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!!
Showing posts with label bears. Show all posts
Showing posts with label bears. Show all posts
Friday, November 23, 2007
Monday, September 03, 2007
Stocks Close The Week On A Bullish Note As Volume Is Below Average For The Ninth Day In-A-Row; Enjoy Your Labor Day Monday!!
Once again, it looks like the Fed, this time with GWB, has come to save the day for the stock market, as stocks rallied on the good news that the Fed and GWB are on the path to help distressed home owners with rising mortgage payments that they can not make. While I am okay with helping out the poor homeowners, as long as he does not help out the stupid lenders that practiced this predatory lending, I will happy.
As it was, the markets ended the low-volume holiday spirited week with gains across the board, with the NYSE leading the way with a 1.5% gain. However, that gain came on lower volume, unlike the Nasdaq which saw volume rise, but breadth was 6-to-1 in favor of advancers over decliners. The best index for the week was the IBD 100, gaining 1.4%. So the appetite of the buyers was very healthy, even though NONE of those buyers were “the smart” money. If they were, you would have seen volume over the 50 day volume average. As it was it was just another retail driven pre-holiday rally.
It was, however, despite the low volume, a very important week, with Wednesday signaling a follow-through day to the attempted rally that started on August 16. Even though the rally attempt came on day 10, the volume was well below the 50 day volume average, and there were almost zero stocks with top fundamentals and great chart patterns breaking out of fresh and well formed bases. Overall, we can confidently say that this follow-through was very weak and was very uneventful. That is what normally happens when you get one of these low volume follow-through days before a long holiday weekend in the summer.
The thing you have to remember is that despite the follow-through happening on low volume, thus increasing its chances for failure down the road, we still had a follow-through and it has to be respected. Being disciplined and respecting the rules is the only way to prevent yourself from missing a possible uptrend that could come from this. Looking for longs and not convincing yourself that “this rally will fail” (how many times did I hear that on Thursday and Friday??) is your only concern right now. If we can’t find any new longs breaking out of green, tight, accumulation filled bases and the market rolls over, then you cut your losses. It is that easy.
But, if you try to outsmart the market and show it how smart you are, you are going to look as ridiculous as EVERYONE (AND I MEAN EVERYONE) did during the July/August lows in 2006. While I was not bullish on those lows because of the low volume and lack of strong longs, I still respected the trend and went long many stocks that made 50%-100% gains. Finding these three gems (HRZ, AFSI, and TESO–all produced 50% gains quickly) that I loaded up on enabled me to make some very nice gains while many people struggled with the last rally. This is why WE follow rules and not sheeple.
Now, how will we know if this rally is going to fail? We will know if this rally is going to fail if all of a sudden we start getting hit with distribution days. It only takes one distribution day to throw the rally into trouble. But if we get four to five distribution days before breaking the August 16 lows, you can guarantee it will not be long before those lows are breached. The also other OBVIOUS signal that this rally has failed will be if we pierce those August 16 lows. That is your failure line.
Right now, sentiment seems to be a bit bearish and that, in turn, is bullish for equities. The put/call ratio hovered around .8 to 1.10 all week long and closed Friday at a still pretty high .90. That clearly is showing us that the retail crowd is placing nearly as many bearish bets as long bets. When the crowd thinks they are smart enough to make money on the downside, it is probably safe to assume the downside is not the side to be on. This also lines up with the Investors Intelligence survey. This survey shows only 41% bulls to 37% bears. While this number did NOT cross, normally confirming a market bottom, the fact that these numbers have touched definitely shows that there are enough bears out there to produce a rally as their money comes in off the sidelines. However, it would have been a lot better if the bulls and bears would have crossed. That definitely would have me thinking we bottomed. But, there is still more possible work to do. If the bears were at 45% and the bulls were at 35%, and I had some nice green charts, you better believe I would be in the “bottom calling” camp.
Some things that make it hard for me to believe all the selling is over is that we have absolutely no new leaders with nice charts stepping up currently. Now, that could change, with the Computer and Internet-E Commerce groups moving up the ranks, along with the Telecom stocks showing their muscle leading stocks with the amount of new 52-week highs on Friday. If these stocks can find me some fresh leaders, then I will be much happier. But as it is most of these groups don’t have much working for them just yet.
Instead, we have the Food-Dairy Products group leading this current rally. THAT IS NOT BULLISH. The other problem I see is that we are being led up by a select and very small group of big-cap growth (most being tech) stocks. GRMN, GOOG, BIDU, AAPL, RIMM, DRYS, CELG, ZNH, LFC, TNH, CHL, EXM, and FWLT continue to just breakout, build a sloppy base, breakout, build another sloppy base, breakout, and do this over and over. So far so good, with these stocks. However, IF their uptrends ever stop, you can bet that the markets selloff will just be beginning. Many inexperienced investors already see these stocks as a buy on every dip. Soon they will be convinced that EVERY dip is a buy, no matter how many dips they have. When that happens, you better believe I will be short and maxed out on margin in these once loved former leaders.
One other key thing about this rally attempt is that only the SP-500 has a B rating. When the stock market bottomed in March 2003 (after putting in the real bottom in October 2002) the Nasdaq carried an ACC/DIS rating of an A-. So even if we have in fact made a short-term bottom, it is almost guaranteed to not be ready for a real rally for at least a very long time, as there is plenty of distribution still lingering in this market. When you have the IBD 100 with a D- for an ACC/DIS rating, it seriously can’t be all that great out there. Take this along with the fact that the only index above the 50 day moving average is the Nasdaq and you have a market that still has plenty of headwinds facing it, despite that follow-through.
In honesty, it still appears, the best play is to continue to stay long your strong stocks in an uptrend, to keep new buys and new shorts small unless the charts are perfect (not many like that at all), cut your losses fast on those stocks that do not work out, and to try to stay off too much margin and remain cash heavy until a clear trend establishes itself. I hate to tell you, but, right now, there is no solid uptrend or downtrend; just a big wild low-volume mess that is sure to only continue.
WINNERS: KHD 131% ZNH 238% MOS 140% EBIX 60% VDSI 141% CRNT 105% OMTR 215% BCSI 91% ANO 167% FSLR 59%
As it was, the markets ended the low-volume holiday spirited week with gains across the board, with the NYSE leading the way with a 1.5% gain. However, that gain came on lower volume, unlike the Nasdaq which saw volume rise, but breadth was 6-to-1 in favor of advancers over decliners. The best index for the week was the IBD 100, gaining 1.4%. So the appetite of the buyers was very healthy, even though NONE of those buyers were “the smart” money. If they were, you would have seen volume over the 50 day volume average. As it was it was just another retail driven pre-holiday rally.
It was, however, despite the low volume, a very important week, with Wednesday signaling a follow-through day to the attempted rally that started on August 16. Even though the rally attempt came on day 10, the volume was well below the 50 day volume average, and there were almost zero stocks with top fundamentals and great chart patterns breaking out of fresh and well formed bases. Overall, we can confidently say that this follow-through was very weak and was very uneventful. That is what normally happens when you get one of these low volume follow-through days before a long holiday weekend in the summer.
The thing you have to remember is that despite the follow-through happening on low volume, thus increasing its chances for failure down the road, we still had a follow-through and it has to be respected. Being disciplined and respecting the rules is the only way to prevent yourself from missing a possible uptrend that could come from this. Looking for longs and not convincing yourself that “this rally will fail” (how many times did I hear that on Thursday and Friday??) is your only concern right now. If we can’t find any new longs breaking out of green, tight, accumulation filled bases and the market rolls over, then you cut your losses. It is that easy.
But, if you try to outsmart the market and show it how smart you are, you are going to look as ridiculous as EVERYONE (AND I MEAN EVERYONE) did during the July/August lows in 2006. While I was not bullish on those lows because of the low volume and lack of strong longs, I still respected the trend and went long many stocks that made 50%-100% gains. Finding these three gems (HRZ, AFSI, and TESO–all produced 50% gains quickly) that I loaded up on enabled me to make some very nice gains while many people struggled with the last rally. This is why WE follow rules and not sheeple.
Now, how will we know if this rally is going to fail? We will know if this rally is going to fail if all of a sudden we start getting hit with distribution days. It only takes one distribution day to throw the rally into trouble. But if we get four to five distribution days before breaking the August 16 lows, you can guarantee it will not be long before those lows are breached. The also other OBVIOUS signal that this rally has failed will be if we pierce those August 16 lows. That is your failure line.
Right now, sentiment seems to be a bit bearish and that, in turn, is bullish for equities. The put/call ratio hovered around .8 to 1.10 all week long and closed Friday at a still pretty high .90. That clearly is showing us that the retail crowd is placing nearly as many bearish bets as long bets. When the crowd thinks they are smart enough to make money on the downside, it is probably safe to assume the downside is not the side to be on. This also lines up with the Investors Intelligence survey. This survey shows only 41% bulls to 37% bears. While this number did NOT cross, normally confirming a market bottom, the fact that these numbers have touched definitely shows that there are enough bears out there to produce a rally as their money comes in off the sidelines. However, it would have been a lot better if the bulls and bears would have crossed. That definitely would have me thinking we bottomed. But, there is still more possible work to do. If the bears were at 45% and the bulls were at 35%, and I had some nice green charts, you better believe I would be in the “bottom calling” camp.
Some things that make it hard for me to believe all the selling is over is that we have absolutely no new leaders with nice charts stepping up currently. Now, that could change, with the Computer and Internet-E Commerce groups moving up the ranks, along with the Telecom stocks showing their muscle leading stocks with the amount of new 52-week highs on Friday. If these stocks can find me some fresh leaders, then I will be much happier. But as it is most of these groups don’t have much working for them just yet.
Instead, we have the Food-Dairy Products group leading this current rally. THAT IS NOT BULLISH. The other problem I see is that we are being led up by a select and very small group of big-cap growth (most being tech) stocks. GRMN, GOOG, BIDU, AAPL, RIMM, DRYS, CELG, ZNH, LFC, TNH, CHL, EXM, and FWLT continue to just breakout, build a sloppy base, breakout, build another sloppy base, breakout, and do this over and over. So far so good, with these stocks. However, IF their uptrends ever stop, you can bet that the markets selloff will just be beginning. Many inexperienced investors already see these stocks as a buy on every dip. Soon they will be convinced that EVERY dip is a buy, no matter how many dips they have. When that happens, you better believe I will be short and maxed out on margin in these once loved former leaders.
One other key thing about this rally attempt is that only the SP-500 has a B rating. When the stock market bottomed in March 2003 (after putting in the real bottom in October 2002) the Nasdaq carried an ACC/DIS rating of an A-. So even if we have in fact made a short-term bottom, it is almost guaranteed to not be ready for a real rally for at least a very long time, as there is plenty of distribution still lingering in this market. When you have the IBD 100 with a D- for an ACC/DIS rating, it seriously can’t be all that great out there. Take this along with the fact that the only index above the 50 day moving average is the Nasdaq and you have a market that still has plenty of headwinds facing it, despite that follow-through.
In honesty, it still appears, the best play is to continue to stay long your strong stocks in an uptrend, to keep new buys and new shorts small unless the charts are perfect (not many like that at all), cut your losses fast on those stocks that do not work out, and to try to stay off too much margin and remain cash heavy until a clear trend establishes itself. I hate to tell you, but, right now, there is no solid uptrend or downtrend; just a big wild low-volume mess that is sure to only continue.
WINNERS: KHD 131% ZNH 238% MOS 140% EBIX 60% VDSI 141% CRNT 105% OMTR 215% BCSI 91% ANO 167% FSLR 59%
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