The 4th Quarter Starts in Lackluster Fashion

NASDAQ 100 stocks lagged the broader market lead by MSFT and AAPL as the Dow Jones Industrial Average and Russell 2000 were able to close in the green. Volume ended the day lower than Friday’s inflated figures from end-of-the-month rebalancing. Overall the session wasn’t that inspiring, but it wasn’t entirely awful. Early on in the session optimism ran high with positive news from the ISM Manufacturing Index report showing the sector expanded when expectations were for it to slow. Price paid were a bit higher, but weren’t alarmingly higher. The close was decent with buyers stepping up and lifting the markets avoiding closing on the lows. Our uptrend remains with very little distribution piling up despite the bearish opinions of the market. Today’s reversal is not what you want to see from the market. Last year, however, the first day of October was not that great either. Even the second day, 10/4/2011 at 3pm looked dire until we got a rumor of a new bailout for Europe. While things may look dire now you just never know what the market will hand you the next day. Guessing where the market will be next is not a recipe for success and continues to keep traders from maximizing potential gains. Stick to a disciplined approach and play the odds rather than simply guessing. The election is not far a way at all! It will be nice to get away from the constant stream of political ads and banter. However, for this market it does appear we are looking like an Obama victory. We can debate polling tactics and have yet to have a debate, but there is one thing that is certain: no one knows where the market is going. Will Obama help the US avoid the mandatory spending cuts and tax hikes? Will Romney? Will either candidate get our fiscal house in order? It is very doubtful either candidate will resist the urge to spend and inflate the deficit higher. Then again, the Federal Reserve is pumping $40 billion a month into mortgage backed securities and it won’t matter. In the end, focusing on leading stocks and their price action is the way to go. Leave the guess work to others. We aren’t off to the best start to the quarter, but it could be far worse. Cut those losses.

Stocks End The Week The Way They Started With Another Selloff; Long Gold/Silver/Platinum + Short Stocks = Big Profits In This Market

Stocks ended the week the way that they started with all indexes closing down across the board with indexes down anywhere from .1% on the Nasdaq to down 1.6% on the NYSE. The bad news about the losses, today, is that the NYSE and SP-500 (-1.1%) suffered a clear distribution day. The DJIA had a huge distribution day but the bullish intraday reversal and the huge level of volume would appear to be more short-term bullish for me. Why? Because the DJIA has been down 20 of 31 days before today's huge volume down day's intraday bullish reversal. Either way technically they are distribution days but when using "art" with "science" it is clear to see today's losses were not vicious.

What is more problematic is that the longs scans looked worse than only a 1% down day. That just tells me that the market probably is in no mood to rally any time soon and this is probably why we can not find ANY "hottie" chart patterns or high quality CANSLIM stocks setting up in proper patterns with growing fundamentals. The market has turned down on the micro and macro and it will take time to get these stocks growing again. It will even take longer if we go down the road to socialism. If we take a track that has proven to NEVER EVER work in the history of the world, then it might be safe to say the "hottie" stocks might not setup. If that is the case, we will just keep focusing on our shorts in the market and our gold/silver/platinum longs which will make us excellent money in a market like that.

A lot of people seem to not realize that there is a HUGE correlation between long bull markets and technology and financials leading. Even in 2003 the huge bull market rally that we saw that year did not just have technology leading it also had banking leading. Stocks like GS were leading the sector higher making these companies a lot of money. This happened in 1999 also as one of my best longs was a payment system stock that worked in banks. So you normally need banks to help rally the market if you have a healthy market. So I am sitting here wondering what is going to happen if the socialist agenda of our Congress is put in place and our banks become nationalized. You better pray to the Lord above that this doesn't happen. It will flatline and kill banks as investment vehicles and somehow excess capacity will have to be moved from these dead banks to new alive stocks that haven't been killed by socialism yet. There are always future technologies like nano dust, artificial intelligence, security, robotics, and many other green technologies. However, if the venture capitalist have no capital to loan and the banks have no money to loan. NOBODY is going to make money. So let's pray our system makes it through this.

For the week, the market took it on the chin with the IBD 100 falling 4.5%, the DJ down 6.2%, the NYSE lost a whopping 7.7%, the SP 500 lost 6.9%, and the Nasdaq lost 6.1%. It was not a pretty week and that can be confirmed with the amount of longs we had decrease from 10 to 5 and our shorts increase from 39 to 43. I think it is obvious which side is the right side right now, unless you are keeping warm in cash.

With the mess our leaders are making with these trillion dollar SPENDINGULUS bills, these $75 billion housing plans, this exponential printing of money, and the nationalization of banks have me thinking only one thing for the long-term. That is GOLD baby! My gut tells me ANY pullback we can EVER get to the 50 day moving average or the 200 day moving average should be an area that we buy a LOT of gold. The 21 DMA can even be used. However, I have 25% of my IRA in Gold and would not mind putting 50% in it if I can get a proper pullback. I will not chase and will remain patient and let it come to me. When my "hot" max green BOP filled, heavy accumulation filled, and excellent price action stocks setup, I will be going long and strong.

However, if they don't show up and an opportunity to go long comes along, a bounce of Gold right off the 50 day moving average sure looks like a smart thing to do when you have a long-term time frame based on the US Dollar collapsing under the spending in the gov., the corruption in the gov., the printing in the gov., and the lying in the gov. This will lead to China to stop buying and will send Gold/Silver/Platinum exploding higher. Gold is already made us a good amount of money in a short time and we hope more is left. Don't forget to keep an eye on AGQ for a BIG ultra silver play. This is a very bullish silver chart and any pullback BEFORE a climax run should be on a lot of investors wish list.

The bottom line this Friday is that I have had a GREAT week with our gold longs producing large gains in our big holdings, our shorts ALL did us very well giving us nice gains, and the best part is that we still have a LOT of cash on the sidelines to use in case any of those exciting stocks we have fallen in love with since 1998 come along and setup again. I know it will be sooner than later as we still have some nice charts holding up out there that could become "hot, perfect, wonderful" chart patterns in a few more weeks to months. We will see, it is still early. Remember everyone, CASH IS STILL KING, SHORTS ARE QUEEN, and GOLD/SILVER IS PRINCE!

top longs/(shorts) with TOTAL RETURNS since purchase MAKING ME MONEY TODAY: ANCI 56% (CETV 92% CEDC 82% CYT 68% SDA 79% RIMM 60% GGB 63% TITN 54% AMX 51% APD 44% OKE 44% IPHS 48% CEO 32% RDK 30% PG 21% CPRT 22% BOH 22% PLCE 29% AMSG 27% PRGO 25% LLL 19% K 19% WRB 15%)

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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.

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