than new highs and right now the new highs barely exist to the new lows. There were only 26 new 52-week highs compared to 596 new 52-week lows on Wednesday. Men and women….you do NOT bottom with this few new highs and this many new lows. Just like we saw before the market topped, we will have a positive divergence in breadth and new highs/new lows before we take off on the “real” follow-through. Any rally that does not have EVERYTHING that I mentioned today will not be a true bottom rally and will only be an oversold bounce in a bear market. Once you see EVERYTHING that I have mentioned today, along with strong stocks making/breaking out of solid bases with green and max green BOP, then and only then will it be safe to assume that we have seen a real bottom and that the time to go all-in has returned.

Right now, the best thing to do is to protect your capital and make money on the short side if you are experienced. There are simply too many stocks offering up too big of gains for those that have the capital to pass on. I have 57 shorts THAT ARE WORKING, so you can find many also. Since I started to short heavy this month, I have only had two or three that have been cut. Not only are my odds high on my success rate of shorts, the returns are solid and the ones that do not work are not hitting us with big losses. This market has been very kind to shorts.

However, if this is a real bear market, the real bear has not started and will not till all those over-$100 stocks start cracking. The first signs of a real top are showing up in all four (GOOG RIMM AAPL BIDU) and every single commentator on CNBC is telling us to buy them which signals to me that they are selling them. Once those babies crack the big money will be made by the best traders as the market will probably selloff very fast and give us some very quick gains. The gains that have been made in shorts have not been that big (nothing more than 35% so far) but considering how many are doing well and how many more are going to show up, it is going very well. Just think about all the traders buying the dips, not in cash, and are adding to their losses.

If you are not making money shorting, I pray that you are at least mainly on the sidelines. From what I see with the regulars in my platinum chat room, everyone is doing very well and is basically out of the market. When I go to the free chat rooms, I still see many people buying the dips and/or they are shorting the bottom tick and covering for losses. Which brings me to my next and last point.

Do not chase shorts on the downside in this market. In a bear market, there are more than just one or two historically proper chart patterns to choose from to short. You may notice, that I am now starting to short charts that are showing some new breakdown patterns that you might have not seen before. That is because you only see some of these breakout reversal breakdowns in bear markets. You don’t see them in a bull market. So make sure you constantly study where and why I am shorting stocks and notice I am not chasing. Anytime you want to short a stock, make sure it has not been down five straight days or is more than 10% away from either a 50 or 200 day moving average. You may be able to get away with chasing a long in a clear bull market (longs can run up 10000% if they want) but in a bear market (where stocks only fall 99.9%) chasing stocks down too much or too far from key resistance/moving averages is a death sentence for your money.

God bless you all for reading me; I am very thankful for all of you. I seem to enjoy sharing my trading expertise more than actually trading now and I have to thank all of you for that. Without you, I am pretty sure, trading would not bring me as much joy as it does you. I have made some big money before and am definitely going to make a lot more when I finally settle down with my family life but have to admit that the flame of passion for trading was dying out. This website has definitely brought it back. The bear market doesn’t hurt either as I know that we can finally, after a long wait, get ready to get long stocks that will give us HUGE returns with a fresh bull market. I miss stocks like TASR and TZOO. We will never get another one until after this bear market is over. But now that we have a bear market, we can finally prepare ourselves for the next TZOO and TASR. Though for them to setup we will probably have to wait for this big bear cycle to play out (could take years). But while we wait, we will have plenty of shorts to bank on and when the markets do give us those bear market rallies there will be longs that produce big gains for us. Homebuilders did great during 2000-2002. So remember, there is always a bull market somewhere.

Aloha and I will see you in the chat room. HAPPY THANKSGIVING!! God bless!!

On Thursday I Warned Of An Oversold Rally And We Got It; Stock Indexes Put In A Bullish Intraday Reversal To Close Higher On Higher Volume (No Follow-

I expected an oversold rally starting on Friday and we got it. Intraday I said that the market could close at its HOD and it darn near did. Since the market is doing exactly what TA says it should be doing at this point, I will listen to the market and keep my shorts small from here on out until another new downtrend starts or a clear top is put in with a lot of distribution days after the Thanksgiving rally (it isn't certain but it almost always happens and the conditions are setup for it). Don't cover your shorts, if the market rallies a few hundred points here on the DJIA, and your shorts continue to move lower or do not move up. Those are the weak stocks you want to continue to hold on to. But if you have an IEX in your short port, you should be selling it all.

Today's gains came on a pickup in volume but it is always possible that the increase in volume was options related. However, it really does not matter as today's gains were under 1% so it is impossible for today to count as a follow-through day. Instead we will be entering day five of a rally attempt on Monday. I want everyone to remember that you usually do NOT get a strong market follow-through so soon after such strong selling. The best bottoms are NOT put in one month after the selling starts. So if we do get a follow-through day sometime next week make sure you see a ton of nice stocks setting up in bases or breaking out of sound bases in top industry groups.

If you do not see that, the chances that the rally will fail will be substantially higher. Even if we do continue to get a rally here, due to the oversold conditions, traders must realize that it is more than likely that rallies will be sold here as we have had a lot of selling in the indexes with very little accumulation. That is why these indexes all carry a D- to E rating in IBD. There is nothing out there doing well, except for the Defense index and Medical related stocks. This is a sign of a weak market. These industries have been doing well all year and it is probably in anticipation of a further weakening market.

As this market moves along it appears to me that we may be a little to oversold to be shorting stocks right now. However, there are few longs that are working out right now. Some of the better quality stocks recently have been IMA, VMSI, and XNPT the past three days. If you notice they are all related to the medical field. These stocks are starting to show up all over my long scans. That combined with a lot of low volume stocks is something my scans only see during rough periods of the market. Even during pullbacks the past few years there have not been a lot of these stocks on the scans. When they did show up in 2005 and 2006 they also were accompanied by a lot of stocks in shipping, oil, tech, and other leading sectors. Now it seems like medical stocks are the only stocks that once they breakout now they work.

Three out of four stocks follow the general trend of the market, so it is not smart going long here anyways. Unless your three losses are each under 5% and your one winners is always 20% or more. Since this is very doable in a bear market this is how I operate. I keep losses much tighter and risk less money. However, when stocks like IMA show up, I would rather be proven wrong than sit back and miss it. If you have seen stocks like QSC recently you know the hot money is moving into this are of the market. Breakouts will work here. However, great stocks like FNDT, EXLS, and other longs that I have taken in other industries have done very poorly. That correlates perfectly with the market.

So if you go long, make sure you go long a medical stock. Unless that chart is loaded with accumulation and max green BOP I recommend staying far away. Going short low volume rallies seems to be the right play now. When you see all these bank stocks dropping like rocks, old leading stocks top out, new lows trump new highs, and everyone on CNBC is telling you to buy the dips, I believe it is best to be cautious and raise a lot of cash.

If anything else, I don't care who you are, I would like you to have at least 25% cash. Having this cash on hand is a lot better than being long an FDX or a SBUX while you wait for the market to hit a bottom, follow-through, and then have leading stocks break out. It is never good for former leading stocks to break down all over the place in every industry. Don't get fooled into buying this rally with you going on full margin. Always wait for a follow-through and make sure real great quality stocks from tight quiet bases are breaking out.

Something makes me a bit uneasy about the market right now. I am sitting with a lot of longs that have nice patterns and look like they are going to move a lot higher. At the same time I have a lot of shorts that have been working very well and have been producing some nice gains. However, since I was so long (which allowed me to make some great gains) it has been hard to get to a point where the gains in the shorts kill the losses in the longs. However, maybe a testament to my stock picking ability recently I have had a series of days where when the market is higher my longs do great and my shorts are quiet and when the market is down my shorts do great and my longs are quiet. Since the first week, where I lost 15%, I have been able to recollect 5% of it. This in a market where most people are losing money. And I watch a lot of CNBC (like I always do when I feel we are near a top) and know that a lot of people are losing money because I hear about it constantly.

Thanks to my stock picking ability and me keeping new longs very small right now, I am no longer in the money losing camp. Even though I still have a lot of longs they are all down over 50% from where they were originally bought and my shorts have recently gotten larger. You have to realize that if 1 out of 4 stocks go up in a bear market and I pick all of the 1 out of 4 that go up and I hit a ton of the 3 out of 4 that go down, even with 25% plus cash, you are going to kill 95% of all traders and kill 99% of all mutual funds who must remain long while the market goes lower.

I know a lot of you might think that my bias to the downside is a bit too much. And I have to admit I have been wrestling with that feeling too. However, I know history, and I know that when I see defensive, medical, and low volume stocks moving higher that the market is in trouble. The SP 600 and Russell 200 always lead the market higher and lower and this time it looks no different as both small cap indexes RS lines are putting in very bearish divergences and the stocks are well below the 50 and 200 day moving averages.

The fact that all the leaders have been taken out, though, is the biggest one. It is still possible due to all the fanfare that GOOG, RIMM, AAPL, and BIDU could hit new highs. However, I believe that would bring the last of the suckers in and would be a gift to short sellers. I really hope I am wrong and I wouldn't mind being wrong so I could go long pretty charts again and make money. But I find it hard to happen when they get everything. The very last speculative group they hit was the solar stocks. When they did that I thought it was going to get bad. But FSLR has shaped up and looks good again but if you look at JASO and SPWR on an arithmetic chart you can clearly see that after a huge runup they made a VERY HUGE VOLUME blowoff. FSLR may have more to go but the other leaders are saying it is over. I could be wrong, yes. But don't forget, I HAVE BEEN A BULL SINCE OCTOBER 2002 WITH STOCKS LIKE SSYS GRMN SOHU SINA NTES AND WAS VERY LONG AFTER THE MARCH 2003 FOLLOW-THROUGH AND WAS LONG TASR AND REAPED THE HUGE NEAR 2000% GAIN IN IT.

The fact that I believe we could be topping now can not be ignored. You can go back to mauitrader.blogspot.com and read my 2004, 2005, and 2006 postings. In 2004 and 2005 I wasn't worried about any pullback at all because I ALWAYS had very green charts all over the place during the pullbacks. When I was offered a job to manage the money of a Chicago, IL based firm in 2005, the current manager believed the market was over; he was certain of it-so much so he was depressed. I told him not to worry that there were a ton of great looking bases and that the market had more to go. Eventually we parted ways. He sold his stocks...I found a 550% surprise in ERS! Not so bad!

In 2006, I believed it was very possible for us to be topping. But after the first few days of selling off, it became clear leading stocks were under no pressure. As the market started to bottom a lot of charts showed up and while some of the smartest guys on wall street and almost 100% of the commentators who work with TA on realmoney.com were boo-hooing the August move higher, I was not enjoying it but not denying that we had a lot of nice charts. Next thing you know we have HRZ (my biggest winner from that year to this year), AFSI, and TESO giving us huge high reward/low risk major gains. Those three stocks on full margin were blessings. And when this nasty bear is over, we will have more HRZ stocks one day.

In February of 2007, I believed we were topping because of China and all the weakness I started seeing in our market's internals. However, like I said earlier, AFSI and TESO came out of that so it wasn't that bad at all. This time though, we have had FNDT fail, EXLS fail, SNDA fail, ESEA fail, INXI fail, BLL fail, and many others. While all of that is going on, check out charts like IAR, ETFC, and YRCW. The play on this market right now, to make the big money, is shorting stocks.

There are a lot of technical aspects of this market that indicate that we should continue to get an oversold rally on the short-term. I did let everyone know that I expected one after Thursday's close. Some of the things that came to my attention the past few days that lead me to believe that the rally will continue were listed yesterday:

The put/call ratio did spike to 1.12 at the close today. And even though I do not see any fear in this market with the VIX being at 28, the fact that the put/call ratio did spike to 1.12 indicates that there is a little bit of fear creeping into this market. However, it is not the bottom kind of fear. That fear is a spike to 1.5.

The new highs to new lows is also another item that has recently caught my interest. When we began to selloff we consistently saw new lows over 300 on the way down with new highs staying under 100. Now we continue to have new highs around the 40-60 area but the new lows have fallen to 200 or lower the past three days. So the fact that there are not as many stocks hitting new lows despite the continuation of selling indicates that we are a bit oversold.

The two final things that make me think we are oversold is that if the S&P 500 closes down for the week this will be the first time since early 2004 that the S&P 500 has fallen for five consecutive weeks. At the same time, the percentage of stocks below their 40-day moving average is hovering right around 20% and the stocks below their 200-day moving average is around 30%. Though this is far from a “real bottom” extreme reading (10% for the 40-dma and 20% for the 200 dma), it is still very oversold. The bottom line: we should expect a bounce.

These are all the reasons that make me believe we will continue to see higher prices next week. Hopefully, the higher prices, will help my current long holdings blastoff to huge gains on huge volume so I can take some more in and at the same time keep my shorts quiet where if they do rally they do it on low volume and on a little price gain. So even with this possible oversold bounce I am not going to take in all my shorts. I have taken profits on the ones down a lot to preserve some of the gains and have eliminated the weak shorts that did not move lower. So even if we do rally I pray that most hold below the 50 and 200 day moving average. The put/call ratio did spike again to 1.19 so there is enough fear in the market where it is possible I might lose some shorts. However, if the stocks are really broken they will not bounce with the market.

If we do not get a short-covering oversold rally and we instead continue to selloff, then it will be all that much smarter to not be in longs and to be short and cash heavy. I do not think moving lower here would be bullish for the market in the long run as a bottom here would only delay the inevitable that we have been delaying since February of this year. This market has continued to weaken all year long with the market getting more and more narrow as we go along. Now it is only a few handful of leading stocks taking care of the other thousands that are falling. A bounce here will relieve the oversold pressure so that eventually the natural course of selling resumes.

I am sorry I don't have better news. I have been a bull since 2002. Where have you been? I was a bear and made a lot of money in 2000-2002. So just because we might be done with the 1000% gains in AAPL (which there still might be more to come) doesn't mean that there aren't going to be a lot of stocks to short. These old leaders have to come down eventually and if you think pure IPO crap like OZM isn't going to see the single digits you are seriously fooling yourself. They don't pump out this crap at the start of incredible bull markets. This crap comes to market when you have to get it out before it is too late and can't be brought to market cause it would crash straight down in a straight line. The crap IPOs are now being brought to market. The quality has passed in the IPO market and the stock market.

Cash is king. Aloha and I will see you in the chat room.

P.S.: If any of you reading this blog remember the Gary B. Smith TA articles from realmoney/thestreet.com back in the late 90s to about 2004 or 2005 (I can't remember) you might remember how simple and great they were. It led to GBS getting a job on FoxNews and ended up with him leaving to run money at a hedge fund. If you don't remember those articles, I recommend going back to the archives on thestreet/realmoney.com and go over them. I would love to bring them back and have been trying my best to get those articles back. I would love to write them and it would done very similar with the markets analyzed every day and 6 stocks a night. Price, volume, moving averages, and support/resistance would be the theme. If you think that you would like to see that again on realmoney.com send an email to Kristin Bentz and tell her you want to see the GBS articles again and that you want me to write them. I would love to bring those articles back. I have missed them and believe the site's TA is turning to crap. It is time to bring in someone who maybe is a little different but at least can offer stock picks that make their readers money.

Another Selloff Helps Stocks Put In One Of Their Worst Weeks In Five Years; The Time To Be Long Has Passed

Subscribers to this site definitely were not caught by surprise when it comes to the selloff we have had the past three days. After Tuesday's market session I ended up with a TON of strong CANSLIM quality longs that appeared to signal that the market was ready for another leg up. However, the very next day, stocks reversed hard on heavier volume and many of the new buys were left looking quite mediocre. That particular action was very bearish to me and caused me to pen this right after the closing bell on Wednesday:

Screw This Market; Nasty Selloff After Such A Strong Day Is A Clear Topping Signal

November 7, 2007

I am losing my bullish bias. All my hard work yesterday was rewarded with this!!! Screw this market. Sell all laggards, cut your losses in stocks not working, take in some profits, and raise cash. This market is in for some rough times. Even if it turns around I don’t care anymore. The easy money is being made on the short side now. It is time to get rid of the bullish bias. This is the most confusing market I have EVER seen. Since 1996 I have never seen a market so screwy. Get out of your new longs and take profits. It is time to start selling. If there is nothing wrong with your longs, keep holding.

What makes all of this worse is that today I just loaded up on FNDT in my IRA. This is now the third buy in a row I have made in my IRA that has been a loser (SNDA, BLL, and now FNDT). Right now, I freaking suck, so it is best to not follow my trades unless you really like them. The easy money off the August lows has come and gone. I don’t know what the market is going to do next (probably goes lower) and with all of this volatility I do not want to be a part of it.

I have never seen such a freaking crazy market. The 2000 top has NOTHING on this wild action. If we are not topping, then damn it I really have lost all ability to read the market. Right now, it is unreadable. Anyone bullish or bearish is just asking to get punched in the face. I will continue to take both longs and shorts and will keep everything 1% or smaller of my initial equity.

I am so upset words can not even express how upset I am. Screw this market!!! Have a great evening. Aloha!

I was upset at the time because I felt like it was possible the market was going to rally hard the very next day offering up new longs. Thankfully, the caution that I suggested was rewarded as the Nasdaq sold off 4.4% the past two days. For those that listened to me and took money off the table, way to go. We missed out on some major carnage.

Now my style now forces me to hold at least 10-20% of a long all the way until it closes below the 200 dma (that is why I am still long ZNH even though I KNOW it has topped). The reason I do that is because I have been stopped out of a TON of big winners by not waiting for this event to happen. I am bringing this up because even though I am still long over 100 stocks, it is only because they are above key support and the 200 day moving average. There are about 25% of stocks in my portfolio that if I traded my old style would be complete sells. It would save me money to cut them now, I am sure. But like I just said, I guarantee, my returns would not be as strong if I did not adhere to this rule. I would have been out of MA, IHS, and many other stocks that I am instead enjoying large gains in. I have missed out on too many huge winners to not adhere by this rule.

But, if you are in a stock that no longer posses a green chart with a strong uptrend, you should probably get out of it. This market has definitely changed and this selloff is MUCH different than the rest. This is the first selloff where there is no safe haven. They have finally gotten to ALL of the leaders. There was only one group, come Friday, that did not suffer any selling, and thanks to the exhaustion gap following great earnings (earnings always look the BEST AT THE TOP) FSLR put in, it is probably safe to say that group is done. When I look at the angle of ascent of FSLR, JASO, and SPWR and then see the island reversals in all three stocks it becomes clear that these stocks now look like they have topped.

JASO is the best example of this. After a large uptrend the stock makes its biggest one day move on Thursday by putting in an exhaustion gap off of FSLR earnings. Then the very next day, it gaps lower on its largest volume ever, losing more than it gained on the gap higher, and BOP went red. This is very ugly action after such a bullish previous day. This was the last sub-sector that was holding up in the market. Now they have gotten these too.

The day before was the first day we officially saw all four leading stocks of this five-year bull market all selloff on strong volume the same day. When you look at the strong volume of the selling in all of these stocks, you can see that there have been very few days where we have seen back-to-back days of selling like this in all of our leaders. What makes this even more evident that the leaders are topping is the fact that the fifth and sixth horseman have problems too (GRMN and FSLR).

FSLR's action the past three days confirms the poor action in the leaders with everything I just listed above with the solars. But the first official leader of the bull market that started October 2002 was GRMN. Anyone who has been following GRMN recently knows that the stock has more than likely put in a real top and if you are still holding on to any shares I hope it is only 20% or less as the volume and follow-through selling after a five year bull market simply can't be ignored. This stock has topped. All of our leaders have topped. Now the next step is waiting for an area to short.

Before I go over where I want to short these leaders, first I think it is important for you all to understand why these stocks may be topping. If you look at a chart of BIDU going back to 2005 on an arithmetic chart, you will notice that the stock has pretty much been a very tight stock trending higher until early/mid October where it had its first huge volume selloff. That was the first warning that real dumping was occurring. Then after an extreme rally, the stock has rolled over on heavy volume the past two days. What this stock currently has going for it is that the stock is still above the 50 day moving average. But by looking at the recent distribution in the chart and noticing the very wide trading range recently appearing, it appears the stock is done. With the market already under distribution it isn't going to shock me when this leader falls.

RIMM is the same way since the 2002 lows as it has been in a steady uptrend. Around June this year, the uptrend starting to move at a more exponential slope and along the way RIMM did an excessive 3 for 1 split. After that, the stock rallied on lower volume (not bullish) and then had a breakout (could be exhaustion) gap on huge volume. Since the gap in June was the breakout, this is possibly an exhaustion. The rally that followed the gap was also on lower volume and now the past two days the stock has sold off on heavy volume. The two day decline of 14% on large volume is the most severe selling the stock has seen since its rally started and is a clear sign that there is not much left in this former leader. The good news, like BIDU is that it is above the 50 day moving average. So if you are long there is no reason to sell all of it but if you have not locked in any profits you better do so.

The worst looking of the leaders on the short term is GOOG. GOOG's 9% drop the past two days has come on very large volume and when you combine the two days of selling it is the heaviest volume since March 2006. If you look at a two day chart on an arithmetic scale you can see the drop is the most severe drop the stock has seen since it started trading and the drop looks very nasty on the chart. The long uptrend line from September has now been broken on huge volume which is a clear profit taking signal. Just like the other leaders this stock remains above the 50 day moving average but it too is so weak in the short term that it would not surprise me if we go right through that line. However, if you are still long some, keep holding. Until the 200 day moving average is broken there is no reason to get out of all your GOOG long.

The last leader that is holding up is AAPL. Once again, a two day chart shows the severity of the 11% drop the past two days as the candlestick bar is much longer than anything else you can see on this chart. This stock started to get roughed up in August as it had a LOT of selling hit the stock but back then the stock found strong intraday support on most of the days that the heavy selling hit it. That caused it to rally off the lows to the November highs. The problem with the rally is that the majority of it was done on lower volume. That indicated that the retail crowd was the only crowd interest in buying it up here. That low volume rally has now been met by heavy volume selling, just like most low volume rallies are. This stock is resting on the 50 day moving average and looks the weakest out of all the leaders. If you have not taken profits on this stock, you better take some profits on this one. However, until it closes below the 200 dma, I don't think you should sell all of it.

The only leader that has broken is GRMN. I am using GRMN as an example for the rest of the leaders in what I want to see before I go short. Because shorting leading stocks before they are ready to be shorted leaves you in massive pain. Just ask all the short sellers of these leading stocks in February and August. I am sure they are still feeling that pain. I know many traders who shorted some of these leaders both in February and July/August. Both times they felt it. Some think shorting GRMN right here is the right play now. I still don't think that is the case. GRMN still hasn't failed the 200 day moving average so it is still possible it could bounce here and break through the 50 day moving average and go on to new highs. While I doubt that will happen, I will tell you what I would like to see happen so that I can short this stock.

I would like to see GRMN touch the 200 day moving average and begin a rally to the downtrending 50 day moving average (if you look at the average, you will see it has turned lower). I would then like to see it bounce around the 50 day moving average for a while and/or rally above it and break back down below it. Then I will wait for a high volume selloff around the 50 and 200 day moving average. If you look at the stock DNB, you will see what I would love to see GRMN do. If GRMN breaks down just like DNB did in the middle of October, I will load up in GRMN. The other reason that I would load up is that if GRMN ends up looking like DNB, we can guarantee that the market will be still selling off like it has been recently. There has been a ton of distribution in the stock market the past few months and if the leaders start selling off I truly doubt volume will be low.

Even though I was getting bearish on Wednesday, I have to admit I still wasn't ready to abandon the bull case, as I know that it is hard to stop bullish momentum. But there were two stocks on Thursday that gave me "hope" that the bull was going to continue. One was the stock you read about earlier called FNDT. The other one was EXLS.

FNDT was not a perfect chart at all as the stock did not have two straight months of max BOP. But it did the second best thing which is to bounce off the 50 day moving average, put in a very bullish intraday reversal, breakout to or near recent highs on extremely strong volume, and do it with BOP going max green. Well FNDT did the latter and three days later was looking great as the stock was breaking out to new highs and closing at its HOD with BOP still max green. So obviously the stock deserved to be in my IRA. I only put what I consider the best looking charts in there. I have to admit I normally want a lot more max green BOP but I was getting very trigger happy in this market as the lack of perfect charts was driving me crazy.

But the stock market slapped me right in my face the very next day as it slammed FNDT almost 3%. That was enough to officially kill the beautiful chart. Well it was still beautiful but the chances of failure rose. And sure enough come Friday the stock closed below the 50 day moving average on heavy volume a clear signal to sell almost all of it. I am now holding 25% in my regular accounts since I went long on 11/1. But the buy in my IRA on 11/6 has been completely sold. So that now makes the last three longs in my IRA all losers. And with FNDT failing (it had such a nice chart and extremely strong fundies with good estimates) it was one of my last hopes that this bull market was not over finally being destroyed. As this five year bull market appears to be ending, I am slowly coming to the acceptance that it is over.

My final hope that the bull market was not over yet came on Thursday night as I did my scans. I happened to come across a stock that had a 99 EPS rating and had some great fundamentals overall once I started to delve deeper into this stocks story. Not only were the fundamentals incredible for EXLS the chart was very long and the right side seemed very sound with the slight accumulation and green BOP spread about. The best thing about the chart seemed to be that the RS line was leading the price into new high grounds by such a great margin that if the market was putting in lows (which I was not sure if it was or not because the leaders were just cracking and I was not sure a short-term oversold rally was going to happen or not) this stock would explode higher. So I even went long quite a bit despite the weak market because this stock looked so good.

But proving once and for all that being long is now completely wrong, the stock gapped slightly and sold off all day long ending just slightly off its LOD. Just like FNDT, this was a complete sale as it immediately reversed the breakout. Now since I follow my rules hardcore, I still own 20% of this long for my accounts and 25% in the Conservative CANSLIM port on our website since it did not close below the 50 day moving average/24.71 level. But back in the old days I would definitely have sold it all by now and I recommend that if you have a smaller portfolio that you sell all of it. This stock was so pretty on Thursday, despite the nasty market selloff. If this stock would have rallied off of an oversold bounce the gains would have been great and might have produced a great stock. In a bull market this chart pattern in a stock with this kind of fundamental power in EPS and sales growth would produce 80% plus gains (80% is the move off the closing lows in July to the highs in November). However, a stock that fails this kind of super strong nice pattern is definitely in the wrong market environment. Sadly, for the stock, it takes a perfectly amazing pattern that would have rocked in a bull market and throws it the ground and kicks it in the gut. How rude!!

Is it possible that the market could put in a huge bullish reversal on Monday and then give us a follow-through day four days later? Of course it is. Anything can happen in the stock market. That is why you must never marry the bullish or bearish side. You must always stay flexible. I will tell you this though, if we do get a follow through in the next five days, it is going to take months to produce hot charts. There are very few charts that look like NYX. And before NYX becomes a new long it is going to need to move sideways to slightly higher a bit longer as it is still too deep in its basing pattern from the November 2006 highs.

Some of the reasons why I personally think that we will not bottom any time too soon is because no matter how many people say that there is fear out there I do not see it. I did see that the AAII bear ratio hit 50% which is high but I have seen the Investors Intelligence numbers recently and I believe that is at 22% right now. At the lows in August it was 35% bears and 45% bulls. With the bulls also at 55% right now, I doubt we are at the lows right here. Even at the February lows the bears hit 30% so I am not sure how there can be too much fear in the market right now. On the realmoney.com site I see 35% are bullish and 41% are bearish. In August the bears hit 60% and the bulls hit less than 25% so this bull/bear survey is off the bottom mark too.

But the most important sentiment indicators, imo, are the ones where actual money is put on the line. In that case, the put/call ratio is always one of my favorites to look at. One of the most interesting things I saw this week was that on Wednesday when the market sold off the put/call went from .96 to .90 CLEARLY signaling that there was absolutely no panic put buying during the selloff. That was another bearish warning that something bad was coming. Well on Thursday the ratio spiked up to 1.10. But then on Friday with the Nasdaq falling 2.5% and the IBD 100 falling 3.2% the put/call ratio actually fell from 1.10 to 1.03!! It is simply stunning that an index can selloff 2.5% and the options players bet against the trend and buy the dips since that is what they have been used to since October 2002. The put/call ratio dropping two of three down days this week despite the selloff is the most clear indication that there is no fear out there in actual market players.

The last place to look for fear is the VIX index. The VIX did increase 33% the past three days and that is a major development but just as there was no real fear in the selling in February there is no real fear in this selling right now either. The lows in August were put in once VIX got over 35. What proves my point that the big money is made with a high VIX, the rally that followed produced many brand new longs that made 25-100% gains in three months or less. If the VIX would have gotten over 50, we would have had a ton of 50%-200% gainers. That is how the VIX works. The higher the VIX the more money we make in our longs. The higher the VIX the worse the selloff is to give us fewer stocks to focus on. The few stocks that produce hot pretty green charts always become our new longs that give us huge fast gains.

Right now, the VIX is at 28.50 and until the VIX gets to 35 there is no way that we can even begin to talk about a market that is too oversold and needs to bounce because the market has gotten too bearish too fast. No matter what the talking fundamentalist blind-traders say on CNBC, you must follow your charts and listen to their silent voices. The charts speak louder and more truth than any analyst on TV or on the radio ever will. Those who told me to buy banks all the way down the past few months could have saved their clients a bunch of money if they would have learned to use charts. God bless Don Worden and his TC2007. I don't know what I would do without it. Without it, I wonder if there even would be any stock market commentary by me. This is the greatest way to make a living. Definitely one of the hardest. But still one of the best ways to make an honest dollar!

Aloha and I will see you in the chat room where no matter what market direction we are in we always stay in control and make money (except for this week--it sure was painful; ouch!). ALOHA!!!!