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!!!!!

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.

Stocks End A Powerful Quarter With Small Losses On Higher Volume, Giving The Market Its First Distribution Day Since September 12th

Stocks started off strong but entered a choppy trading pattern for most of the day until 2pm EST when some real selling hit the market officially ending the EOQ rally. The selling led to all indexes finishing in the red with the SP 600 suffering the worst of it with a .9% loss. Despite the small losses, the selling seemed a bit worse underneath because all of the momentum stocks seemed to do poorly on Friday with very few pockets of strength to speak of. Still, overall, the losses were not that bad but they do qualify as a bad day with the higher volume due to the .3% loss on the SP 500 and Nassy.

Adding to the weakness of Friday was volume. Volume was higher on both the Nassy and the SP 500. That gave both indexes their first day of distribution since September 12 and in the total count of distro days we can eliminate that September 12 day since the market has moved up so much from that selloff. The move on September 18 officially killed the old distribution days. So, for now, we stand at only one distro day for the indexes.

It was a very great third quarter for stocks as stocks wrapped up a very strong month with some strong gains. The NYSE gained 4.6%, the Nasdaq gained 4.1%, the DJIA rallied 4%, and the SP 500 gained 3.6%. Obviously, it was a great month for stocks and even though Friday went out cold we still have to admire how strong the month was and we can't really blame traders for wanting to take profits and start the fourth quarter off fresh.

The strong gains this quarter and this month came on the back of some heavy bearish sentiment and media. The subprime worries, the Patraeus report to Congress, and your usual bashing of the economy by the heavily slanted left-media was the perfect wall-of-worry for stocks to climb. Combine that with all the calls for the US Dollar to collapse to zero and all the overly-insane calls of gold to go to 1000 or higher and you had the perfect combination for equities to take advantage of the gullible and ever-so-growing ignorant general public. Stupidity and plain hysterical ignorance seems to be the norm nowadays. This is bullish for stocks right now.

To confirm that it is still very bearish out there we only have to look at two key indicators. The put/call ratio has jumped back up to near the 1 are, closing at .96 on Friday. Then the most shocking of the two, the NYSE short-interest ratio finished the week at yet another all-time high at 8.66. This is the highest this ratio has ever been and it is telling you that more stocks are short as total shares floating than at any other time in history. With the market so near old highs, I find this simply stunning and can not see how it can be anything but bullish long-term for equities.

But with the month of September behind us, some are worried that the scary month of October might be a lot worse. While it is true that October is the month where the most fast crashes have occurred, the market in its current condition is in no way ready to crash. If the market is ready to crash, trust me, the classic signs of rapid distribution and big price drops will proceed any crash. As we are setup right now I don't think we have anything to worry about.

However, if you want or need reasons to be bearish, you can find them right now. We are overbought on a ton of different oscillators. The McClellan oscillator is overbought, the ARMS index is overbought, the 10-day MA of adv/dec line is overbought on the Nasdaq and NYSE, the 30-day ma of adv/dec line is overbought, but the SP 500 oscillator is not overbought. So there is at least one oscillator that is not saying we are too far along in this rally.

Besides the overbought condition, there are also a problem with the amount of new highs in the indexes. More importantly, the Nasdaq has seen new highs contract everyday as we went along this week--125 on Wed, 119 on Thur, and 112 on Friday. So momentum does appear to be slowing.

With the momentum slowing there is also a lack of quality new longs the past three days. So I am running out of HOT charts that I was starting to find earlier. And the great stocks that I have been long since the August 16 lows have not been as amazing as I foresaw them becoming. The best looking long that I have found in a long time has already put in a significant enough of a reversal that some has been trimmed. This particular long is still well above the final cut loss area but the fact that this particular stock did not explode right after the long signal of near-perfection was given is a big problem. Most stocks that create the chart pattern that this stock did perform very well in bullish tapes. The fact that this one did not was a red flag, without a doubt, and makes me a little cautious on new longs until we get another very bullish day like September 18.

I guess I have a reason to be cautious here as many stocks that I have been long for a while or leading stocks that I have been following are already up way too much and are well extended from correct buy points from very nice pattern. I see a lot of iffy cup with handles being called out there by IBD but my definition of a cup with handle is a little more hardcore than theirs. I simply will not call anything and everything that looks to be shaping a cup with handle one. They will. On top of that, earnings season is right around the corner and we could be setting ourselves up for some sell the news if earnings end up coming out and clobbering the estimates.

Some things that I do not like about this market is that the VIX has once again come down to very bearish levels hitting below 17 intraday on the VIX before closing at 18. That this index has come down so much from where we were at the August 16 is very bearish, even though we are not near the 10 level that we were at before June. Even though we are still very far from those levels, the fact that we have come down so much shows that a major dose of complacency has set in to this market.

If you don't believe me, just look at the sentiment indicators. As I noted yesterday, the Investors Intelligence shows 55% of newsletter writers are bullish again after they almost crossed bulls/bears a month ago. Also the AAII shows that 50% of market participants are bullish. And this weekend, so far, the realmoney.com poll shows 41% are bulls and 31% are bears--the rest are neutral--which clearly shows that everybody is somewhat bullish everywhere. As a natural contrarian, I have a problem with these high bullish readings with the market up over 10% off the August lows.

So for now I am going to continue to play what the market gives me but will keep new buys small here as I believe we need to do some backing and filling as there are too many gaps on the intraday charts in the indexes that need to be filled. Those gaps have been coming on some tight trading days with some low volatility so I don't expect the trend of the past eight days to continue. Some volatility is bound to return to this market. Unless you have been only playing the Chinese stocks. Then volatility has NEVER left and you can continue to ride the BIDU and LFC train higher. Or hopefully you have jumped off the ZNH, CPSL, and JRJC momentum mamma train and are on the sidelines watching the coming destruction to over-leveraged late bulls.

Things still look good out there overall, despite the overbought market. The wall-of-worry to climb is alive and its slope is as bullish as the slope of the yield curve. And if you haven't checked out the yield curve in a while, you might want to do so. The slope is of one that you see in bullish markets. Things still look very good out there for the long-term. In the short-term, don't be surprised if we get some backing and filling. Aloha and I will see you in the chat room and the new chatroom at BigWaveTrading.

PS WE ARE GOING TO BE MOVING TO A NEW WEBSITE SOON. INVESTORS PARADISE HAS BEEN SOLD BY SETH RICHARDSON AND I AM MOVING TO MY OWN WEBSITE. THE START DATE IS SUPPOSED TO BE OCTOBER 1ST. PLEASE CONTACT JUSTIN DEMERCHANT OR MARKET SPECULATOR (marketspeculator@bigwavetrading.com) IF YOU HAVE ANY QUESTIONS. I WILL NOT BE ABLE TO ANSWER QUESTIONS AS I DO NOT PARTICIPATE IN ANY BACK OFFICE WORK. THE NEW WEBSITE IS GOING TO BE MUCH BETTER AND MUCH EASIER TO NAVIGATE AROUND NOW THAT WE WILL HAVE OUR OWN SITE. IT IS LIKE REVSHARK MOVING FROM SUPERTRADERS.COM TO SHARKINVESTING.COM.

winners: OMTR 296% VDSI 178% MA 197% DECK 132% IHS 186% BCSI 89% CNH 123% YGE 50% WRLS 97% ZNH 336% ASTI 92% EVEP 89% EBIX 54% FSLR 78% CRNT 132% LFL 59% ICOC 84% SXE 54% TTG 73% NVT 78% NTLS 60% IMA 71% HURN 87% MOS 198% APPY 61% ALVR 59% KHD 123%

The Best Week of 2007 For My Portfolio Positions Me Well For Some Big Gains If This Market Continues To Rally

There is no doubt that this has been one of the best weeks of 2007. But what has made this week so much better compared to other good weeks this year is that the stock market is finally acting, in what I would call, a correction fashion according to TA 101. Stocks that are bouncing off the 50 day moving average or breaking out of sound basing patterns are working and continue to rack up gains, instead of just acting hit or miss with the few winners giving us only slightly impressive gains. The stocks that are moving now are moving with very strong momentum and that momentum is helping me make gains that I have been accustomed to. There is no denying that the market from May 2006-July was an odd one with many hits and misses for my style. But now things are back to acting normally. This just goes to prove that you should never give up on a proven sound strategy. I am sure many people got frustrated by this market, despite some stocks making big gains.

Typically, in bull markets, I can find many top performing stocks that race up 100-500% before they finally put in a top. However, recently, with the low VIX, it has become very difficult to find strong stocks that not only perform well but do so without cutting key support levels. It really has been a good market. However, the gains simply were not there like they used to be. That, thankfully, appears to be changing as once again I am finding many new longs and am ALREADY nearly fully invested again. Some would say that could be contrarian. But the problem with that is that I am long a ton of new longs that appear to have a lot of room to run. To go along with that the current longs that I was long before the rally got back underway on August 16 have setup all new big bases for more continued big gains to come. Just go to the end of my weekly post to see how many BIG WINNERS I continue to hold from the previous bullish uptrend. Though the holdings are much smaller than they were, the fact is is that I am still long some nice winners while many are completely back on the sidelines wondering how they have missed another rally.

And that leads me to my next point. There is no way that anyone should still be on the sidelines right here. It is quite clear after the August 29 follow-through that a lot of stocks were setting up in nice bases. Since that follow-through day a ton of stocks have completed and broken out of their bases and/or are still creating some great looking charts. You do not see this many leading stocks in so many different leading sectors along with all these new longs breaking out of solid patterns in a weak market. History shows that if you pass on all these nice chart patterns now after a follow-through and instead wait for confirmation that the follow-through was real, you will miss out on all the big gains. Not all follow-through days lead to a bull market but no bull market has started without one and this market is acting like it is going to work. The best stocks breakout within the first three months of a new rally and many of the biggest winners show up within the first month. So the longer you wait the less chance you have of HUGE success. The best long I have had in the past five years was TASR. And even though it took four months before breaking out of its perfect flat base on 7/22, the stock still rallied over 200% from the 3/17 follow-through day for the Nasdaq. So the best stocks move early and they move a lot.

Granted, anything can happen, and you better believe that that is very true. But at the same time, history has shown over and over than when you have this many well-formed green charts in so many different areas of the stock market right after a follow-through day that usually more upside gains are going to come.

Now, like I said, nothing is written in stone but before we put in a bottom on August 16 the fear levels were rising to a borderline psychotic frenzy on the subprime mortgage issues. The fear that it was spreading everywhere helped set the bottom with the put/call ratio zooming above 1.3. Even though complacency from the recent rally is starting to slowly creep in again. The fact remains that a lot of people have already entered the “camp of calling a correction.” They believe the market has already come too far too fast off the lows. That very well may be true but in the last three days we have had three accumulation days and one low volume short pullback. This is very bullish on the short-term and is not the action of a stock ready to put in a short term top already.

One of the most impressive things I like about this rally right now is that the leadership is strong in many sectors and volume has been very powerful the last three days higher. Even on Friday, volume was higher by 62% on the NYSE and 31% on the Nasdaq. With volume now coming in over the 50 day volume average, it is clear that institutional investors have come back into the market as buyers–not sellers. Some will say that the quadruple witching had the most effect on the volume. However, it is hard to explain that about the other two high volume sessions. That volume was in no way related to the quadruple witching. Instead it was the bullish response by investors to the Fed chairmans decision to slash the fed funds rate by 50 basis points. That event is what ultimately has led stocks to one of their best weeks this year with the NYSE clearly leading with a 3.2% gain.

But if your only focus was with the overall indexes, then you missed out on a lot of money as many leading stocks made extremely impressive moves. The IBD 100’s 6.2% gain for the week confirms the enormous strength we saw in leading stocks this week. For the year the IBD 100 is up 32.5% compared to 7.6% for the SP 500. This goes to show everyone, once again, that if you want to make the big money in the stock market, you want to focus on the top stocks with top fundamentals breaking out of solid and sound chart patterns. This is the only way to consistently beat the market every year and make a comfortable living in the process WITHOUT stressing yourself out to all the intraday price action. Sure it is great to get 50 to 1 margin on a futures account. However, you still have to spend your WHOLE DAY watching ticks and bar charts. Seriously, during the day, I have much better things to do. Like surfing or going to the gym.

There are some internals that I would like to go over, before I head out of here for the weekend. Some market pundits are worried that the cumulative a/d line is not keeping up with the prices of the SP 500. I then also heard that besides the a/d cumulative line not keeping up that the cumulative volume is nowhere near all-time highs also. Yes that is bad but last time I checked the fact that the cumulative a/d line and the cumulative volume was not hitting new highs with price did not prevent the indexes from continuing to rally. As rallies get long in the tooth–we have been in a NONSTOP bull market since October 2002, mind you–the overall participation of stocks declines as bigger large cap stocks make up the biggest portion of the market are the favorites. Most people end up investing in the big “known names” of the most recent bull. GOOG, GRMN, AAPL, BIDU, RIMM, etc…comes to mind.

Some people are also complaining about the Transportation index lagging and not being anywhere near all time highs. Well, while everyone worries about that and focuses on the index, I will be in my little corner going long and staying long the leaders in the group like DRYS, GNK, GLNG, DSX, and EXM. Something tells me that I will do much better by focusing on these leading stocks instead of worrying about the Transportation average.

The other focus is on some oscillators that are also showing the market overbought. Well, to me that is fine and bullish as if the stocks pullback we are going to get oversold very quickly and will probably form higher lows on the McClellan and 10-week MA of the a/d line. So it is probably best that we do not race to new all-time highs in the indexes right now as it would probably create a lot of negative divergences everywhere in the technicals. But a nice slow uptrend will surely place positive divergences in many if not all of these overbought/oversold indicators.

Overall, however, it pays to really on pay attention to price and volume on the index and leading stocks. If you are long the stocks that I have been going long the past three weeks, you are definitely sitting on some nice gains and should be doing very well and/or be nearing new account highs or building back a lot of those losses you might have suffered after the July to August slide. I took a big hit during that time due to me holding on to some longs. But now all those losses have turned to gains and my account is near another all-time highs DESPITE me not being fully invested. If I was on full margin right now, I would be at all-time highs already. However, if this market has more legs to it, which I believe it does, I need to have a lot of cash available in case I get another chart that sets up like F***, R**, D***, B**, Y**, V**, J***, or C***. Like I said, I still have only found a few near-perfect charts and only one of them can be considered close to perfect. If this market is going to move higher, there should be one or two more perfect patterns waiting in the wings to be found out there. If not, I will continue to pick up all the stocks that look like the ones I have listed. I would name them here but until it is up 25% for paid subscribers, I feel like it would be very wrong for me to tell you guys the stocks we like that are making us very wealthy.

It still isn’t the time to get filthy rich. Those ONLY happen after severe long bear markets. The last time we had to get rich was March 2003 (October 2002 was when stock like SOHU, SINA, and NTES first appeared so you could use that date) to January 2004. Since then, we have not had a big enough downtrend–20% or more selloff–to give us one of those perfect moments.

For now, enjoy what this market is giving us. The odds of higher prices well outweigh the possibility of lower prices and that is the way we should be playing this market. But, don’t think I am a foolish over-the-top bull here. I could turn on a dime and go 100% cash and start pushing my short bets if I had to. If we start getting a ton of distribution days on large price declines in the indexes, trust me I would have no problem selling off my once nice charts to save my ass from big losses. A beautiful chart is no longer a beautiful chart to me once selling hits so I have NO problems selling off a stock that at one time was either a big winner for me and/or was a beauty but now a beast. Aloha and I will see you in the chat room!

winners: FSLR 73% IHS 185% DECK 129% MOS 179% BCSI 93% HURN 83% TTG 66% IMA 58% VDSI 166% CNH 108% ASTI 73% INNO 56% ALVR 52% ZNH 389% EBIX 53% ICOC 96% NVT 62% MA 199% SFLY 64% OMTR 279% CRNT 97% LFL 70%

Most Of The Major Market Indexes Fail Their 50 DMA’s And Reverse Down Through Their 200 DMA’s And Russell 2000 Fails At Death Cross; Volume Continues

A weak jobs report hit stocks early but after that there wasn’t much more selling. However, Friday was the third day in a row where we saw overall weak intraday or dead intraday price action but, once again, there was very little volume overall to the 50 day volume average which makes it hard to say that the sellers are in complete control at this area even though most major market indexes are making significant reversals and/or failures at key moving averages.

The fact that most indexes failed right at their 50 day moving averages and traded below their 200 day moving average shows that the market is suffering from some weakness and the fact that we had a second distribution day since the August 29 rally does have to throw caution on the rally. However, the leading stocks continue to hold well and stocks like AAPL that have seen three days of selling have really only seen one day of selling and then two days where the stock gapped lower and basically then traded in a tight range the rest of the day on big volume. To me that appears to be support to the selling that is happening in the morning.

Heck, if you just look at the indexes on Friday you can see that almost all of the selling happened before the market open. The fact that that was the case shows that the market makers just dropped the bids to find buyers. There was no real selling or capitulation by big investors as volume continues to constantly come in below the 50 day volume average. It doesn’t matter if it is on the upside or downside, there is still no volume that indicates the big institutions have done ANYTHING after August 16.

What I find odd about the lack of volume is how much people are still trying to figure out about the current action of the market. Well, folks, I hate to tell you, all of the prognosticating and prediction analysis all of you newbies seem to think is so important is clouding your judgement from the truth. Just like watching your biased national news on CBS, ABC, PBS, or NBC, you are only getting half the story. The network anchors and YOU can guess why the market is doing this and why it is doing that but bottom line is that NONE of that makes you money in the market.

WHAT IN THE HELL IS SO HARD TO UNDERSTAND ABOUT THAT? WHY DOES EVERYONE NEED TO KNOW WHY SOMETHING HAPPENED???? PROFESSIONALS NEVER ASK WHY THIS OR THAT HAPPENED; THEY REACT AND POSITION THEMSELVES ACCORDINGLY, ALWAYS HAVING A PLAN FOR ANY OUTCOME.

The truth of the market is that the long term trend since 2003 is up and has been almost nothing but up since then. Until your big-cap growth leading stocks like RIMM AAPL BIDU GOOG GRMN etc…start selling off on huge volume, failing their rallies back to new highs and key moving averages, and then start selling off again, there is no way in hell anyone should be bearish on this market. And trust me I see a LOT of amateurs very bearish.

Listen, if we had a ton of volume on the reversals I would be very bearish too. However, without the increase in volume to very heavy levels over the 50 day volume average, it is impossible for me to either get bullish after the August 16 lows or bearish after we reverse here at the key moving averages. The proper play right now is to remain market neutral in your opinions, recognizing that the market is in a sub-intermediate term uptrend from the August 16 lows with some select CANSLIM quality stocks giving us buy signals and a market in a very short-term downtrend with the market moving lower the past three days. THAT IS IT!! Nothing more and nothing less. There is nothing profound to figure out here.

About the only thing I want to figure out is why in the hell everyone is so focused on a rate cut? The fact that everyone has already begun looking for the rate cut as far back as August 16 has to get me to thinking that this is in fact why the market has rallied since then. If this rally is based on a rate cut speculation, then we know why the big boys are not involved in this rally. They don’t buy rumors. When they make a decision to buy or sell a stock they are making long term moves that take months to play out. So the logical play by them is to probably let the market rise so they could do more selling.

That is, as long as they have more selling to do. There are some psycholgical market indicators that could suggest all the selling is done. Professional investment advisors are becoming more bearish as the 3 week average of bearish advisors has now risen back above the 35% level. Since the mid 1990’s each time the 3 week average of bearish advisors has exceeded 35% this has been followed by an eventual bottom within a few weeks followed by a strong rally. So taking all that bearishness along with the high put/call ratio of 1.05 now and the fact the put/call could not fall lower than .83 after the closing bell during this uptrend shows that many are still nervous.

And that is why many stocks are making gains, holding on to their gains from before the selloff, and/or are setting up in some nice patterns for potential gains. About the only thing that is bothersome so far is that I have found some very nice charts with top fundamentals. The funny thing is the stocks that have flaws have been doing very well and the stocks that are loaded with accumulation and green BOP all over them are not working, going sideways, or are making small gains. In very strong bull markets, this simply does not happen. The best charts always take off further and give me faster and bigger gains. Right now, as has been the case since the late 2006, few of my perfect charts are staying perfect. Recent examples of really really nice charts (not perfect) not working immediately are FALC, ROS, and BLL. All three of these, with the chart patterns they produced, should be running by now. So this is yet another key clue that tells us being bullish or being bearish is not the right play right here and being unbiased and neutral is the right play. If we were to be bearish, we wouldn’t even be getting these setups. If we were to be bullish, these stocks would be blasting higher already.

The point of this is to remember that you do not need to always be bullish or bearish. Sometimes it is the smart play to be just neutral. Dip your toes in on the long side if you find a pretty chart, dip your toes in on the short side if you find an ugly chart (they both must be setting up in perfect patterns, obviously), but continue to keep cash heavier than either your longs or shorts at this point. Without volume, we have absolutely NO clue as to what the true intentions of big funds are. The biggest point of all of this is that you simply do NOT have to trade/invest all the time.

I am still completely unsure as to why people feel they must trade all the time or “make money” all the time, especially when the market is chopping you up piece by piece after every trade you take. Doesn’t common sense take over and tell you to STOP trading? I am sometimes amazed at the lack of common sense newbie traders have and A LOT OF PROFESSIONALS have when it comes to the proper time to trade (uptrend or downtrend markets) and when it is not the proper time to trade (wild, choppy, and irrational markets).

Sentiment is pretty bearish out there, which would seem to be short term bullish. But we do have some overbought conditions on many different oscillators (10 dma of adv/dec line, DTS timing, McClellan, Arms) signaling that we might need to do some work on the downside before returning to the upside. In the middle of all of this is the constant talk amongst the market mouths is the fact that the Fed might need to act. That in itself is causing some paralysis amongst some players. So here you have some bullish, bearish, and neutral factors that are sure to influence this market in its usual choppy and wild manner. It should be fun.

Remember, if those pretty charts fail, cut your losses. Unless, you are in a bull market, pretty charts are going to be hit and miss. Right now, they are definitely hit or miss. Their is no clear uptrend in the major market indexes and now we have some key failures (though it was on low volume) of key moving averages. I just find it hard to believe our beautiful longs are going to continue to rip, unless some real accumulation gets into this market. And hopefully that happens for the bulls, as September is historically the worst month for stocks.

Very Boring But Bullish Week Comes To An End With Volume Completely Absent; Negative Divergence In Price And Volume On Indexes Developing

Well if you wanted the opposite of last week, you definitely got it this week. The complete opposite happened as stocks rallied on extremely low volume. Even though the rally was powerful and the Nasdaq almost climbed 3%, the volume was almost 1/2 of what it was last week when the index was making new lows and the Fed was injecting money into the system to prevent a crisis.

Now, even though last week looked well and it appears stocks have bottomed, I still can not enter that camp when two things have not happened. There is no surge in volume showing accumulation by big funds; the low volume last week CLEARLY showed that the smart money was COMPLETELY absent. You simply do not have volume that low and have any real accumulation take place. The other thing that has not happened is that we still have not had a follow-through day off the 8/16 lows. Monday will be day seven of the rally attempt from those lows and all experienced investors know that the greatest follow-through that lead to real rallies happen between the fourth and seventh day. Anything earlier and especially anything later and you really lessen your chances of a successful follow-through.

The other thing that continues to also keep me out of the bottom camp is the fact that I still continue to not have that many new exciting longs breaking out and/or forming fresh bases for a strong rally. The fact is, in real uptrend, I WILL ALWAYS have a handful of stocks that are forming nice to near perfect charts. Right now I have very few stocks appearing in my scans that catch these early and the stocks making it into my long scans do not have sound bases and/or have serious flaws with their fundamentals. There are a few exceptions like FALC and ROS that have very very nice patterns. But the fact is they are not perfect. Also, there is nothing new showing up with outstanding EPS and RS ratings. That is yet another sign that this just continues to be part of the cycle that started in 2003 and not a start of an exciting new uptrend.

And adding yet another topic to argue against the bottom is the fact that the amount of 52-week new lows continues to beat 52-week highs. There was only way day this week (Wednesday) where new highs beat new lows. Even on Friday, there were 63 new lows to 55 new highs. Now, I have to be honest, I know for a fact that “the moment” in late 1999 did come with more new lows than new highs. However, after the late 2002 low going into the real bottom in 2003, there were more new highs than new lows. To go along with that the Nasdaq’s ACC/DIS was an A-; right now it is a very poor D+. So obviously, this current rally has NO resemblance to ANY rally that has produced HUGE gains throughout the history of the stock market.

Saying all of this, there are signs that, if the market maybe has not bottomed for good, it has at least bottomed “for now.” The problem is that the indicators and internals that are showing a possible bottom are only SECONDARY indicators. The first I want to look at is the VIX. The VIX was able to successfully enter the 30 area and come very close to the 40 area. The last time that happened was in 2003. Now, when I first saw this I became bullish because that indicates a lot of volatility and when the VIX is high breakouts can make you a TON of money. However, the difference between a VIX at 40 here and at 40 in 2003 is HUGE. The VIX entered 40 AFTER being around 50 in 2002, setting up a TON of big big big winners. This time VIX is coming from the low teens. And the fact that the VIX has ALREADY come back down to the 20 area shows that the crowd is ALREADY, ONCE AGAIN, becoming complacent with the rally after ONLY one week.

Second is the put/call ratio. This ratio continues to remain very high, despite the rally last week, indicating that the crowd, even thought the VIX says they are getting complacent, is getting complacent with puts. The put/call is at .99 which is obviously very near the 1.0 level where “fear” is in the market. The steady pervasiveness with the put/call ratio at this level shows that traders are still making bearish bets betting on a lower market. History shows that these people are RARELY right. So further upside is supported by this high number. Until it comes back down to the .7 area, I am sure we can still move higher. Will the move higher continue to place fear in the hearts and minds of traders, if the rally continues? I doubt it. And if it does I still doubt this is a bottom UNTIL I GET MY GREEN ACCUMULATION-FILLED CHARTS BREAKING OUT OF SOUND PATTERNS WITH GREAT FUNDAMENTALS.

The third and final secondary indicator that suggest we COULD have bottomed is the Investors Intelligence survey. The new numbers, this week, came with 40% bulls and 37% bears. While this number is not a cross, it is darn close. When the bears outnumber the bulls in this survey (which rarely happens) you almost always have a bottom. However, as you can see we did NOT cross yet. So there could be further bearishness needed before these numbers cross. Therefore, it is hard to call a bottom here. Especially, with the indexes not having any 2% or higher up days on heavier volume. Until we get a follow-through day, this Investors Intelligence number is nothing but a number. An important one to watch, mind you. But not the end all to end all.

Now, with all the information I have just given you, the most important out of all of this is this. YOU DO NOT HAVE TO BE TRADING ALL THE TIME TO MAKE MONEY. DUH!!!!!!!!!! UNFORTUNATELY, A TON OF YOU AMATEURS JUST DO NOT GET IT (this is not meant to be mean but if it insults you obviously you have some things to think about). The greatest traders of ALL-TIME knew that to make the BIG money you must sit on your hands A LOT!!! As Jesse Livermore said, it wasn’t his active trading that made him his money but his sitting. Sitting and holding winners on the way up and shorting the old winners on the way down and staying on the sidelines when the market was giving no clear direction. Right now, the market is giving no clear direction.

How do I know this? Easily! How are those investing in longs doing? How are those investing in shorts doing, unless you shorted the stocks in the AHM group? Probably not too well by looking at the returns of the top mutual funds and traders that I know. The fact remains that a TON of stocks have been decimated but the leaders in the big-cap tech group continue to act well. While we have BIDU AAPL GOOG RIMM FWLT WYNN BCSI and the other leading stocks still making new highs or holding above their 50 and 200 day moving averages, there is no way in hell we have a real market top. This is why, despite there being NO reason to be bullish here, that I am not bearish. I simply can not be bearish on the market while the leaders continue to make new highs or are holding key support. Once these leaders breakdown and fail there rallies, not only will I be short on full margin but I will be very bearish on this market. For now, I am agnostic. And I believe that is how the greatest traders of all-time would be here too. In fact, according to IBD that is where they are at so I am sure I am on the right side.

Now, unlike the other psychic market commentators, I can not predict the future. However, I do know one saying very well: “never short a dull market.” So if volume continues to be this low, I would continue to maintain a bullish short-term view and enjoy the trading opportunities that show. Just don’t overstay your welcome and I definitely advise taking some profits on any stock that makes a 25% move in this market. Even if it makes the move in a few weeks, I would still sell some off (20-25% or so).

About the only thing that I can think of that I would do during this low volume market-if it stays a low volume market ONLY-is to read the book by Mark Douglas called “Trading In The Zone.” I know I have recommended it before but I am still not sure if those who did not read it get it. YOU MUST READ THIS BOOK, IF YOU ARE STILL TRYING TO FIGURE WHY THE MARKET IS DOING THIS OR WHY THE MARKET IS DOING THAT. IT DOESN’T MATTER AND IN FACT YOU WILL MAKE MORE MONEY BY NOT TRYING TO FIGURE OUT WHAT THE MARKET IS GOING TO NEXT. INSTEAD, PREPARE FOR EITHER OUTCOME AND STUDY HISTORY TO PUT THE ODDS IN YOUR FAVOR. JUST LIKE THE CASINO AND PROFESSIONAL GAMBLER DOES. You can make a lot of money in a random market environment with improbable outcomes. You just need to learn how to reprogram yourself to master the ART of active investing.

What A Wild Week It Has Been; Stocks End The Week On A Bright Note, Sending Chills Down The Spines Of The Johny-Come-Lately Shorts

This was by far one of my most favorites week, since 2004, by far. The amount of emotion with fear, greed, and confusion was by far the most I have seen probably since the downturn in 2005. So, obviously, I must have been pulling my hair out. Right? Wrong.

The great thing about having discipline and game plans is that you are prepared for everything. When all of my new longs started failing and I noticed that all my short recommendations were working out better than longs, it became obvious something was starting to change.

Not only that but remember how I kept harping on the amount of 52-week lows were beating the 52-week highs BEFORE we sold off. I warned how that might be a problem. And walla it became a problem.

As the selloff started, I advised going to cash and those that did that were able to sit back and enjoy this wild action. Because, I have to be honest, neither bulls or bears made a lot of money. If you look at your charts you will clearly see how wild and choppy they are.

What is funny is that the shorts I mentioned before the selloff did very well. However, during the selloff, my short recommendations did very mixed if not not too well. Do you know what that means? It means it is not the correct time to short this market on full margin.

How do I know that? Well, considering that EVERY fast and long selloff in every bear market starts AFTER the top stocks have topped is the first and fast rule. The second is that my shorts are not working. I have been through enough bear moments and one nasty bear market to know when things are right. You know they are right by your shorts working immediately after you short them. With my current shorts a mixed batch with most going the wrong way the market is clearly telling us it is not time to be full hardcore bears just yet.

As long as RIMM, AAPL, BIDU, GOOG, and other leading stocks like TNH and MA not only hold their 200 day moving averages but stay in long term uptrends, there is no way a major top is going to happen right this moment. But my longs are also acting very poorly in this market so it must also be said it is no where near the right time to be full margin with longs at this juncture.

It is a waste land out there of red and wild charts. The biggest and best winners I have ever owned have NEVER came out of these kind of patterns. Take that along with there being 83 new 52-week highs to 236 new 52-week lows it is hard to get excited about a rally here when leadership is this weak. It was weak before the selloff and it continues to be weak.

During the market on Thursday I noticed that it was getting way too bearish out there with the put/call hitting 1.5 intraday and the members of my room excited by all of our shorts working so well (by the end of the day, there was no rejoicing). It was at that moment that I recommending covering 25% of all shorts across the board and that the market has probably seen the lows for the current trend.

Chris “Mahket/Market Speculator” Maye was even earlier in sensing it coming hours before me. The fact was that when you are in tune with the market it is pretty easy to get the feel for extreme moments. Before this selloff ever got started I was warning to all the parabolic and semi-parabolic charts out there. Well most have them have been cut down. But now they must fail this rally on higher volume before stocks like MA or TNH can even be thought of shorts.

Heck, did you see RIMM on Thursday and Friday. That is one of our “tells” (our leader). Does it look like it is topping? Of course it doesn’t. This will be one of the big boys I short when we enter a real bear market. For now, it doesn’t seem like that time. If this is 1998 again, like so many on CNBCrap have been saying, then you should know how the market acted to 2000.

Well, that really isn’t a good example because God knows we are not going to see a market like that again in my lifetime. But the facts remain until the leaders top, do not count your chickens before they are hatched and don’t “put your carriage before your horses.”

At the same time, until we see and pretty green charts with nice round shaped bases in stocks that have great fundamentals I see no reason to feel like you have missed the move, by missing the bottom on Thursday and 2% plus move Friday. I bet you wouldn’t miss it if we gave up all those gains. And also remember even though I am off margin and am only 10% short, 40% long, and 50% cash, I am still holding 98 different stocks that are holding key support areas, 50 and/or 200 day moving averages, or key uptrend lines.

That clearly tells you this is not that horrible of a market to be shorting. If this market was in serious trouble I would probably be only long 50 or so stocks. TRUST ME THEY WOULD PROBABLY BE IN THE LEADING INDUSTRIES DURING THE DOWNTREND. THEIR IS ALWAYS 1 OUT OF 4 STOCKS THAT BUCK THE TREND. OBVIOUSLY, IF I AM LONG, I AM IN ONE OF THOSE AND NOT HOLDING ON TO LOSERS AND RACKING UP LOSSES.

So the best advise I can give everyone right now is to continue to be patient and in cash for an established uptrend or downtrend. For an uptrend we will get a follow-through here in the next seven to ten days. For a downtrend we will start getting clear distribution days and failures at key moving averages and resistance areas. So that is what you must wait for and not be too overanxious to jump into this wild and nutty market that is making some people put on some stupid and ignorant trades OR START TO PRETEND LIKE YOU KNOW WHAT THE HELL IS GOING ON.

For all of those of you out there trying to figure why the market did this and why the market did that, I want you to know you are playing the game as amateurs and suckers. It doesn’t matter why the hell it does anything. All that matters is that it does. You need to make money off the move. NOT KNOW WHY IT HAPPENED. That isn’t EVER going to help you make money as NO TWO SITUATIONS ARE EVER THE SAME IN THE MARKET. EVER!!!! History repeats itself….but the outcome does NOT.