Aloha From San Fransisco; Stock Market Ends The Week The Way It Started–Putting In Extremely Bullish Intraday Reversals To Close Near/At The HOD

The market continues to do the most bullish thing it can do by dipping intraday and closing near or at the HOD. The SP 500 was the winner of the best acting index this weekend with its gap open, move lower, and close very very very close to its HOD. The action of the market the past week just simply doesn’t get much more bullish.

Anything can happen in the stock market and all the greatest traders are prepared to act immediately to a changing market. But if the market reverse from this very bullish acting week, we can expect a large selloff as the moves this week in the market were very very very bullish. All the gap lowers and higher followed by some pretty large dips all led to the market putting in bullish reversals and moving higher. I just couldn’t have asked for anything more. I doubt we will get a repeat of this week, next week.

I am really busy and have been on the GO GO since arriving and right now is no different. So I must bid you farewell for today. I will see you Monday where it will probably be a small commentary but by Tuesday I will be fully back in the saddle.

ALOHA from SF!!

Anniversary Of The 1987 Crash Sets The Stage For A Mini Stock Market Crash As Stocks Selloff On Higher Volume

Boy oh boy was it ever ugly on Friday, with the whole market selling off leaving no room to hide. When it was all over, every index lost 2% with the Russell 200 leading the way lower with a 3.2% whack. The IBD 100 loaded of leading stocks also fell 3.4%, showing that there was no where to hide. My portfolio took a 5.3% hit but overall when I look at everything I have to admit that most longs continue to look good, 75% pulled back on lower volume, and the stocks I did sell were either cheap POS stocks or were recent longs that were not large buys which saved me from major carnage. So before I go any further into my analysis I have to apologize for not getting irrational and losing my mind by panicking over a one day selloff. I simply can’t lose my cool, when everyone else is.

What made the selling worse and that has to raise our yellow flags is that volume expanded by quite a large margin on the NYSE. But volume was only slightly higher than the volume on Wednesday on the Nasdaq. So the volume was not unbelievable. Also the NYSE volume was still well below all the volume in August. So when we honestly look at the volume situation we have to admit that it was bad in the fact that volume was over the 50 day volume average on the NYSE and the Nasdaq. But with volume on the NYSE lower than the highest levels on the September rally and well below the heavy volume in August, can we really say it was that bad? And just by looking at the Nasdaq, it becomes clear that the volume was not that bad at all. Now, on top of that, remember that is was also monthly options expiration and that added to the volume. If you take out the option volume, the volume would have been either slightly below or above the 50 day volume average. It simply wouldn’t have been real distribution.

About the only commentator I see holding there own right now on CNBC that is not completely bearish is Jim Cramer. I decided to spend a lot of time watching CNBC and I swear to God the mention of 1987 occurred every 30 seconds. The other thing that quickly became apparent on all the programs was that everyone expected stocks to continue to selloff. When I combine that with the sentiment in my chat room and the other rooms I follow, it feel like we are more close to bottom than a top.

I can’t help but think back to those days in NYC in 1999-March 2000 when everything was rosy and everything seemed so perfect (which was obviously not the case-Al Quaida). Nothing was bad and stocks raced higher every day with not a bear in site except the usual perma-bears who missed the whole uptrend. Besides these few everyone wanted to be long stocks and buy them up with no regard to price. Nowadays, it seems everyone is afraid of stocks and I have a ton of subscribers that want to be short here and/or want to sell their longs. It is like they have decided to stop listening to their charts and have instead entered back into a world of amateur “gut feelings.”

Could we selloff more next week? You better believe we can. No doubt about that. But how much more selling can there be in this short amount of time when everyone is saying the market is going lower and that we should sell stocks. Did anyone see the put/call ratio on Friday? It jumped to over the fear level of 1 and closed at 1.08. I prefer to see a 1.25 to 1.5 reading to show extreme panic but the fact that the ratio is back above the 1 level shows that fear is back in the market. The VIX has also rallied from 16 to 22 in a very short period of time indicating that fear has risen very quickly. It is not like 22 is a high number and bullish for the market-it isn’t. But the fact that the VIX moved so much in a short amount of time and the put/call is up here makes it hard to get extremely bearish here.

What I would see to get more bearish would be to see more complacency, not fear. To get me really worried, the put/call would have had to have dropped to the .7 level and the VIX wouldn’t have moved. If that would have happened and the market fell 2-3%, then I would be very worried for stocks. But for now the fear has risen very quickly and just a little bit more selling could put a floor in.

For those that think I am being biased on the bullish side, all I have to say is “you have to be kidding me?” Those that have been reading me for a long time, know that I turn bearish when the trend turns bearish but I will not be a hardcore bear until the real leaders top. Then and only then will I be a “hardcore” bear that looks to short the rallies and cover off the low extremes. This bull market has existed since October 2002 making this a five year bull market. According to history, we don’t have much further to go. But everyone that understands and knows the market knows that the biggest and most powerful gains come at the very end when stocks “blowoff” in one final glory rally before it all ends. Most people are long gone as the pullbacks in February, July, and now October shake them out. Just like at the end of 1999 when the October selloff scared most longs out and had EVERYONE convinced that was the top, they were wrong then and more than likely they are wrong now.

After missing that top call, stocks took off on an amazing rally that sent stocks on their most powerful and quickest advance that rewarded those that listened to their stock charts and not the BIASED opinions of journalist. When stocks took off like that and everyone that top called in October missed out, they came in around February and bought stocks near the top. When the market pulled back THEY REFUSED to cut their loss so they wouldn’t miss out on another rally by being scared out like they were in October. Instead the pullback never bounced and neither did their stocks. I believe this must happen in this market, before we top. Right now, we are not there.

When BIDU, GOOG, and RIMM must be owned. When you are a fool to not be long anything China, solar, or a dry-bulk shipper then it will be a top. Are we there yet? I seriously don’t think so. I just don’t believe you can top when I have this many longs that are holding key support and have beautiful setups and with the public so pessimistic after one hard day of selling.

Something else everyone needs to remember is that the biggest down days for the stock market happen during bull markets. The vise versa is true in bear markets. The stock market has some of its biggest and baddest rallies in bear markets. If people do not understand this, they need to study the year 2001 and see how strong some of the one day gains were in that very bearish year. In 2003, I remember one day in June of 2003 when the markets fell 2% and everyone was sure we topped. I took a look at all my longs and noticed that so many were green and had low volume pullbacks that it was just hard to believe it. The volume was low that day but before that there was a HUGE intraday bearish reversal on HUGE volume a couple of weeks before. That made the 2% selloff look like the final nail on the head.

The other market where everyone was sure we had topped was in October of 2005. That is when I was offered a job in Chicago to run a large amount of money (I turned the job done; Maui no ka oi!!) and the fund manager was giving it up because the market DEFINITELY had topped. It was time to give up, according to him. However, my charts completely disagreed with him as many stocks were setting up in strong bases and there were a lot of charts with a lot of green BOP showing up. This does not happen in a market about ready to “give up.” Now, just like then, seems just like this. My best longs with the best chart patterns look completely fine. Even one of my longs that was a very large position (I have taken 60% of profits already) does not look like it is putting in a “for sure” top. This stock is setting up to be like TNH. TNH appeared to have definitely topped on climax runs in February and May. Yet, there it is, still chugging along but starting to look weaker and weaker. By the way, TNH is one of those stocks I am looking to short in-bulk. It is a former high-flying leader.

All of this is necessary to go over with all of you to remind you to not panic out of good charts. Trust me, if there is nothing wrong with your stock, please, you must follow the rules. You don’t want to lose a position in a stock that has the potential to be another OMTR or any of the other stocks that are listed below. Trust me, missing out on those gains, just because the stock market fell one day, is not the smart thing to do. You don’t want to be the guys in 1999, January 2004, October 2005, August 2006, or August 2007. It isn’t worth missing these kind of gains, just because you are scared of the market.

History, has proven OVER AND OVER that the best time to short stocks is five to seven months AFTER the stock has topped on its chart. The other thing that will happen is that the earnings and sales will look better than they ever have before. At the top everything looks perfect. Right now, everything doesn’t look perfect. Despite the investors intelligence survey, I truly believe by the NYSE short-interest ratio being near an all-time high and the put/call over 1 that the crowd is betting on a fall. The crowd is usually wrong and my charts are usually right. So with the odds in the favor of higher prices, I must remain long.

But, darn it, if you are sitting on any of the gains that I have listed below and have not made any sells, shame on you. That is greedy trading. Like my DRYS example, I have sold off 60%. The rest can ride. But the easy quick money has come and gone. 90% gains in two months is pretty damn good. Same with speculation stocks like ASTI and APPY. If you haven’t taken any profits, you better believe you need to take some. Just in case this is a top, you don’t want to have all your gains slip away.

However, I continue to think the crowd is too bearish and I refuse to join the camp that every other professional non-professional is in. I make my living off my charts. They don’t say it is time to be fearing lower prices. They say it is time to prepare for a possibility of lower prices. But the charts STILL tell me to fear missing more upside. These charts are still setup for more gains. Until they rollover and say “look out below,” there is no way I am jumping the gun and dumping some of these beauties. The stocks that fail quickly, dump them. GET RID OF THEM. The stocks that hold up well and pulled back on low volume with BOP still very max green. YOU HOLD THEM.

Aloha, and I will see you in the chat room, where facts trump opinions in the stock market.

top current holdings up this week: TRCR 327% DRYS 99% GMCR 66% EXM 59% KOP 54% LFL 62% MOS 252% DECK 136% KHD 208% IMA 86% CCC 83% TTG 87% OMTR 346% CRNT 100% FSLR 116% ICOC 104% IHS 224% PRGN 56% HURN 101% SFLY 90% YGE 75% ASTI 109% ANO 264% OIIM 62% BIIB 51% APPY 125%

Stocks Recover Some Of Thursday’s Losses On Lower Volume; The Week Ends With Leading Stocks Enjoying Big Gains

Friday was not the greatest rebound you could have asked for as volume was lower than the day before and the big cap indexes did not even close up 1% each. But the Nasdaq did rise 1.2%, closing near its HOD, and the IBD 100 almost regained all of its Thursday’s losses with a 1.9% gain. Coming off the losses yesterday, we do have to admit that the action today sure is a lot better than the market to have continued to selloff–like a TON of “smart” people were expecting it to.

The fact that the market did not selloff more was really not a surprise. Even though NONE of us knew that the market was going to rally today, it was a bullish note that few of our top stocks pulled back violently on large volume. Another obvious indication that the selling was not that bad was that the only complete cut losses I had to take were in very low priced stocks with poor fundamentals. There was nothing of quality that got hurt. However, knocking on wood did not help as BLL and NILE took it on the chin today giving us two possible top stocks that have now basically failed.

Technically, both BLL and NILE are still strong longs from the correct buy points. However, in this market, I find it wise to fully concentrate your money on leading stocks that are rising. Since there are so many top stocks making great gains, even though they lack perfectly beautiful green charts, it is wise to move money into stocks moving higher out of stocks that are moving nowhere to down after a long purchase.

In strong markets, like the one we are in now, it just pays to stick with top stocks. One thing I saw a lot of after Thursday’s losses was how sure everyone was that BIDU was done. I am just not going to ever go into that camp as long as this stock remains above the 50 and 200 day moving average. There is no reason and I have no business trying to call a top in this market based on one day of selling in only one top stock. Yes, they did hit the leaders on Thursday. But the fact is that those leaders are all still well above the 50 day moving average that most big boys that have missed the stock are still probably in the bargain hunting mode looking to snatch up these stocks at discounts.

Though I never recommend doing that, it would make sense that dips are still buys here, considering how far this market has run without a real pullback following the August lows. It is amazing how strong and persistent this market is. The bad news about is that the low VIX is really cramping up my style of nailing some huge winners. The other bad part is that no nice consolidation in the indexes leads to no nice pretty max green BOP filled consolidation patterns in stocks. You can’t get a stock to go sideways long enough in this bull market without it becoming a laggard to the market making it prone to reversals and fake-out breakouts. Real long nice bases can only be created during market consolidation periods. That enables the stock to show RS to the market and then on the breakout show the RS line breaking out ahead of price showing the strength of the stock to the market.

Until we get one of these rest, it is going to be tough for me to find a lot of OMTR type of home runs. They simply aren’t there in this five year bull market. From October 2002 to January 2004 it was a lot of fun. Since then, all of my gains has been real work. It sure will be nice when the market actually puts in a top and I can operate on the bear side setting me up for some huge 1999 and 2003 gains from the next bull market. However, as long as we have all the usual top leading stocks cracking the 100, 150, 200, 300, and 500 levels we are not going lower any time soon.

Which is all the more reason it is funny that so many are trying to top call. Yes ZNH appears to have topped and, yes, JRJC appears it MIGHT have topped. But until GOOG, BIDU, FWLT, CME, RIMM, AAPL, and all the other favorites of mine show the same pattern as ERS last year and ZNH now on an arithmetic daily chart, there is no way I am going bearish on this market any time soon. Especially with this wall-of-worry that the newspaper and cable tv news media is providing. Oh yeah, and the nightly news. Sheesh, if I didn’t actually make a living off the stock market and dealt with facts ALL DAY LONG, I might actually believe the pile of shit the moron journalist on these network shows spew. However, God blessed with me with wisdom so I ignore their crap and go on with what my charts tell me. THANK GOD FOR MY CHARTS!!

Aloha and I will see you in the chat room! By the way, what a great day of college football! And how about that Indians vs Redsox game?!!! Amazing. I can’t wait to see what the NFL has for us. I hope I go 6-0-0 after tomorrow in my Fantasy Football league. That would cap off a great end to a great week…..minus BLL. I always hate to see a nice chart fail like that. ALOHA!!!

winners: OMTR 323% ZNH 289% APPY 101% ICOC 111% BCSI 118% DRYS 92% IHS 224% VDSI 224% FSLR 106% HURN 100% CNH 128% MOS 243% TTG 73% KOP 52% GTLS 68% APFC 67% RVBD 52% SFLY 84% PSMT 56% IMA 80% SXE 55% NTLS 59% MA 226% LFL 62% GMCR 59% KHD 173% DECK 134% EBIX 51% SXC 50% YGE 72% VMW 50% WRLS 117%

Stocks End A Bullish Week On A Wildly Bullish Day For Equities; NYSE And SP 500 Hit All-Time Highs

Strong Q3 earnings from the heavyweight RIMM and a very strong payroll jobs report helped gap stocks higher in a bullish morning for stocks. The best news was that after that strong gap higher, the bulls worked their magic short-squeezing the bears the rest of the day. There was a bit of a late day pullback but the pullback barely touched the Nasdaq at all but instead hit the less important DJIA (for us anyways). The pullback that barely hit the Nassy helped it close near the highs of the day up 1.7% hitting a seven year high. The SP 500 and NYSE hit all-time highs and the DJIA hit an intraday all-time high but pulled back, like I said, at the end.

What made today’s gains clearly better was the fact that volume jumped 15% on both indexes as stocks climbed higher almost all day and the fact that a couple of top indexes put in better performances than the overall market, clearly indicating that leading and top stocks are in control in this market. The IBD 100 jumped 2.3% and the DJ Transport avg. leaped 3.3% in what was a clear showing of leadership from top stocks. This has been the case since the start of the rally and continued with Friday’s market.

This rally has been in full effect since August 29 when the market officially followed-through from the August 16 lows. Since those five weeks have passed the IBD 100 has produced a 21% gain compared to the SP 500’s 8% and the Nasdaq’s 11% gain. This goes to show you how leading stocks usually act during the bullish phases of the market. It has been a rough ride from early 2006 to August for CANSLIM investors as for the first time in a long time the strategy was not KILLING the market overall. Big caps were doing quite well actually. But now the world has come back into proper alignment and leading stocks are, once again, killing the market.

If you do not think that this was a normal thing then we can go back to May 2, 2003 when the IBD 100 was initiated. The IBD 100 is up 236.5% since then compared to the SP 500’s 65.9% gain during the exact same period. So you tell me which stocks in which index you would like to focus on? Exactly.

The only problem right here, after five weeks of such strong gains, is that most stocks are completely extended from proper buy points and there are a lot less top stocks out there worth buying. Waiting for a pullback in the top stocks to the 50 day moving average is a better play on some of these stocks as you don’t want to buy stocks that haven’t moved while this stock market has been moving.

If your stock is hitting a new high but the RS line is lagging that is probably a good indication that you are not in a leading stock. It is much better to have 10 high priced top stocks than 30 cheap lagging Chinese internet stocks that have gone nowhere. If those stocks are lagging now in such a strong market what makes you think they are going to do any better now? In fact, what do you think is going to happen to those lagging stocks when the market rolls over? Chances are if they are leading to the downside instead of the upside during a bull trend, they are going to lead to the downside during a downtrend. So avoid loading up on a bunch of sub $10 China stocks or lagging stocks.

Back to today’s market, the new highs beat the new lows, on Friday, by 526 to 67. This shows that all the problems with the new highs not being up to the past old high number is still yet nothing but another market indicator that does not have the final say against the overall price and volume action. So if too many people were worried about this indicator, now that you have MISSED the move, you can now stop worrying about your indicator. The new highs have expanded, without you. Sorry Doug Kass(trated) and Barry Ritz(or is it poor)holtz, the bears just don’t have much going for them right now. How do those guys actually make money in the market? I wonder if they really do!!

Well, I guess it really doesn’t matter how they make money. What matters is that you are making money. And if you have been going long the same stocks I have been going long, then there is NO doubt in my mind you have made some and a lot of money. My only concern is that I hope you are learning and/or know how to keep all that money you are making in these stocks.

First off, make sure any stock you have that is not a CANSLIM quality long that makes a 25% move that you take 20% off when it hits this level. What it does after that is up to you and your chart reading skills. But when risky stocks make 25,50, and 100% gains, I would take profits there. On the other hand, if you have a CANSLIM quality make a 20% gain in a few weeks, make sure you hold it for bigger gains. Like the 339% return in OMTR or the 223% return in MA. Or the short-term return of 70% in APPY. As you will see, I took profits on the way up in this one. But it has setup in another base so I am going back in. But the original gains saw me taking profits the whole way up. But for stocks like DRYS that is up 56% for me in a short period of time. Only 25% of it is gone. The rest is being held for potentially bigger gains in this top stock.

For now, all news is good news if you are long. It should continue to be that way until we get a bunch of distribution days signaling the top and we have our leading stocks go off on a rocket and put in a bunch of fireworks before reversing and crashing. When we see this, we will know all news is bad news. But for now the trend is DEFINITELY your friend. And that is the only friends I want: friends that are on my side. The bulls are our friends and until we meet real bears, the bullish trend and bulls shall remain our friend. Aloha and I will see you in the chat room.

top current holdings: ZNH 288% OMTR 339% FSLR 108% MOS 191% VDSI 199% KHD 169% CNH 113% DECK 143% MA 224% IHS 205% WRLS 116% DRYS 56% HURN 98% SFLY 93% GMCR 60% LFL 61% EBIX 54% YGE 66% ASTI 81% CPHD 64%

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%

Stocks Ticked Higher Ending A Very Quiet Yet Bullish Week For Stocks; Here Comes The Fed

Another excellent and bullish intraday reversal followed what was a very weak opening. This continues a pattern in the stock market since the August 16 lows, where a lower gap before the opening bell is bought by investors and bid higher almost all day long. Ugly beginnings of the trading day that end like this are a sign of a healthy market, not a bearish market. Even though volume remains completely absent, the price action speaks for itself as it is the final TRUTH in the stock market–not your opinions.

The light volume this week was blamed on Rosh Hashana but somehow I doubt Rosh Hash had anything to do with the low volume this week as that has been all that we have seen the past month. Despite the low volume, the Dow led the way, jumping 2.5% for the week. The NYSE composite ramped up 2%. The S&P 500 climbed 2.1% and the Nasdaq 1.4%.

This low volume rally has left MANY people on the sidelines scratching their head as they watch new breakout move higher and higher and watch leading stocks continue to hit all-time highs. This goes back to the same argument I have been making since I can remember. The trend is your friend. Rather on low volume or high volume, if you get stocks breaking out of sound bases on high volume, you need to just ignore the low volume overall in the market and take your signals. By passing on your signals, I AM SURE, a lot of you have missed out on some big gains.

Now, at the same time of saying this, it is true that low volume rallies are bad and usually are met by heavy volume selling. But, how do you know it is going to happen this time, fortune tellers?? You don’t. So stop trying to predict where in the hell the top is. That is all I keep hearing about–the top. Therefore, wouldn’t you feel quite stupid that instead of heavy volume selling hitting the market, instead heavy volume accumulation comes in due to the fact that the big boys are feeling pain by underperforming the market? Well, to the addicted top callers, I am sure you don’t care. Your memories are about as solid as water. So you will not remember this top call or the other 100 you made.

So, while some decide to play that game-and it appears almost all are as the Fed meeting is right around the corner-I will continue to just listen to the only thing that I ever listen to. Price and volume. That is it. If a stock breaks out or bounces off the 50 or 200 day moving average, on strong volume, I want to be long. If the stock breaks down or bouncing off the 50 and 200 day moving average to the downside, I want to be short. All the predicting BS will never make you money like just playing the trend will do. If you do what I just typed in this paragraph, you will do a lot better than your “smart” friends who are telling you when this rally will fail.

There continues to also be a ton of subprime and mortgage talk out there. That is the PERFECT wall-of-worry for us to continue to climb. The more we continue to worry about the fallout from the subprime business, the further this rally has to go. We have to wait for all the talking morons on CNBC to finally stop freaking out and tell us the worst is behind us before ANY top can happen. Our wall-of-worry is strong and continues to be there to ride higher.

Reports that the Bank of England provided emergency funding to the U.K.’s third largest mortgage lender, only confirms that the trouble in this sector will continue to be magnified and blown out of proportion.

What if everyone is right and we do go into a recession? Are you kidding me? If they are, then we will act accordingly. We do NOT marry our positions. When our leading longs give us clear sell signals, we do not argue with them, we simply obey them and get out. Then if the market does tumble, we can move our now free cash to shorts. It is simply that simple. Too simple for most to believe it works. And that is fine with me. Continue to quant your way to the poorhouse or the house of mediocre returns, fundamentalist.

Everyone, right now, seems focused on the upcoming FOMC meeting this Tuesday where the Fed is expected to lower rates from the current 5.25% that they have been at since June 2006. A lot expect .5 and some expect .25. Either way, you shouldn’t pay too much attention to all of this NOISE and instead should be focusing your time on the longs and shorts that show up on your scan. Make money here; don’t become a Fed watcher. Do you really want your life to be like that? Isn’t it more fun finding stocks like VMW, instead of watching Ben bitch about the economy?

Stocks like SXE, GME, CMED, TBSI, YHOO, and OMTR are ALL much more exciting than anything you will ever get out of watching Ben. Trading off of Ben will also NEVER get you the returns a strong investment in a top stock like OMTR will.

The good news is that there are still many stocks out there that are setting up and breaking out of bases with the kind of possible potential gains that OMTR has had. What makes it even better is that most people seem to be completely unaware or uninterested in it. I saw more than one or two times this week where professionals made comments somewhere along the lines that this market is not fun and they are burned out. Burned out from what? All the strong chart patterns showing up? Their pain is my gain!

All of this could change at any time and the Fed may in fact mark a top in the market. However, like I said before, by being involved in the longs at the right time we would still be able to get out with SOME gains and then have enough time to turn around and go short. Bear markets don’t only last for a few days. Real bear markets last years and years.

Speaking of bear markets, I want everyone to do me a favor and look at the Russell 2000 index. On a daily chart, since late July, I want you to count how many days on the chart where you either see a bullish intraday reversal (they look like tails and are called “hammer” patterns) or days where the price opens at or near the lows and then closes either near or at the HOD. You will notice that there are a lot. Then check out the weekly chart of the Russell 2000. After the week of July 26, you will notice that EVERY week has seen a selloff and every week has then seen price come back from the lows and close either near the highs of the week or actually come back and close above the open of the week. This week was just another example of a strong opening week, turn into some selling, and then turn into a well supported market that closes near the highs of the week. That is bullish, until it ends. And as long as patterns in this index exist, there are going to be plenty of longs out there to make some money on.

Before I get out here I want to let everyone know that I have suffered yet another disturbing medical experience. I was supposed to run the marathon this Sunday, but, instead, sadly, I became VIOLENTLY ill the night before and for the first time in over ten years was forced to call an ambulance. During the ride to the hospital I suffered a twenty second “tonic” seizure. They do not know what the cause was or even why I got violently ill. It could have been food poisoning, the medication from my MS drug (I have Mutliple Sclerosis for those that don’t know), or dehydration. They simply don’t know. I just want to thank everyone for reading me and let you know that your readership is what helps keep me strong. Thank you very much, God bless, and Aloha. I will see you in the chatroom!!!!

WINNERS: OMTR 246% BCSI 92% ZNH 247% NVT 53% EDO 70% ICOC 80% WRLS 88% DECK 101% IMA 50% TTG 75%

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.

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%

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.

Why Are People Trading/Investing In This Market Environment?; Stocks Suffer Worse Week Of Volatility On The Heaviest Volume I Have Ever Seen

As this week went on and on, I started to wonder why I even returned from my vacation. I could have easily have dealt with all this volatility, small longs and shorts, and loss cuts while away from my main screens. However, I am very glad to be back and to finally be posting long post. Now with me back at home I can clearly get all my analysis done. And what I have found after going over everything this week is that most professionals that thousands of investors listen to have overanalyzed this market to death and would be much better off if they advised what they should be advising. Going to cash and letting the market play out.

These guys do not get paid to do that and that is why they are always recommending some stock here or there. However, as a professional that completely understands that there are only a few times every ten years to make HUGE money, I also know when it is best to keep your cash heavy. Times like now is definitely one of them. I hear a lot of investors and commentators advising traders to pick up their favorites at these discounted levels. What bothers me more than anything about this crap advise is that these stocks can stick around these discounted levels for a long time. Go back and see how some of the favorites of 1998-2000 are doing today. They have not come back and some never will. This is what is going to happen to many of the stocks that have come well off their highs during this pullback. Some stocks are broken bad enough that there is no hope for them any time soon.

However, there are a lot of stocks holding up during this downtrend which hints to me that things may not get too much worse from here. Too bad that is the last words of so many traders that do not cut losses, in case they are wrong. I have to admit that I will never be one of those traders. I literally feel that I am in the zone and even watching my gains of 64% fall to 47% the past two weeks did nothing to shake my confidence. Had I not cut losses and instead would have “hoped” (dangerous in the stock market) that some would have returned I believe I would be under 35% by now.

Some traders, including some subscribers, are just so upset that they have lost money and that great patterns like JDAS AFSI and ESEA failed so miserably. I hate to tell everyone this, but 3 out of 4 stocks follow the general trend of the market and no matter how nice they are the chances of them following the market are 75% in favor of them to do so. If patterns like JDAS AFSI ESEA and HUB.A would have showed up right after the March 2003 follow-through you can guarantee they would have done as well as those stocks did too. And how about two very pretty charts that are both now ugly as can be: VSR and SMTX. If those stocks would have shown up with those patterns at the start of a bull market we would have made at least 3x as much as we did. You have to understand that you can NOT just make a lot of money any time and any where. Some people can that use options. But trust me this is not easy. In case you do not remember and/or do not care to do some real work, I will tell you that over 18% of the stock market made 100% or more moves from March 2003 to January 2004. Since the July/August lows we have only 4% of all stocks up 100% or more.

If you scan through my free blog and look at all of my top stocks, you can safely say that at the start of a bull market these gains would have been much higher. So why am I talking about all of this performance in a bull market to performance in a bear market? Because, so many people are not doing well right now and some traders are losing a LOT more than they should be. They are overtrading. I know some people that are buying dips in this market like they were two months ago. The market has changed and most of these traders are going to wash out. My job, imo, is to make sure you do not get discouraged and wash out. The smartest and most prudent thing you must do right now is preserve cash. You must sell your laggards, raise cash, keep new buys or shorts small until there is a clear trend, but continue to hold your longs that show absolutely no signs of problems like HUB.A.

If you do not get discouraged and do cut your losses you are going to have more money to invest when the market does give you that “perfect moment.” Remember, you only get those 3 to 4 times every 10 years. Trust me, you can make good consistent money during the rest of the time (USUALLY NOT TIMES LIKE THE PAST TWO WEEKS). However, you can ONLY get rich with a very high reward to low risk ratio after the end of a bear market, following a follow-through day. This market has only been pulling back for three weeks and we have not even lost 10% so I find it really hard to believe that if we put in a bottom here that it will lead to a “moment.” However, if we can get more pain in this market by moving lower from here, one thing will be clearly certain: the volatility will be high enough to make those that find the next TASR very rich.

The VIX has risen to 28.30 after hitting 29.84 intraday. There is a direct correlation between market bottoms and a high VIX reading leading to some huge gains. And you can be sure of many things, when this moment happens, people will be too worried about A) a recession B) AHM and BSC or C) that you will lose more money because the market has been so bad. I seriously do not think we are at this point. There are still too many people who believe that the market is going to rise that the fear is not thick enough for a real strong bottom to occur. A tradeable bottom? Sure, that definitely can setup here. However, I sure am void of very pretty and very green charts. I just simply do not have may HUB.A type stocks out there. If we get a follow-through day and hold the recent lows, as the weeks go on, we should have more charts setting up with heavy accumulation, max green BOP, and sound chart patterns. If we don’t get these setups, you can be sure that the market probably has much longer to work on its downtrend.

I am seriously hoping that this is a start of a downtrend. I would love to see the market bottom with the VIX around 40. The stocks that setup in proper-green-accumulation-filled charts will be making us a lot of money. And we are going to need that money to get these stocks, so it is best to keep cash heavy when there is no edge. And this weeks volatility clearly shows that there is no edge for the bulls or the bears.

All of my recent short recommendations have been doing very well for the bears. But right when I decide that the uptrend is pretty much in trouble and start my small testing of the shorts the market starts getting whippy. This signals to me that it is not the best time to short then, despite the extreme weakness in the finance and bank stocks (which I got by the way, if you study my “new shorts” section on the gold site at investorsparadise.com/mauitrader/). When I start to see my favorite high priced leading stocks like RIMM AAPL CROX GOOG FWLT BIDU TNH (starting to crack; now needs to fail its upcoming rallY) and MA start to top, you can guarantee the market will be extremely weak and I will have my opportunity to short. I plan on not only shorting those eventual former-leaders when they top but I will be buying some long-term in-the-money puts. But almost NONE of these stocks, except TNH, have the appearance of them definitely topping. So right now it is PERFECTLY CLEAR to me that neither bulls (longs) or bears (shorts) have a clear smooth edge. The downtrend and uptrend will be both sloppy and choppy for a while. The extreme uptick in VIX is your proof that things have changed. The slow but steady uptrend has given way to a choppy and irrational market. These are the kind of markets professionals know to keep trades either small or none at all.

Now to go back and focus solely on the market, on Friday, there is no doubt that the fact that the Fed is injecting $38 billion after injecting $24 billion is not a bullish scenario. It makes me wonder if we are just waiting for the inevitable. But if that is the case, EVERYONE who actually listens to me should be making money by not losing money. Even if this market bottoms here, you will have PLENTY of time to get long the best stocks. The best stocks do not all show up the day of the follow-through. Some may show up that day but the next three weeks is key. That is when the best of the best should show up and breakout. However, I am not sure how you get that happening when the Fed is so nervous about the possible fallout that it injects money into the system. Something seems a bit fishy.

Another thing that happened on Friday was that the rally attempt in the DJIA failed veyr quickly and when the market flashes a distribution day within three days of a follow-through, its rally almost always fails. That happened on Thursday. When that happened IBD's Big Picture noted that when the market does in fact flash a distro day that fast, 13 out of 14 times since 1982 the rally has failed. Well you can make that 14 out of 15. And with the lack of pretty green charts I doubt that if we get another follow-through this week that that one would even work.

In this environment you must remember to keep all new longs and shorts small until a trend becomes clear. It is still not clear if this is the start of a correction or a dip before another leg of this bull starts. Even if it is another dip, there should be some good money to be made with the VIX around 30. But remember if the market can move lower, we could get the VIX to 40 and that is right around where it likes to be for a market to make a low.

Bottom line: it is up to my charts right now. All my pretty green charts are gone except for a gem like HUB.A and OMTR. I will get plenty of beautiful charts before a real rally starts. Before the March 2003 bottom, GRMN, SOHU, SINA, and SNDA all were making max green-heavy accumulation filled charts breaking out to new highs well before the March 2003 bottom occurred. And then remember, TASR then showed up four months AFTER the market bottomed. Just like market tops, the best stocks show up four to seven months AFTER a top or bottom. This works much better with tops as leading stocks breakout faster in bull markets. But many great stocks do show up three to four months after a bottom.

Remember to stay positive and even if this pullback last months and months (THIS WOULD BE A VERY VERY BULLISH DEVELOPMENT), there is always some areas to make moneys in a rough market. If you are a silver or gold member, watch and learn.

Aloha from Maui!! It is good to be home but YES I do miss Texas.

Nasty Last Hour Leaves Indexes Soaked In The Red, In A Week That Saw The Market Make A Major Character Change

Even though I am vacation, if I did not have work to do on this site, I can literally scan my charts and place all my orders within an hour and a half. So remember, even though I am on vacation, I am ON TOP OF THIS MARKET. This market right now should NOT be bought until AFTER we get a follow through day after an attempt at a bottom. Seriously, with the put/call ratio so high for so long, it is possible that there is too much fear in this market and that the lows have been set. However, we very well could be topping, because that is what it looks like out there in the Financial stocks and the general market. However, with the NYSE short interest and put/call so high, it just seems hard to think we could really breakaway and crash from here. So one thing I doubt is going to happen will be a black Monday.

However, I would not buy ANY market EVER that looked the way it does right now. This next week will be the key. Further selling and we definitely have some problems. If we bounce, there is not much to do other than wait for the proper breakouts from top stocks. If we do not see this happen, then we will have probably topped and I will begin my raids on the short side. As for right now, the crack in the market is too new and the bearishness according to the actual money is too extreme. So, keep that cash heavy, get off margin, sell ALL your laggards, do not buy new longs unless the chart is perfect (NAK is not what I would call a perfect chart), and if you do decide to short, please keep it small.

You definitely should be doing what I am doing, which is raising cash. I took a big hit last week. But let's say I didn't cut my laggards and did not keep my new buys small, THEN what could have happened. A 68% YTD gain falling to 54% could have been as bad as 40% had I not sold what is and did not work. The market may not always be easy, but when those bright perfect moments come, we will be there to take advantage. Unlike, all the dip buyers that tried to buy this market last week. BIG MISTAKE.

I am off to San Antonio for the next three days and will have very limited connection time. Make sure to check the forums as everything will be updated there. ALOHA FROM TEXAS!!!

Nasty Selloff Hits Stocks Thanks To Misses By GOOG And CAT; Overall, There Is Not That Much Damage

Some big misses by two heavyweights weighed heavily on the indexes as the stock market suffered its second distribution day in as many days. GOOG and CAT were both nailed with 8% losses before the opening bell, after both issued poor earnings that missed estimates. However, as the day wore on neither of these issues saw much more selling and both found solid support at their 50 day moving averages, giving some comfort to the bulls. But, for the day, the damage was done.

The DJIA fell 1.1%, the SP 500, Nassy, and NYSE fell 1.2%, and the SP 600 led the way down with a 1.7% loss. The great news was that leading stocks, in the form of the IBD 100 only lost 1.3%, outperforming the SP 600. However, the losses were a bit worse during the day, so the fact that the indexes closed off the lows is a slight positive. Combine that with Wednesday’s action where the Nassy actually closed higher than the open and you can see we have two distro days that aren’t very powerful.

The higher volume in the market combined with breadth 3-to-1 negative on the NYSE, 11-to-4 negative on the Nassy, and 27-to-3 negative on the DJIA gave the impression that things were really bad out there. However, despite there being 326 new lows there were also 216 new highs which shows that there were some decent pockets of strength out there. If today was really as bad as the indexes looked, trust me, there would have been a lot less new highs. So that gives some indication that the selling was not that bad.

And to go along with the data, two things occurred that really stick out after Friday’s losses. The put/call ratio jumped and closed over 1 at 1.02. That high reading shows that as stocks fell, traders decided to buy puts betting that prices are going to continue to go lower. That in of itself is not that impressive. But when you combine that the options crowd is bearish with the fact that the NYSE short interest ratio is at ANOTHER all-time high you have some real interesting developments. The NYSE short interest ratio is now at 8.25% which is an all-time high!!! That means 8% of trading on the NYSE is done in shorts. This DESPITE THE MARKET BEING ONLY 1% TO 2% BELOW ALL-TIME AND SIX-AND-A-HALF YEAR HIGHS.

When you take all of this combined with some leading stocks like AAPL and ISRG still making new highs and it becomes clear that Friday produced some panic. Markets do NOT top with panic. They top with euphoria. Even though BIDU and GOOG dropped and some are calling for a top via those two stocks, you have to remember that BIDU is still in a solid uptrend and GOOG had a very bullish intraday reversal off its 50 dma. So you are really grabbing at straws if you are calling a top here. Unless you only look at bank stocks and GOOG, there is no way you can agree with that argument.

The rest of the market seems OK. I had only a handful of complete sells and almost all of those were in very poor issues. The partial sales I had were made based on pure discipline. But when looking at their weekly and long term daily charts it is obvious there is nothing wrong with these stocks. Hell, look at one of the best sectors out there Transport-Shipping. ESEA, TBSI, DRYS, and DSX show NO signs of topping and all are still on fire and look ready for plenty of gains. Then you have the clear leader during this current bull market: Chemicals. CF, TRA, TNH, and the other stocks in this sector show no signs of topping. Until you see those two sectors top, along with stocks like MA RIMM AAPL FWLT CME ICE and CROX, you can be sure the market top is not here. You will need to see ALL of these leaders suffer some major distribution and fail there rallies before we can even THINK of a top forming.

For the week, it seems obvious that it was not that bad, with the Nassy losing only .7% and the DJIA losing only .4%. But the SP 500 lost 1.2%, the NYSE lost 1.4%, and the SP 600 lost 1.6%. However, none of these losses were severe considering the run that they have been on this year. It was a wild week with a good Tuesday, bad Wednesday (but great close), great Thursday, and a terrible Friday. But that is what makes this market fun.

The one topic dejour this week was subprime loans. And if you don’t think it is going to get worse, I would love to bring your attention to the bank stocks. If you are an experienced chartist and you know what stocks look like when they top after multi-year runs then you are certainly taking notice at the banks. SINCE ALL OF THEM HAVE THE EXACT SAME CHART!! They are topping. Rather it is MER, C, BAC, USB, JPM, UBS, BBT, GS, LEG, LEH, BSC, WB, or SBNY it doesn’t matter. These stocks are rolling over on MASSIVE distribution that has been playing itself out ALL YEAR LONG. That is why you see ALL of those big tall red bars where volume is during 2007 in ALL of these stocks. That is why ALL of them are rolling over. Unless these stocks get a HUGE bid right here, these charts are setup for some shorts to make a lot of money. These daily or weekly charts going back to late 2002 is just what ALL classic tops look like. This is some massive distribution in the whole sector.

The best thing about this that confirms my charts is that earnings that are being reported are great. Last quarters and the few banks that have released this quarter are releasing some great fantastic learning earnings. However, as all of us experienced investors know, the fundamentals ALWAYS!!! look the best at the top. The current charts are telling us that the subprime and housing market is about ready to start to show up in the books of the financials. What even makes this better is that all of you who read me and do not subscribe to me can watch me RIGHT NOW either help you not lose money or make you money by shorting the financials.

While this is happening, all of your brilliant MBA analyst and big money traders like Joe Capone and Scott Rothbort are telling you that they are bargains on this selloff and that you must buy. Until the “smart” fundamentalist and analyst start issuing sells in this sector, you can guarantee these stock aren’t going to stop falling. When they start issuing sells, that is when you should cover. These dummies just don’t get it and they never will. Yet, you will probably give them your money since they sound oh so smart and have one of those fancy degrees on their walls. These “higher educated” fundamental morons are going to lose their clients some money on the short term. While this “dumb surfer” either helps mine make money or not lose money. If you are long ANY stock in the bank sector and it is below the 50 and 200 day moving average, get the hell out!!!! While you are losing money, you are missing out on stocks like PRGX which make 7% gains on days where the market is down 1.5%. Which stocks are you in? If you are a subscriber to my service I know which stocks you are in.

Back to the market: Despite the ugliness in the financials, I have to say that my leading stocks continue to look great. Even though the DJIA did the 14k breakout and trap (which I eluded that it was going to do that last week) it still remains a strong market in an uptrend with all indexes still above their 50 day moving averages. Earnings season is always a rough one and many stocks are either punished HARD or rewarded handsomely. But with the trend still up, even bad earnings can turn into good so it is not smart to panic if your stock sells off a little after a miss. However, if the indexes cut their 50 day moving averages, leading stock falter, all your new buys start sucking up the joint, and good earnings are treated like bad earnings, then you will have a reason to get defensive.

The possibility out there is for anything right now as it always is in earnings season. This upcoming week we have AXP KLAC MRK X MMM NFLX T DD PEP AMZN GLW and XOM set to report. As it is now we have a lot more disappointments than we are used to seeing but like I have said now 100 times, unless we start to actually selloff and fail rally attempts there is no reason to worry about anything.

Two more points I want to hit before I am finished: The amount of new lows that kept expanding while stock prices kept hitting new highs did hint that Friday was coming. On Wednesday we had a TON of new lows which clearly showed that their was weakness in the market building up to the losses on Friday. So, honestly, this selling should have caught NO ONE off guard. Especially my subscribers. And the last thing is BX. How about that scam stock. What is it now? Down 30%. Can anyone say Refco. This is why you must ALWAYS wait for a stock to trade long enough to create a base. Buying stocks before a proper breakout put you into things like Refco, BX, and IBKR. I use IBKR as my broker. I LOVE THEIR SOFTWARE!!!!! Did you see me buy the stock because of that? Did I buy it because my emotions told me to since I love the company so much? No. Do you know why? Because I am a professional.

If you buy ANY stock for ANY other reason than due to historical analysis and fundamental and technical actions, you are nothing but a gambler. And my suggestion to you is to get your act together or go find a new hobby. People like me are going to take ALL of your money. Why gamble when their is one book out there that can teach you how to fish for yourself? How To Make Money In Stocks by William J ONeil. I know one thing, I sure would not want to feel like the loser down the street that can only invest off of tips. How powerless are you when you make investment decisions off of tips? I know one thing: I LOVE BEING IN COMPLETE CONTROL. And the first step in becoming completely in control is admitting you control nothing. Especially the market. The stock market does not care about YOU or your opinions. Which is, sadly, about all I hear out there in the free chat rooms and on this island.

Aloha and I will see you in the chat room.

PS: This is the last weekend post for the free blog for two weeks. I will be on vacation. For paid subscribers you will still see plenty of me, don’t worry.

top current holdings up this week - purchase date

TRCR 536% - 1/12
MA 241% - 8/2
OMTR 192% - 9/15
IHS 155% - 12/21/05
CKSW 148% - 10/11
ULTR 147% - 10/27
KHD 140% - 5/30/06
DECK 124% - 9/13
PRGX 123% - 1/12
TTEC 120% - 8/25
HRZ 117% - 9/27
CNH 114% - 11/2
EVEP 114% - 11/16
CPA 105% - 9/15
FTEK 99% - 10/6
HURN 99% - 9/13
VDSI 98% - 1/14
IGLD 93% - 10/26
VSR 87% - 6/15
CXW 86% - 5/19/06
NAVI 79% - 12/18
APLX 77% - 9/28
INNO 74% - 6/4
HURC 73% - 12/18
FSLR 72% - 5/22
TESO 70% - 2/16
LFL 66% - 12/13
AFSI 65% - 4/12
TASR 64% - 6/6
CRNT 63% - 5/21
SNDA 55% - 12/26
NTLS 55% - 1/30
IMA 55% - 8/2
XRA 50% - 5/24

Market Commentary At Big Wave Trading Bronze Level One

New Swing Longs: Silver Level Two

New Swing Shorts: Silver Level Two

Stocks On My Watchlist: Gold Level Three

Complete Profits/Losses: Gold Level Three

Partial Profits/Losses: Gold Level Three

MauiTrader Forums: Gold Level Three

MauiTrader Chat Room: Gold Level Three

Longs Up On The Day: Gold Level Three

Shorts Up On The Day: Gold Level Three