SP 500 And Nasdaq Pullback In A Calm Fashion On Lower Volume, While The DJIA And IBD Indexes Continue To Rally; Where Is The Volume And Where Are The New Leading Stocks?
December 7, 2007
Overall, it was a pretty choppy and inconsistent day on Friday, but it was still a good day when we take it and consider that we continue to hold well in the face of all the bad news from the subprime area of the economy.
I heard many complain that we did not finish higher today on the Nasdaq. I, however, disagree with them and find it more bullish that we finished a tad lower. That shows me that we are consolidating the gains, since the November 28th follow-through day from the IBD indexes, quite well. If we would have sold off today on heavier volume, then I wouldn’t consider the days action bullish. But the fact the we sold off a little and the volume was lower is exactly how you want to see the market pullback after adding on some solid gains.
Don’t forget that the DJIA finished higher, even though volume was extremely low, and that the IBD 100 and IBD 85-85 indexes finished higher. The big caps and leading stocks seemed to hold up well on a day of profit taking. So the people that were not happy with the Nasdaq do not have to look too far to find some other positives in the market.
The fact that we have not sold off at all since the follow-through day has to be taken as a great sign for the bulls, considering that the market was starting to look like it was read to fall apart. Even though we have not had an up day where volume was just simply huge, the market is still offering up enough stocks with solid fundamentals that the rally is working. Obviously, if there was more volume, the gains would be bigger and the longs would be more interesting. Right now, there are very few longs that look beautiful. Instead most only bring a little smile to my face. I still do not see anything out there that makes me want to jump up and down full of joy.
This market, this year, has taught us all something very important that I am not sure many appreciate. The market this year has looked like it is going to top multiple times and every time that it looks like the market is about ready to break wide open it almost always goes on to rally. During the years of 2004-2006 I had to convince people over and over that the market was not done rallying. Every time we would start to selloff, everyone would tell me that “this is it, it is all over.” But every time we would selloff, I would see many new top stocks with pretty bases setup.
That continued until this year. When stocks started selling off in February, very few fresh new longs showed up. Instead it took a while but eventually the market got its legs together and then some new longs showed up. The exact same thing happened in August except the lows in August were decently easy to spot since sentiment got so poor and there were a lot of charts holding up well into the selling. The rally that came off those lows, as many subscribers know, produced many quick big gains from top stocks that took off immediately. All the laggards however were quick to rollover.
So when the selling started in November it appeared that the top was finally in as all our leading four-horseman stocks started selling off on heavy volume for the first time. There was no time before when all these leaders sold off on heavy volume. However, as soon as these stocks started selling off, the stocks that were breaking down started to hammer out short-term lows putting a floor in this market which then turned the leaders around and now have them back into high ground or near high ground. If this hasn’t just been amazing to everyone, then it is obvious you have not been watching the market close enough.
Those that have been watching this market know that the constant rallies in the face of this strong distribution is just amazing. However, the new highs in the leading stocks are coming this time without something: volume. Where is the volume? Where is the accumulation? There is none. What we have instead is a market that seems to have been so oversold that a rally had to happen.
The past few weeks I went out of my way to show you the sentiment in the market on almost a daily basis. Well I do that during bad markets because it is very important to follow. When a real bottom is put in there are a lot of sentiment indicators that hit certain levels that confirm the price and volume that a market has probably put in a low. Well if we use the August lows as the bottom, then the market is still in a period to continue to rally. But if we count the selloff from November as negating the August rally, which is what I believe we have to do when you look at the SP 600 and Russell 2000, then we simply have not had the bearish or fear needed to put in a bottom.
Instead we have put in a short-term bottom due to the market being extremely oversold. If that is the case, then the low volume on this rally makes perfect sense. If this rally was on huge volume, I am sure I would have a lot of pretty green BOP filled charts that work (like RICK) instead of charts that are working but that don’t look at hot (like ELMG and its yellow BOP). So the fact that there are so few hot charts and new leaders breaking out from sound bases and that the current leaders off the 2003 lows (GOOG RIMM BIDU AAPL AMZN) that are now hitting new highs with negative divergences in almost every technical indicator including overall volume.
The first stock we can look at is GOOG. If you notice that GOOG is very close to its November highs but look at the bottom part of your charts. Where is the volume on this rally? Now look at the RS. Do you notice that it is well below the old highs? Then look at the moneystream. Notice its negative divergence. Now look at the BOP. Notice the negative divergence? This is just one example.
The next weak past winner I am watching is RIMM. I technically should be short a little of this stock but my luck on the short side has been iffy recently and almost all of my nicer looking longs have been producing solid gains during the market’s uptrend. As long as the market continues to drift higher, I have to stay away from shorting RIMM until it sets up in a picture perfect historically high odd trade.
Right now, the stock is weaker than all the others as it put in a lower high at the end of November with the RS line coming in well below the old high in early November. That high came with four days of distribution that has been followed by a few days of a low volume rally. If the stock fails again, I might begin to poke a little and try another round of shorting this former leader. However, it would probably be wiser to wait for the 200 day moving average to catch up more to price before getting too big on a short in this stock. If you look at the moneystream you can see that it is making new lows well below the early November s lows. This, despite the price being above the November lows. Also the BOP is red and ugly still just like it was when it started selling off. So it is obvious there is not a lot of accumulating interest in this stock anymore. A weekly chart shows three weeks of distribution the past four which clearly tells you what is going on with RIMM.
BIDU is another leader that is at the old highs in early November but yet nothing else about the stock is. There are negative divergences in almost every indicator with the RS well below the early November highs and moneystream is even in worse shape. The only thing going for it is that BOP is turning green but with the rally coming on lower and lower volume BIDU appears to be headed the same fate RIMM and GOOG are headed for soon.
The strongest leader relative to the market is AAPL with its RS line well into new high ground. While the RS line is deeper into new high ground than price it isn’t by much and then the moneystream is still no where near new highs. That line is still well below the old highs in November. The BOP has also turned negative to where it was still dancing around the zero line early in November.
The point of this is to show you that the leaders that everyone is still talking about as the for sure thing that is a safe haven in any market are all starting to weaken. This is the first time they have sold off on heavy volume and rallied on lower volume to such extremes with all the technical divergence. This action in the leading stocks along with the weak rally in the market with few hot new longs is what continues to keep my mind cautious on the rally. However, even though I am cautious and I expect this thing to fail it sure doesn’t mean that I am just going to ignore the long side and miss gains in stocks that can rally fast in a short period of time.
Sure there are not a lot of RICK stocks out there but there are plenty of EGN stocks out there. And being long EGN is a lot safer than being short stocks that are not moving down. I know a lot of people shorting banks, home builders, and mortgage stocks down here. It is just shocking because most of these stocks have been destroyed and have no chance of going to zero. However, what is obvious to everyone usually no longer works and I think those short sellers are in that situation. Not only are they in that situation but those that continue to believe that AAPL, RIMM, BIDU, and GOOG will always be a safe place to put money to continue to rack up gains are also in that situation.
The best bet is to keep bets small, keep them focused on the long side in the top stocks in leading industries until we get some real distribution in this market, cut your losses fast if they don’t move up immediately, and do not focus on the short side just yet. There are markets that are meant to be traded and then there are market that can be traded but shouldn’t. That is what this market is to newbies. This is not the market where we are going to get a TASR or TZOO. We are not going to get those until we have a serious selloff in equities.
I know some think that we have had a real selloff already. But no real selloff is under 20% and no real selloff comes with a bottom without fear. Where is the fear? It sure seems pretty darn complacent to me. As long as the complacency continues to reward the longs I will be complacent and ride the trend up with my friends like EGN RICK FFH and OTEX. Now if only the speculative former max green stocks like AGX would move like the other slow safe Utilities, Telco, Soap, and Insurance stocks. Then we could have some fun. Instead we must be happy with a 25% gain in all the stocks that give us that. We will not be getting many 100% to 300% gains in this choppy market. Enjoy what you can get when you can get it. This is not the type of market to be on full margin. The 2005 lows was the last one that had enough fear to produce a gain like 550% in six months in ERS. Since then, there has been nothing.
Aloha and I will see you in the chat room where I will do my best to find the next TASR. Just don’t expect me to find it until after we have a real bear market. ALOHA!!!
top current holdings: ICOC 88% YGE 70% FSLR 262% MTL 92% MA 322% MOS 343% ATRO 55% CNH 138% ZIXI 181% RICK 97%
Saturday, December 08, 2007
Saturday, December 01, 2007
Stocks Hold On To Gains To End A Very Bullish Week On A Positive Note; New Traders Should Understand That The Market Is Not Always Easy.
F***!!! The damn site switched servers now I don't know what i was writing So I am starting over with whatever I have left in my mind. I am very upset!
The market started the week off on a very bearish note which made it look like the market was going to continue to selloff very hard. But proving that it is never a smart idea to short a market that is breaking down below support, rather than short low volume rallies to resistance, the market snapped back producing a very strong bottom in the short term.
Many traders were caught off guard by the quick snap back but the market is never easy and those that do not subscribe to IBD, it is possible they will miss this rally if it continues.
Most traders are waiting for a follow-through day on the NYSE, Nasdaq, SP 500, or the DJIA. However, those that have IBD know that the IBD 100, 85-85, and New America index have confirmed that we are officially in a "confirmed rally."
When the stock market sold off on Monday and sent the major market indexes to new lows, a peculiar thing happened on the IBD indexes. None of them hit lower lows which meant that there attempted rally with the gains on Friday were still alive. After the up day on Tuesday (day three of the rally attempt) we then were looking for a gain of 1.5% on higher volume the next seven sessions. The very next day the IBD New America jumped 3.3% and the IBD 100 and IBD 85-85 both lept over 4% on higher volume, officially ending the "correction."
I know some traders that are hard-core about the follow-through happening on the major market indexes and if you are one of those people you are currently on day four of your rally attempt and day five will be tomorrow. The best rallies that have the highest chance of succeeding come with follow-through days between day four and day ten. Anything after ten is riskier and the chances of the rally succeeding are lowered dramaticaly. For those that do not adhere to the IBD indexes, I would reconsider and think about changing your bearish bias on the short term. If you don't you risk missing some good gains in some nice stocks as three out of four stocks follow the general trend of the market.
Speaking of the general trend, a lot of people are confused as to what trend we are in. I do not blame them, if I was not a seasoned professional there is an almost 100% certainty that today's market would be driving me crazy as there are very few chances to hit huge winners with such a low VIX and a lot of stocks are very volatile on the short term making buying right ever more important in this market--something new investors almost never do correctly.
The key to markets like this is to not trade them. The smartest traders of all-time like Jesse Livermore would not be trading markets like this. If they were, they would be trading like I am. That entails keeping longs very small, keeping shorts very small, keeping tight cut losses, and making sure to only enter in the direction of the trend of the market. This is what has many confused because the trend of the market seems so choppy. That is your clear tell to stay out of the market, when you feel like you do not have an edge.
I think the proper way to look at this market right now, except the Russell 2000 and SP 600 which are both very ugly, is that on the short term we are bullish, on the sub-intermediate term we are flat, on the intermediate term we are bearish, and on the long term using the 200 dma as my guide we are bullish. So it is clear we are in a veyr mixed enviro.
When all trends are down, it is easy to short and make money (very rarely happens) and when the trends are all up, it is very easy to go long (not as rare but 1999 and 2003 are the only two periods I can say were easy). Most of the time the market is not in these positions which makes it very important to be very vigilant with cutting your losses.
When you do this, you enable yourself to cut the bleeding in the stocks that are not working--and there will be plenty in choppy markets. This then enables you to continue to keep cash on hand for those perfect or near-perfect setups. It is these setups that must always be taken, even if you take small hits every once in a while.
I know that some think it is very important to be in cash in periods like this. But my argument is what if we have seen the bottom and stocks are not going to pullback again. If that is the case, I sure wouldn't want to be out of all the longs like FSLR, MA, and IHS which act like there is ONLY a bull market and nothing else. This is why it is important to always be trading. You should never stop taking your signals. The day you decide to stop taking your signals, I guarantee, will be the day that your longs or shorts breakout/breakdown and run producing huge gains.
RIght now in this choppy market, I continue to find both longs and shorts. However, it is becoming clear that I am finding more longs and that my current holdings of longs are doing very well. Comparing this to the new shorts I find and their recent performance leads me to believe that it would be foolish, for now, to pass up on stocks like EGN, ELMG, PEG, SHEN, DAR, and some others that are offering such great reward to risk ratios.
If all of these fail, what, I lose 5-7% most on any of them. If they succeed I am expecting minimum 25% moves in this environment. So the odds are well in my favor. Especially with longs working right at this moment. If my shorts were still moving lower and all of my new longs were not moving higher with green BOP with the current trend, then obviously I would be more focused on the short side.
Instead, my last four shorts have all had poor outcomes as two have immediately needed most of it covered as it hit cut loss areas. If this market was really that bad, my new longs would ALL act like SIRT did and all of my shorts would act like XLNX has acted since I went short.
This is why I feel like even though this market has a high chance of failing in the near future, that it is foolish to not play the oversold bounce in case that is all this is. No matter if it is a start of a new bull market or an oversold bounce, it always pays to invest with the trend. Do you think that just because I was FOR SURE that we topped in March 2000 (that is when I moved to Maui, remember, since I knew it was over) that I did not play the long side from April 2000-August 2000 which is when the REAL selling started? Of course I did. One of my better longs during that time that still exist was EXTR. From July 20 to Oct 16 it produced a 66% gain. This long was held despite me knowing that the real top was in for good and that the market was rolling over in September before my final October sell.
If this doesn't prove that it is smart to play the stocks and not the market, I don't know what will. There are stocks like MA hitting all-time highs that have given me a 300% gain. Do you think that if I would have believed everything Doug Kass or Barry Ritholtz would have told I would still be long this stock? Of course not. That is why I can not stress enough to NEVER marry a side of the market and that you should ALWAYS be flexible and even if you were bullish one day there is ABSOLUTELY NOTHING wrong about being bearish the next day if in fact that is what the market is doing. Going with the trend is how every single one of the greatest traders traded. Why would you want to do anything different? Are you smarter than the greatest? I didn't think so.
So while the market continues to act in this choppy fashion, I believe it is smart for all traders to either keep all longs/shorts very small or just not even trade at all. There are simply too many whippy stocks that are breaking down then coming right back or are breaking out then falling right back down. That is a clear sign that traders should not be involved in the market.
I continue to trade because I believe I have an advantage as I clearly understand which stocks look better than the others and then can judge exactly how much I want in this market environment. If you still have trouble distinguishing between a bull market or a bear market, then you definitely should not be trading a heavy amount here. Smart traders know when to keep the trading small and then when to press the margin. Right now is not the time to press the margin. It is simply too risky and there are too many stock not acting right.
Some encouraging technical signs that are showing up now is that the amount of new highs are starting to slowly expand again and on the NYSE are now beating the amount of new lows. This is a big change since the top in November. The other clearly bullish development is that the ACC/DIS rating on all the indexes were D to E's. Now every index has a B, except the Nasdaq which has a C. The point is, however, that the trend of the accumulation is in the right direction. This market could have rallied and the ACC/DIS could have stayed below a B or even C, as long as the rally had no volume. So the fact that the ACC/DIS has changed proves that buyers are back in control for now.
The million dollar question though is for how long? Obviously, no one knows that answer but to answer it we have to look at the market from two different areas. One is that if the August lows was a significant bottom then yes the market will indeed continue to rally. If however the November highs were a significant top then there is no way we will get above those highs and instead we should see the August lows again. Why? Because there is always fear at major market bottoms. There was ABSOLUTELY no fear off the November 28 follow-through.
The VIX never got above the August highs, much less the 30 level, on this trip down. The put/call ratio never touched 1.2 during the entire pullback and the bears never crossed the bulls in the investors intelligence survey. Considering that the VIX almost always gets over 35, the put/call hits 1.2, and the bears beat the bulls in the II on every bottom, it makes sense that we did not see one.
Even if the August lows were a bottom the chances of it being a real one are very low in and of itself considering that the bears NEVER crossed the bulls. This has always led to a market rally and the last time I can remember this happening was in Oct 05 right before the rally to the highs in April 06. Since then we simply have NOT seen the level of fear in this market that is typical of bottoms.
I am not sure how we can rally much more from here, considering this insane goldilocks bull market has lasted since October 2002, but eventually it has to come to an end. So while I continue to operate from both the long side and small on the short side, I believe that eventually this short-term rally will fail too.
We simply have laggard sectors leading and former three year plus bull market leaders selling off. When we look at all of the biggest winners from the 02 lows to the 07 highs, you can see that all of the leaders are showing signs of major distribution. Until a new batch of leading stocks with excellent CANSLIM traits show up, there is no way I can believe that this bull has much less.
For now, I continue to believe we saw a high in November, but if all of these indexes can retake their 50 day moving averages and the RUT and SML can retake the 200 dma, then I will obviously fully embrace the bull side. For now I feel like I am riding a bear market rally to eventual resistance, where most of these new longs will fail but some will succeed. Stocks like EGN and PEG in the utilities sector should continue to rally when this market decides it is done.
If I can think of anything else to add, I will. If you have any comments or questions feel free to leave them below in the comment area (comments only received at bigwavetrading.com). Aloha and I will see you in the chat room!!! ALOHA!!!!!
The market started the week off on a very bearish note which made it look like the market was going to continue to selloff very hard. But proving that it is never a smart idea to short a market that is breaking down below support, rather than short low volume rallies to resistance, the market snapped back producing a very strong bottom in the short term.
Many traders were caught off guard by the quick snap back but the market is never easy and those that do not subscribe to IBD, it is possible they will miss this rally if it continues.
Most traders are waiting for a follow-through day on the NYSE, Nasdaq, SP 500, or the DJIA. However, those that have IBD know that the IBD 100, 85-85, and New America index have confirmed that we are officially in a "confirmed rally."
When the stock market sold off on Monday and sent the major market indexes to new lows, a peculiar thing happened on the IBD indexes. None of them hit lower lows which meant that there attempted rally with the gains on Friday were still alive. After the up day on Tuesday (day three of the rally attempt) we then were looking for a gain of 1.5% on higher volume the next seven sessions. The very next day the IBD New America jumped 3.3% and the IBD 100 and IBD 85-85 both lept over 4% on higher volume, officially ending the "correction."
I know some traders that are hard-core about the follow-through happening on the major market indexes and if you are one of those people you are currently on day four of your rally attempt and day five will be tomorrow. The best rallies that have the highest chance of succeeding come with follow-through days between day four and day ten. Anything after ten is riskier and the chances of the rally succeeding are lowered dramaticaly. For those that do not adhere to the IBD indexes, I would reconsider and think about changing your bearish bias on the short term. If you don't you risk missing some good gains in some nice stocks as three out of four stocks follow the general trend of the market.
Speaking of the general trend, a lot of people are confused as to what trend we are in. I do not blame them, if I was not a seasoned professional there is an almost 100% certainty that today's market would be driving me crazy as there are very few chances to hit huge winners with such a low VIX and a lot of stocks are very volatile on the short term making buying right ever more important in this market--something new investors almost never do correctly.
The key to markets like this is to not trade them. The smartest traders of all-time like Jesse Livermore would not be trading markets like this. If they were, they would be trading like I am. That entails keeping longs very small, keeping shorts very small, keeping tight cut losses, and making sure to only enter in the direction of the trend of the market. This is what has many confused because the trend of the market seems so choppy. That is your clear tell to stay out of the market, when you feel like you do not have an edge.
I think the proper way to look at this market right now, except the Russell 2000 and SP 600 which are both very ugly, is that on the short term we are bullish, on the sub-intermediate term we are flat, on the intermediate term we are bearish, and on the long term using the 200 dma as my guide we are bullish. So it is clear we are in a veyr mixed enviro.
When all trends are down, it is easy to short and make money (very rarely happens) and when the trends are all up, it is very easy to go long (not as rare but 1999 and 2003 are the only two periods I can say were easy). Most of the time the market is not in these positions which makes it very important to be very vigilant with cutting your losses.
When you do this, you enable yourself to cut the bleeding in the stocks that are not working--and there will be plenty in choppy markets. This then enables you to continue to keep cash on hand for those perfect or near-perfect setups. It is these setups that must always be taken, even if you take small hits every once in a while.
I know that some think it is very important to be in cash in periods like this. But my argument is what if we have seen the bottom and stocks are not going to pullback again. If that is the case, I sure wouldn't want to be out of all the longs like FSLR, MA, and IHS which act like there is ONLY a bull market and nothing else. This is why it is important to always be trading. You should never stop taking your signals. The day you decide to stop taking your signals, I guarantee, will be the day that your longs or shorts breakout/breakdown and run producing huge gains.
RIght now in this choppy market, I continue to find both longs and shorts. However, it is becoming clear that I am finding more longs and that my current holdings of longs are doing very well. Comparing this to the new shorts I find and their recent performance leads me to believe that it would be foolish, for now, to pass up on stocks like EGN, ELMG, PEG, SHEN, DAR, and some others that are offering such great reward to risk ratios.
If all of these fail, what, I lose 5-7% most on any of them. If they succeed I am expecting minimum 25% moves in this environment. So the odds are well in my favor. Especially with longs working right at this moment. If my shorts were still moving lower and all of my new longs were not moving higher with green BOP with the current trend, then obviously I would be more focused on the short side.
Instead, my last four shorts have all had poor outcomes as two have immediately needed most of it covered as it hit cut loss areas. If this market was really that bad, my new longs would ALL act like SIRT did and all of my shorts would act like XLNX has acted since I went short.
This is why I feel like even though this market has a high chance of failing in the near future, that it is foolish to not play the oversold bounce in case that is all this is. No matter if it is a start of a new bull market or an oversold bounce, it always pays to invest with the trend. Do you think that just because I was FOR SURE that we topped in March 2000 (that is when I moved to Maui, remember, since I knew it was over) that I did not play the long side from April 2000-August 2000 which is when the REAL selling started? Of course I did. One of my better longs during that time that still exist was EXTR. From July 20 to Oct 16 it produced a 66% gain. This long was held despite me knowing that the real top was in for good and that the market was rolling over in September before my final October sell.
If this doesn't prove that it is smart to play the stocks and not the market, I don't know what will. There are stocks like MA hitting all-time highs that have given me a 300% gain. Do you think that if I would have believed everything Doug Kass or Barry Ritholtz would have told I would still be long this stock? Of course not. That is why I can not stress enough to NEVER marry a side of the market and that you should ALWAYS be flexible and even if you were bullish one day there is ABSOLUTELY NOTHING wrong about being bearish the next day if in fact that is what the market is doing. Going with the trend is how every single one of the greatest traders traded. Why would you want to do anything different? Are you smarter than the greatest? I didn't think so.
So while the market continues to act in this choppy fashion, I believe it is smart for all traders to either keep all longs/shorts very small or just not even trade at all. There are simply too many whippy stocks that are breaking down then coming right back or are breaking out then falling right back down. That is a clear sign that traders should not be involved in the market.
I continue to trade because I believe I have an advantage as I clearly understand which stocks look better than the others and then can judge exactly how much I want in this market environment. If you still have trouble distinguishing between a bull market or a bear market, then you definitely should not be trading a heavy amount here. Smart traders know when to keep the trading small and then when to press the margin. Right now is not the time to press the margin. It is simply too risky and there are too many stock not acting right.
Some encouraging technical signs that are showing up now is that the amount of new highs are starting to slowly expand again and on the NYSE are now beating the amount of new lows. This is a big change since the top in November. The other clearly bullish development is that the ACC/DIS rating on all the indexes were D to E's. Now every index has a B, except the Nasdaq which has a C. The point is, however, that the trend of the accumulation is in the right direction. This market could have rallied and the ACC/DIS could have stayed below a B or even C, as long as the rally had no volume. So the fact that the ACC/DIS has changed proves that buyers are back in control for now.
The million dollar question though is for how long? Obviously, no one knows that answer but to answer it we have to look at the market from two different areas. One is that if the August lows was a significant bottom then yes the market will indeed continue to rally. If however the November highs were a significant top then there is no way we will get above those highs and instead we should see the August lows again. Why? Because there is always fear at major market bottoms. There was ABSOLUTELY no fear off the November 28 follow-through.
The VIX never got above the August highs, much less the 30 level, on this trip down. The put/call ratio never touched 1.2 during the entire pullback and the bears never crossed the bulls in the investors intelligence survey. Considering that the VIX almost always gets over 35, the put/call hits 1.2, and the bears beat the bulls in the II on every bottom, it makes sense that we did not see one.
Even if the August lows were a bottom the chances of it being a real one are very low in and of itself considering that the bears NEVER crossed the bulls. This has always led to a market rally and the last time I can remember this happening was in Oct 05 right before the rally to the highs in April 06. Since then we simply have NOT seen the level of fear in this market that is typical of bottoms.
I am not sure how we can rally much more from here, considering this insane goldilocks bull market has lasted since October 2002, but eventually it has to come to an end. So while I continue to operate from both the long side and small on the short side, I believe that eventually this short-term rally will fail too.
We simply have laggard sectors leading and former three year plus bull market leaders selling off. When we look at all of the biggest winners from the 02 lows to the 07 highs, you can see that all of the leaders are showing signs of major distribution. Until a new batch of leading stocks with excellent CANSLIM traits show up, there is no way I can believe that this bull has much less.
For now, I continue to believe we saw a high in November, but if all of these indexes can retake their 50 day moving averages and the RUT and SML can retake the 200 dma, then I will obviously fully embrace the bull side. For now I feel like I am riding a bear market rally to eventual resistance, where most of these new longs will fail but some will succeed. Stocks like EGN and PEG in the utilities sector should continue to rally when this market decides it is done.
If I can think of anything else to add, I will. If you have any comments or questions feel free to leave them below in the comment area (comments only received at bigwavetrading.com). Aloha and I will see you in the chat room!!! ALOHA!!!!!
Friday, November 23, 2007
Stocks Selloff The Day Before The Beautiful Thanksgiving Day Holiday, Surprising Most Stock Traders Who Are Used To A Thanksgiving Rally
THIS IS THE COMMENTARY THAT FOLLOWED THE CLOSE OF WEDNESDAY'S MARKET. THERE IS NO WEEKEND COMMENTARY FOLLOWING FRIDAY'S MARKET SESSION AS THE SHORT BULLISH SESSION WAS TOO IRRELEVANT TO ADD ANYTHING OF IMPORTANCE. ENJOY YOUR USUAL LONG THANKSGIVING WEEKEND. ALOHA!
November 21, 2007
Today sure was the opposite of what everyone was expecting and that is probably the exact reason we got a selloff. The market loves to do the opposite of what everyone expects and there was no doubt that everyone was expecting a pre-Thanksgiving rally. Instead they were served a big dish of frozen turkey as stocks sold off and though volume was lower it was actually decently heavy considering that this is a holiday shortened week.
The most significant technical breach that I saw today was that the Nasdaq has finally joined the rest of the indexes below its 200 day moving average. Now, while this average is a clear late signal to sell stocks, it is still a good signal in warning you to be prepared for a weak market. Bullish tapes full of big stock winners do not exist when every index is below the 200 day moving average. You can now say that we are officially in a bear if you are one of those that wait for every index to be below the 200 dma before you get bearish. You now have your signal.
After today’s showing by the market many pundits on TV were calling yet “another” bottom. Some weren’t, but there were more who were and that is the problem. You do not build bottoms when everyone is looking for one. And when talking heads from brokerage firms come out and tell you that we have great bargains and investors should start to “cost basis average” into the stock, you know we have more downside to go.
The other clear thing that should be worrisome is that everyone seems to think, for safety, that you must buy GOOG, RIMM, AAPL, and BIDU. That is a sure sign they are dumping them. To confirm this, go look at all of those stocks, you will notice all the above average volume the past two weeks. While all of this is going on the stocks have broken from their highs and are just churning around their 50 day moving averages. The problem with this is that if this was a bullish setup, volume would be low. Instead the “dumb retail” money is bidding enough for the stock and so are the bad mutual fund managers that the smart big-boys are dumping on them. Heavy volume after a selloff near the averages are not good in bear markets. It normally turns out bad.
Some other clearly obvious indicators that tell us we are not going to be putting in lows any time soon, along with all the ugly charts, is that the VIX, put/call, and investors intelligence survey all suggest there is no fear out there. Despite what some amateur market analyst are telling people.
There is simply no way to have fear out there when the put/call is only at 1.05 [.87 after Friday's session] which is below the recent highs of 1.19. The put/call today would have had to have been at least 1.25. Then the VIX is stuck around the 27 level [25.61 after Friday's session] with it being below its recent highs, also, at 31. Until I see at least a 35 reading, there is no way I can even consider a bottom. And then there is the investors intelligence survey and I believe that tells a more true picture of sentiment than the others.
If you look at your investors intelligence survey you will notice that back in August we almost had the bulls and bears cross when bulls got 41% and bears got to 39%. That was close enough to start a very bullish rally off the August lows. However, now that we see this rally fail, it becomes clear that August was not a real low-which the investors intelligence survey confirmed with it not having the bulls cross the bears. A real bottom almost always comes with this indicator ending up with more bears than bulls (ie…bulls at 35% and bears at 40%).
So if that was a good bottom and if we saw some fear back in August, then there is absolutely NO WAY we have any fear now. The investors intelligence survey currently shows 48% bulls and 27% bears. The DJIA is below its closing lows in August, ye the survey shows more bulls this time than last time and less bears this time than last time. No matter which way you cut that, it simply is not bullish for equities. There is no fear, sorry. People believe in buying the dips now. The 2005, 2006, February 2007, and August 2007 pullbacks were all called tops and people believed they were every time the media told us it was. This time the public “isn’t going to fall for it.” So they are buying the dips now. I guess after five years of a bull market, no matter what CNN tells you about how horrible the economy is, people finally believe stocks are worth buying. Too bad it is the top.
I want everyone to remember that when the stock market bottomed in November 2002 the Acc/Dis of the Nasdaq was a C+ and when it finally made its true bottom and followed-through on March 17th the Acc/Dis was an A+. So when the market bottoms you are going to have at least a C+ rating. Until you see that letter, there is simply too much distribution in the market to get any rally going. As I see it right now, on all the indexes, the ratings range from D- to D+. This is a clear sign that the sellers are in clear control and that NOBODY should be doing any “bottom calling” or knife catching with stocks.
Another clear sign that the market is in trouble and that we shouldn’t be looking for a real bottom any time too soon is that before the market even began selling off the new lows were expanding more than new highs and right now the new highs barely exist to the new lows. There were only 26 new 52-week highs compared to 596 new 52-week lows on Wednesday. Men and women….you do NOT bottom with this few new highs and this many new lows. Just like we saw before the market topped, we will have a positive divergence in breadth and new highs/new lows before we take off on the “real” follow-through. Any rally that does not have EVERYTHING that I mentioned today will not be a true bottom rally and will only be an oversold bounce in a bear market. Once you see EVERYTHING that I have mentioned today, along with strong stocks making/breaking out of solid bases with green and max green BOP, then and only then will it be safe to assume that we have seen a real bottom and that the time to go all-in has returned.
Right now, the best thing to do is to protect your capital and make money on the short side if you are experienced. There are simply too many stocks offering up too big of gains for those that have the capital to pass on. I have 57 shorts THAT ARE WORKING, so you can find many also. Since I started to short heavy this month, I have only had two or three that have been cut. Not only are my odds high on my success rate of shorts, the returns are solid and the ones that do not work are not hitting us with big losses. This market has been very kind to shorts.
However, if this is a real bear market, the real bear has not started and will not till all those over-$100 stocks start cracking. The first signs of a real top are showing up in all four (GOOG RIMM AAPL BIDU) and every single commentator on CNBC is telling us to buy them which signals to me that they are selling them. Once those babies crack the big money will be made by the best traders as the market will probably selloff very fast and give us some very quick gains. The gains that have been made in shorts have not been that big (nothing more than 35% so far) but considering how many are doing well and how many more are going to show up, it is going very well. Just think about all the traders buying the dips, not in cash, and are adding to their losses.
If you are not making money shorting, I pray that you are at least mainly on the sidelines. From what I see with the regulars in my platinum chat room, everyone is doing very well and is basically out of the market. When I go to the free chat rooms, I still see many people buying the dips and/or they are shorting the bottom tick and covering for losses. Which brings me to my next and last point.
Do not chase shorts on the downside in this market. In a bear market, there are more than just one or two historically proper chart patterns to choose from to short. You may notice, that I am now starting to short charts that are showing some new breakdown patterns that you might have not seen before. That is because you only see some of these breakout reversal breakdowns in bear markets. You don’t see them in a bull market. So make sure you constantly study where and why I am shorting stocks and notice I am not chasing. Anytime you want to short a stock, make sure it has not been down five straight days or is more than 10% away from either a 50 or 200 day moving average. You may be able to get away with chasing a long in a clear bull market (longs can run up 10000% if they want) but in a bear market (where stocks only fall 99.9%) chasing stocks down too much or too far from key resistance/moving averages is a death sentence for your money.
God bless you all for reading me; I am very thankful for all of you. I seem to enjoy sharing my trading expertise more than actually trading now and I have to thank all of you for that. Without you, I am pretty sure, trading would not bring me as much joy as it does you. I have made some big money before and am definitely going to make a lot more when I finally settle down with my family life but have to admit that the flame of passion for trading was dying out. This website has definitely brought it back. The bear market doesn’t hurt either as I know that we can finally, after a long wait, get ready to get long stocks that will give us HUGE returns with a fresh bull market. I miss stocks like TASR and TZOO. We will never get another one until after this bear market is over. But now that we have a bear market, we can finally prepare ourselves for the next TZOO and TASR. Though for them to setup we will probably have to wait for this big bear cycle to play out (could take years). But while we wait, we will have plenty of shorts to bank on and when the markets do give us those bear market rallies there will be longs that produce big gains for us. Homebuilders did great during 2000-2002. So remember, there is always a bull market somewhere.
Aloha and I will see you in the chat room. HAPPY THANKSGIVING!! God bless!!
November 21, 2007
Today sure was the opposite of what everyone was expecting and that is probably the exact reason we got a selloff. The market loves to do the opposite of what everyone expects and there was no doubt that everyone was expecting a pre-Thanksgiving rally. Instead they were served a big dish of frozen turkey as stocks sold off and though volume was lower it was actually decently heavy considering that this is a holiday shortened week.
The most significant technical breach that I saw today was that the Nasdaq has finally joined the rest of the indexes below its 200 day moving average. Now, while this average is a clear late signal to sell stocks, it is still a good signal in warning you to be prepared for a weak market. Bullish tapes full of big stock winners do not exist when every index is below the 200 day moving average. You can now say that we are officially in a bear if you are one of those that wait for every index to be below the 200 dma before you get bearish. You now have your signal.
After today’s showing by the market many pundits on TV were calling yet “another” bottom. Some weren’t, but there were more who were and that is the problem. You do not build bottoms when everyone is looking for one. And when talking heads from brokerage firms come out and tell you that we have great bargains and investors should start to “cost basis average” into the stock, you know we have more downside to go.
The other clear thing that should be worrisome is that everyone seems to think, for safety, that you must buy GOOG, RIMM, AAPL, and BIDU. That is a sure sign they are dumping them. To confirm this, go look at all of those stocks, you will notice all the above average volume the past two weeks. While all of this is going on the stocks have broken from their highs and are just churning around their 50 day moving averages. The problem with this is that if this was a bullish setup, volume would be low. Instead the “dumb retail” money is bidding enough for the stock and so are the bad mutual fund managers that the smart big-boys are dumping on them. Heavy volume after a selloff near the averages are not good in bear markets. It normally turns out bad.
Some other clearly obvious indicators that tell us we are not going to be putting in lows any time soon, along with all the ugly charts, is that the VIX, put/call, and investors intelligence survey all suggest there is no fear out there. Despite what some amateur market analyst are telling people.
There is simply no way to have fear out there when the put/call is only at 1.05 [.87 after Friday's session] which is below the recent highs of 1.19. The put/call today would have had to have been at least 1.25. Then the VIX is stuck around the 27 level [25.61 after Friday's session] with it being below its recent highs, also, at 31. Until I see at least a 35 reading, there is no way I can even consider a bottom. And then there is the investors intelligence survey and I believe that tells a more true picture of sentiment than the others.
If you look at your investors intelligence survey you will notice that back in August we almost had the bulls and bears cross when bulls got 41% and bears got to 39%. That was close enough to start a very bullish rally off the August lows. However, now that we see this rally fail, it becomes clear that August was not a real low-which the investors intelligence survey confirmed with it not having the bulls cross the bears. A real bottom almost always comes with this indicator ending up with more bears than bulls (ie…bulls at 35% and bears at 40%).
So if that was a good bottom and if we saw some fear back in August, then there is absolutely NO WAY we have any fear now. The investors intelligence survey currently shows 48% bulls and 27% bears. The DJIA is below its closing lows in August, ye the survey shows more bulls this time than last time and less bears this time than last time. No matter which way you cut that, it simply is not bullish for equities. There is no fear, sorry. People believe in buying the dips now. The 2005, 2006, February 2007, and August 2007 pullbacks were all called tops and people believed they were every time the media told us it was. This time the public “isn’t going to fall for it.” So they are buying the dips now. I guess after five years of a bull market, no matter what CNN tells you about how horrible the economy is, people finally believe stocks are worth buying. Too bad it is the top.
I want everyone to remember that when the stock market bottomed in November 2002 the Acc/Dis of the Nasdaq was a C+ and when it finally made its true bottom and followed-through on March 17th the Acc/Dis was an A+. So when the market bottoms you are going to have at least a C+ rating. Until you see that letter, there is simply too much distribution in the market to get any rally going. As I see it right now, on all the indexes, the ratings range from D- to D+. This is a clear sign that the sellers are in clear control and that NOBODY should be doing any “bottom calling” or knife catching with stocks.
Another clear sign that the market is in trouble and that we shouldn’t be looking for a real bottom any time too soon is that before the market even began selling off the new lows were expanding more than new highs and right now the new highs barely exist to the new lows. There were only 26 new 52-week highs compared to 596 new 52-week lows on Wednesday. Men and women….you do NOT bottom with this few new highs and this many new lows. Just like we saw before the market topped, we will have a positive divergence in breadth and new highs/new lows before we take off on the “real” follow-through. Any rally that does not have EVERYTHING that I mentioned today will not be a true bottom rally and will only be an oversold bounce in a bear market. Once you see EVERYTHING that I have mentioned today, along with strong stocks making/breaking out of solid bases with green and max green BOP, then and only then will it be safe to assume that we have seen a real bottom and that the time to go all-in has returned.
Right now, the best thing to do is to protect your capital and make money on the short side if you are experienced. There are simply too many stocks offering up too big of gains for those that have the capital to pass on. I have 57 shorts THAT ARE WORKING, so you can find many also. Since I started to short heavy this month, I have only had two or three that have been cut. Not only are my odds high on my success rate of shorts, the returns are solid and the ones that do not work are not hitting us with big losses. This market has been very kind to shorts.
However, if this is a real bear market, the real bear has not started and will not till all those over-$100 stocks start cracking. The first signs of a real top are showing up in all four (GOOG RIMM AAPL BIDU) and every single commentator on CNBC is telling us to buy them which signals to me that they are selling them. Once those babies crack the big money will be made by the best traders as the market will probably selloff very fast and give us some very quick gains. The gains that have been made in shorts have not been that big (nothing more than 35% so far) but considering how many are doing well and how many more are going to show up, it is going very well. Just think about all the traders buying the dips, not in cash, and are adding to their losses.
If you are not making money shorting, I pray that you are at least mainly on the sidelines. From what I see with the regulars in my platinum chat room, everyone is doing very well and is basically out of the market. When I go to the free chat rooms, I still see many people buying the dips and/or they are shorting the bottom tick and covering for losses. Which brings me to my next and last point.
Do not chase shorts on the downside in this market. In a bear market, there are more than just one or two historically proper chart patterns to choose from to short. You may notice, that I am now starting to short charts that are showing some new breakdown patterns that you might have not seen before. That is because you only see some of these breakout reversal breakdowns in bear markets. You don’t see them in a bull market. So make sure you constantly study where and why I am shorting stocks and notice I am not chasing. Anytime you want to short a stock, make sure it has not been down five straight days or is more than 10% away from either a 50 or 200 day moving average. You may be able to get away with chasing a long in a clear bull market (longs can run up 10000% if they want) but in a bear market (where stocks only fall 99.9%) chasing stocks down too much or too far from key resistance/moving averages is a death sentence for your money.
God bless you all for reading me; I am very thankful for all of you. I seem to enjoy sharing my trading expertise more than actually trading now and I have to thank all of you for that. Without you, I am pretty sure, trading would not bring me as much joy as it does you. I have made some big money before and am definitely going to make a lot more when I finally settle down with my family life but have to admit that the flame of passion for trading was dying out. This website has definitely brought it back. The bear market doesn’t hurt either as I know that we can finally, after a long wait, get ready to get long stocks that will give us HUGE returns with a fresh bull market. I miss stocks like TASR and TZOO. We will never get another one until after this bear market is over. But now that we have a bear market, we can finally prepare ourselves for the next TZOO and TASR. Though for them to setup we will probably have to wait for this big bear cycle to play out (could take years). But while we wait, we will have plenty of shorts to bank on and when the markets do give us those bear market rallies there will be longs that produce big gains for us. Homebuilders did great during 2000-2002. So remember, there is always a bull market somewhere.
Aloha and I will see you in the chat room. HAPPY THANKSGIVING!! God bless!!
Saturday, November 17, 2007
On Thursday I Warned Of An Oversold Rally And We Got It; Stock Indexes Put In A Bullish Intraday Reversal To Close Higher On Higher Volume (No Follow-
I expected an oversold rally starting on Friday and we got it. Intraday I said that the market could close at its HOD and it darn near did. Since the market is doing exactly what TA says it should be doing at this point, I will listen to the market and keep my shorts small from here on out until another new downtrend starts or a clear top is put in with a lot of distribution days after the Thanksgiving rally (it isn't certain but it almost always happens and the conditions are setup for it). Don't cover your shorts, if the market rallies a few hundred points here on the DJIA, and your shorts continue to move lower or do not move up. Those are the weak stocks you want to continue to hold on to. But if you have an IEX in your short port, you should be selling it all.
Today's gains came on a pickup in volume but it is always possible that the increase in volume was options related. However, it really does not matter as today's gains were under 1% so it is impossible for today to count as a follow-through day. Instead we will be entering day five of a rally attempt on Monday. I want everyone to remember that you usually do NOT get a strong market follow-through so soon after such strong selling. The best bottoms are NOT put in one month after the selling starts. So if we do get a follow-through day sometime next week make sure you see a ton of nice stocks setting up in bases or breaking out of sound bases in top industry groups.
If you do not see that, the chances that the rally will fail will be substantially higher. Even if we do continue to get a rally here, due to the oversold conditions, traders must realize that it is more than likely that rallies will be sold here as we have had a lot of selling in the indexes with very little accumulation. That is why these indexes all carry a D- to E rating in IBD. There is nothing out there doing well, except for the Defense index and Medical related stocks. This is a sign of a weak market. These industries have been doing well all year and it is probably in anticipation of a further weakening market.
As this market moves along it appears to me that we may be a little to oversold to be shorting stocks right now. However, there are few longs that are working out right now. Some of the better quality stocks recently have been IMA, VMSI, and XNPT the past three days. If you notice they are all related to the medical field. These stocks are starting to show up all over my long scans. That combined with a lot of low volume stocks is something my scans only see during rough periods of the market. Even during pullbacks the past few years there have not been a lot of these stocks on the scans. When they did show up in 2005 and 2006 they also were accompanied by a lot of stocks in shipping, oil, tech, and other leading sectors. Now it seems like medical stocks are the only stocks that once they breakout now they work.
Three out of four stocks follow the general trend of the market, so it is not smart going long here anyways. Unless your three losses are each under 5% and your one winners is always 20% or more. Since this is very doable in a bear market this is how I operate. I keep losses much tighter and risk less money. However, when stocks like IMA show up, I would rather be proven wrong than sit back and miss it. If you have seen stocks like QSC recently you know the hot money is moving into this are of the market. Breakouts will work here. However, great stocks like FNDT, EXLS, and other longs that I have taken in other industries have done very poorly. That correlates perfectly with the market.
So if you go long, make sure you go long a medical stock. Unless that chart is loaded with accumulation and max green BOP I recommend staying far away. Going short low volume rallies seems to be the right play now. When you see all these bank stocks dropping like rocks, old leading stocks top out, new lows trump new highs, and everyone on CNBC is telling you to buy the dips, I believe it is best to be cautious and raise a lot of cash.
If anything else, I don't care who you are, I would like you to have at least 25% cash. Having this cash on hand is a lot better than being long an FDX or a SBUX while you wait for the market to hit a bottom, follow-through, and then have leading stocks break out. It is never good for former leading stocks to break down all over the place in every industry. Don't get fooled into buying this rally with you going on full margin. Always wait for a follow-through and make sure real great quality stocks from tight quiet bases are breaking out.
Something makes me a bit uneasy about the market right now. I am sitting with a lot of longs that have nice patterns and look like they are going to move a lot higher. At the same time I have a lot of shorts that have been working very well and have been producing some nice gains. However, since I was so long (which allowed me to make some great gains) it has been hard to get to a point where the gains in the shorts kill the losses in the longs. However, maybe a testament to my stock picking ability recently I have had a series of days where when the market is higher my longs do great and my shorts are quiet and when the market is down my shorts do great and my longs are quiet. Since the first week, where I lost 15%, I have been able to recollect 5% of it. This in a market where most people are losing money. And I watch a lot of CNBC (like I always do when I feel we are near a top) and know that a lot of people are losing money because I hear about it constantly.
Thanks to my stock picking ability and me keeping new longs very small right now, I am no longer in the money losing camp. Even though I still have a lot of longs they are all down over 50% from where they were originally bought and my shorts have recently gotten larger. You have to realize that if 1 out of 4 stocks go up in a bear market and I pick all of the 1 out of 4 that go up and I hit a ton of the 3 out of 4 that go down, even with 25% plus cash, you are going to kill 95% of all traders and kill 99% of all mutual funds who must remain long while the market goes lower.
I know a lot of you might think that my bias to the downside is a bit too much. And I have to admit I have been wrestling with that feeling too. However, I know history, and I know that when I see defensive, medical, and low volume stocks moving higher that the market is in trouble. The SP 600 and Russell 200 always lead the market higher and lower and this time it looks no different as both small cap indexes RS lines are putting in very bearish divergences and the stocks are well below the 50 and 200 day moving averages.
The fact that all the leaders have been taken out, though, is the biggest one. It is still possible due to all the fanfare that GOOG, RIMM, AAPL, and BIDU could hit new highs. However, I believe that would bring the last of the suckers in and would be a gift to short sellers. I really hope I am wrong and I wouldn't mind being wrong so I could go long pretty charts again and make money. But I find it hard to happen when they get everything. The very last speculative group they hit was the solar stocks. When they did that I thought it was going to get bad. But FSLR has shaped up and looks good again but if you look at JASO and SPWR on an arithmetic chart you can clearly see that after a huge runup they made a VERY HUGE VOLUME blowoff. FSLR may have more to go but the other leaders are saying it is over. I could be wrong, yes. But don't forget, I HAVE BEEN A BULL SINCE OCTOBER 2002 WITH STOCKS LIKE SSYS GRMN SOHU SINA NTES AND WAS VERY LONG AFTER THE MARCH 2003 FOLLOW-THROUGH AND WAS LONG TASR AND REAPED THE HUGE NEAR 2000% GAIN IN IT.
The fact that I believe we could be topping now can not be ignored. You can go back to mauitrader.blogspot.com and read my 2004, 2005, and 2006 postings. In 2004 and 2005 I wasn't worried about any pullback at all because I ALWAYS had very green charts all over the place during the pullbacks. When I was offered a job to manage the money of a Chicago, IL based firm in 2005, the current manager believed the market was over; he was certain of it-so much so he was depressed. I told him not to worry that there were a ton of great looking bases and that the market had more to go. Eventually we parted ways. He sold his stocks...I found a 550% surprise in ERS! Not so bad!
In 2006, I believed it was very possible for us to be topping. But after the first few days of selling off, it became clear leading stocks were under no pressure. As the market started to bottom a lot of charts showed up and while some of the smartest guys on wall street and almost 100% of the commentators who work with TA on realmoney.com were boo-hooing the August move higher, I was not enjoying it but not denying that we had a lot of nice charts. Next thing you know we have HRZ (my biggest winner from that year to this year), AFSI, and TESO giving us huge high reward/low risk major gains. Those three stocks on full margin were blessings. And when this nasty bear is over, we will have more HRZ stocks one day.
In February of 2007, I believed we were topping because of China and all the weakness I started seeing in our market's internals. However, like I said earlier, AFSI and TESO came out of that so it wasn't that bad at all. This time though, we have had FNDT fail, EXLS fail, SNDA fail, ESEA fail, INXI fail, BLL fail, and many others. While all of that is going on, check out charts like IAR, ETFC, and YRCW. The play on this market right now, to make the big money, is shorting stocks.
There are a lot of technical aspects of this market that indicate that we should continue to get an oversold rally on the short-term. I did let everyone know that I expected one after Thursday's close. Some of the things that came to my attention the past few days that lead me to believe that the rally will continue were listed yesterday:
The put/call ratio did spike to 1.12 at the close today. And even though I do not see any fear in this market with the VIX being at 28, the fact that the put/call ratio did spike to 1.12 indicates that there is a little bit of fear creeping into this market. However, it is not the bottom kind of fear. That fear is a spike to 1.5.
The new highs to new lows is also another item that has recently caught my interest. When we began to selloff we consistently saw new lows over 300 on the way down with new highs staying under 100. Now we continue to have new highs around the 40-60 area but the new lows have fallen to 200 or lower the past three days. So the fact that there are not as many stocks hitting new lows despite the continuation of selling indicates that we are a bit oversold.
The two final things that make me think we are oversold is that if the S&P 500 closes down for the week this will be the first time since early 2004 that the S&P 500 has fallen for five consecutive weeks. At the same time, the percentage of stocks below their 40-day moving average is hovering right around 20% and the stocks below their 200-day moving average is around 30%. Though this is far from a “real bottom” extreme reading (10% for the 40-dma and 20% for the 200 dma), it is still very oversold. The bottom line: we should expect a bounce.
These are all the reasons that make me believe we will continue to see higher prices next week. Hopefully, the higher prices, will help my current long holdings blastoff to huge gains on huge volume so I can take some more in and at the same time keep my shorts quiet where if they do rally they do it on low volume and on a little price gain. So even with this possible oversold bounce I am not going to take in all my shorts. I have taken profits on the ones down a lot to preserve some of the gains and have eliminated the weak shorts that did not move lower. So even if we do rally I pray that most hold below the 50 and 200 day moving average. The put/call ratio did spike again to 1.19 so there is enough fear in the market where it is possible I might lose some shorts. However, if the stocks are really broken they will not bounce with the market.
If we do not get a short-covering oversold rally and we instead continue to selloff, then it will be all that much smarter to not be in longs and to be short and cash heavy. I do not think moving lower here would be bullish for the market in the long run as a bottom here would only delay the inevitable that we have been delaying since February of this year. This market has continued to weaken all year long with the market getting more and more narrow as we go along. Now it is only a few handful of leading stocks taking care of the other thousands that are falling. A bounce here will relieve the oversold pressure so that eventually the natural course of selling resumes.
I am sorry I don't have better news. I have been a bull since 2002. Where have you been? I was a bear and made a lot of money in 2000-2002. So just because we might be done with the 1000% gains in AAPL (which there still might be more to come) doesn't mean that there aren't going to be a lot of stocks to short. These old leaders have to come down eventually and if you think pure IPO crap like OZM isn't going to see the single digits you are seriously fooling yourself. They don't pump out this crap at the start of incredible bull markets. This crap comes to market when you have to get it out before it is too late and can't be brought to market cause it would crash straight down in a straight line. The crap IPOs are now being brought to market. The quality has passed in the IPO market and the stock market.
Cash is king. Aloha and I will see you in the chat room.
P.S.: If any of you reading this blog remember the Gary B. Smith TA articles from realmoney/thestreet.com back in the late 90s to about 2004 or 2005 (I can't remember) you might remember how simple and great they were. It led to GBS getting a job on FoxNews and ended up with him leaving to run money at a hedge fund. If you don't remember those articles, I recommend going back to the archives on thestreet/realmoney.com and go over them. I would love to bring them back and have been trying my best to get those articles back. I would love to write them and it would done very similar with the markets analyzed every day and 6 stocks a night. Price, volume, moving averages, and support/resistance would be the theme. If you think that you would like to see that again on realmoney.com send an email to Kristin Bentz and tell her you want to see the GBS articles again and that you want me to write them. I would love to bring those articles back. I have missed them and believe the site's TA is turning to crap. It is time to bring in someone who maybe is a little different but at least can offer stock picks that make their readers money.
Today's gains came on a pickup in volume but it is always possible that the increase in volume was options related. However, it really does not matter as today's gains were under 1% so it is impossible for today to count as a follow-through day. Instead we will be entering day five of a rally attempt on Monday. I want everyone to remember that you usually do NOT get a strong market follow-through so soon after such strong selling. The best bottoms are NOT put in one month after the selling starts. So if we do get a follow-through day sometime next week make sure you see a ton of nice stocks setting up in bases or breaking out of sound bases in top industry groups.
If you do not see that, the chances that the rally will fail will be substantially higher. Even if we do continue to get a rally here, due to the oversold conditions, traders must realize that it is more than likely that rallies will be sold here as we have had a lot of selling in the indexes with very little accumulation. That is why these indexes all carry a D- to E rating in IBD. There is nothing out there doing well, except for the Defense index and Medical related stocks. This is a sign of a weak market. These industries have been doing well all year and it is probably in anticipation of a further weakening market.
As this market moves along it appears to me that we may be a little to oversold to be shorting stocks right now. However, there are few longs that are working out right now. Some of the better quality stocks recently have been IMA, VMSI, and XNPT the past three days. If you notice they are all related to the medical field. These stocks are starting to show up all over my long scans. That combined with a lot of low volume stocks is something my scans only see during rough periods of the market. Even during pullbacks the past few years there have not been a lot of these stocks on the scans. When they did show up in 2005 and 2006 they also were accompanied by a lot of stocks in shipping, oil, tech, and other leading sectors. Now it seems like medical stocks are the only stocks that once they breakout now they work.
Three out of four stocks follow the general trend of the market, so it is not smart going long here anyways. Unless your three losses are each under 5% and your one winners is always 20% or more. Since this is very doable in a bear market this is how I operate. I keep losses much tighter and risk less money. However, when stocks like IMA show up, I would rather be proven wrong than sit back and miss it. If you have seen stocks like QSC recently you know the hot money is moving into this are of the market. Breakouts will work here. However, great stocks like FNDT, EXLS, and other longs that I have taken in other industries have done very poorly. That correlates perfectly with the market.
So if you go long, make sure you go long a medical stock. Unless that chart is loaded with accumulation and max green BOP I recommend staying far away. Going short low volume rallies seems to be the right play now. When you see all these bank stocks dropping like rocks, old leading stocks top out, new lows trump new highs, and everyone on CNBC is telling you to buy the dips, I believe it is best to be cautious and raise a lot of cash.
If anything else, I don't care who you are, I would like you to have at least 25% cash. Having this cash on hand is a lot better than being long an FDX or a SBUX while you wait for the market to hit a bottom, follow-through, and then have leading stocks break out. It is never good for former leading stocks to break down all over the place in every industry. Don't get fooled into buying this rally with you going on full margin. Always wait for a follow-through and make sure real great quality stocks from tight quiet bases are breaking out.
Something makes me a bit uneasy about the market right now. I am sitting with a lot of longs that have nice patterns and look like they are going to move a lot higher. At the same time I have a lot of shorts that have been working very well and have been producing some nice gains. However, since I was so long (which allowed me to make some great gains) it has been hard to get to a point where the gains in the shorts kill the losses in the longs. However, maybe a testament to my stock picking ability recently I have had a series of days where when the market is higher my longs do great and my shorts are quiet and when the market is down my shorts do great and my longs are quiet. Since the first week, where I lost 15%, I have been able to recollect 5% of it. This in a market where most people are losing money. And I watch a lot of CNBC (like I always do when I feel we are near a top) and know that a lot of people are losing money because I hear about it constantly.
Thanks to my stock picking ability and me keeping new longs very small right now, I am no longer in the money losing camp. Even though I still have a lot of longs they are all down over 50% from where they were originally bought and my shorts have recently gotten larger. You have to realize that if 1 out of 4 stocks go up in a bear market and I pick all of the 1 out of 4 that go up and I hit a ton of the 3 out of 4 that go down, even with 25% plus cash, you are going to kill 95% of all traders and kill 99% of all mutual funds who must remain long while the market goes lower.
I know a lot of you might think that my bias to the downside is a bit too much. And I have to admit I have been wrestling with that feeling too. However, I know history, and I know that when I see defensive, medical, and low volume stocks moving higher that the market is in trouble. The SP 600 and Russell 200 always lead the market higher and lower and this time it looks no different as both small cap indexes RS lines are putting in very bearish divergences and the stocks are well below the 50 and 200 day moving averages.
The fact that all the leaders have been taken out, though, is the biggest one. It is still possible due to all the fanfare that GOOG, RIMM, AAPL, and BIDU could hit new highs. However, I believe that would bring the last of the suckers in and would be a gift to short sellers. I really hope I am wrong and I wouldn't mind being wrong so I could go long pretty charts again and make money. But I find it hard to happen when they get everything. The very last speculative group they hit was the solar stocks. When they did that I thought it was going to get bad. But FSLR has shaped up and looks good again but if you look at JASO and SPWR on an arithmetic chart you can clearly see that after a huge runup they made a VERY HUGE VOLUME blowoff. FSLR may have more to go but the other leaders are saying it is over. I could be wrong, yes. But don't forget, I HAVE BEEN A BULL SINCE OCTOBER 2002 WITH STOCKS LIKE SSYS GRMN SOHU SINA NTES AND WAS VERY LONG AFTER THE MARCH 2003 FOLLOW-THROUGH AND WAS LONG TASR AND REAPED THE HUGE NEAR 2000% GAIN IN IT.
The fact that I believe we could be topping now can not be ignored. You can go back to mauitrader.blogspot.com and read my 2004, 2005, and 2006 postings. In 2004 and 2005 I wasn't worried about any pullback at all because I ALWAYS had very green charts all over the place during the pullbacks. When I was offered a job to manage the money of a Chicago, IL based firm in 2005, the current manager believed the market was over; he was certain of it-so much so he was depressed. I told him not to worry that there were a ton of great looking bases and that the market had more to go. Eventually we parted ways. He sold his stocks...I found a 550% surprise in ERS! Not so bad!
In 2006, I believed it was very possible for us to be topping. But after the first few days of selling off, it became clear leading stocks were under no pressure. As the market started to bottom a lot of charts showed up and while some of the smartest guys on wall street and almost 100% of the commentators who work with TA on realmoney.com were boo-hooing the August move higher, I was not enjoying it but not denying that we had a lot of nice charts. Next thing you know we have HRZ (my biggest winner from that year to this year), AFSI, and TESO giving us huge high reward/low risk major gains. Those three stocks on full margin were blessings. And when this nasty bear is over, we will have more HRZ stocks one day.
In February of 2007, I believed we were topping because of China and all the weakness I started seeing in our market's internals. However, like I said earlier, AFSI and TESO came out of that so it wasn't that bad at all. This time though, we have had FNDT fail, EXLS fail, SNDA fail, ESEA fail, INXI fail, BLL fail, and many others. While all of that is going on, check out charts like IAR, ETFC, and YRCW. The play on this market right now, to make the big money, is shorting stocks.
There are a lot of technical aspects of this market that indicate that we should continue to get an oversold rally on the short-term. I did let everyone know that I expected one after Thursday's close. Some of the things that came to my attention the past few days that lead me to believe that the rally will continue were listed yesterday:
The put/call ratio did spike to 1.12 at the close today. And even though I do not see any fear in this market with the VIX being at 28, the fact that the put/call ratio did spike to 1.12 indicates that there is a little bit of fear creeping into this market. However, it is not the bottom kind of fear. That fear is a spike to 1.5.
The new highs to new lows is also another item that has recently caught my interest. When we began to selloff we consistently saw new lows over 300 on the way down with new highs staying under 100. Now we continue to have new highs around the 40-60 area but the new lows have fallen to 200 or lower the past three days. So the fact that there are not as many stocks hitting new lows despite the continuation of selling indicates that we are a bit oversold.
The two final things that make me think we are oversold is that if the S&P 500 closes down for the week this will be the first time since early 2004 that the S&P 500 has fallen for five consecutive weeks. At the same time, the percentage of stocks below their 40-day moving average is hovering right around 20% and the stocks below their 200-day moving average is around 30%. Though this is far from a “real bottom” extreme reading (10% for the 40-dma and 20% for the 200 dma), it is still very oversold. The bottom line: we should expect a bounce.
These are all the reasons that make me believe we will continue to see higher prices next week. Hopefully, the higher prices, will help my current long holdings blastoff to huge gains on huge volume so I can take some more in and at the same time keep my shorts quiet where if they do rally they do it on low volume and on a little price gain. So even with this possible oversold bounce I am not going to take in all my shorts. I have taken profits on the ones down a lot to preserve some of the gains and have eliminated the weak shorts that did not move lower. So even if we do rally I pray that most hold below the 50 and 200 day moving average. The put/call ratio did spike again to 1.19 so there is enough fear in the market where it is possible I might lose some shorts. However, if the stocks are really broken they will not bounce with the market.
If we do not get a short-covering oversold rally and we instead continue to selloff, then it will be all that much smarter to not be in longs and to be short and cash heavy. I do not think moving lower here would be bullish for the market in the long run as a bottom here would only delay the inevitable that we have been delaying since February of this year. This market has continued to weaken all year long with the market getting more and more narrow as we go along. Now it is only a few handful of leading stocks taking care of the other thousands that are falling. A bounce here will relieve the oversold pressure so that eventually the natural course of selling resumes.
I am sorry I don't have better news. I have been a bull since 2002. Where have you been? I was a bear and made a lot of money in 2000-2002. So just because we might be done with the 1000% gains in AAPL (which there still might be more to come) doesn't mean that there aren't going to be a lot of stocks to short. These old leaders have to come down eventually and if you think pure IPO crap like OZM isn't going to see the single digits you are seriously fooling yourself. They don't pump out this crap at the start of incredible bull markets. This crap comes to market when you have to get it out before it is too late and can't be brought to market cause it would crash straight down in a straight line. The crap IPOs are now being brought to market. The quality has passed in the IPO market and the stock market.
Cash is king. Aloha and I will see you in the chat room.
P.S.: If any of you reading this blog remember the Gary B. Smith TA articles from realmoney/thestreet.com back in the late 90s to about 2004 or 2005 (I can't remember) you might remember how simple and great they were. It led to GBS getting a job on FoxNews and ended up with him leaving to run money at a hedge fund. If you don't remember those articles, I recommend going back to the archives on thestreet/realmoney.com and go over them. I would love to bring them back and have been trying my best to get those articles back. I would love to write them and it would done very similar with the markets analyzed every day and 6 stocks a night. Price, volume, moving averages, and support/resistance would be the theme. If you think that you would like to see that again on realmoney.com send an email to Kristin Bentz and tell her you want to see the GBS articles again and that you want me to write them. I would love to bring those articles back. I have missed them and believe the site's TA is turning to crap. It is time to bring in someone who maybe is a little different but at least can offer stock picks that make their readers money.
Sunday, November 11, 2007
Another Selloff Helps Stocks Put In One Of Their Worst Weeks In Five Years; The Time To Be Long Has Passed
Subscribers to this site definitely were not caught by surprise when it comes to the selloff we have had the past three days. After Tuesday's market session I ended up with a TON of strong CANSLIM quality longs that appeared to signal that the market was ready for another leg up. However, the very next day, stocks reversed hard on heavier volume and many of the new buys were left looking quite mediocre. That particular action was very bearish to me and caused me to pen this right after the closing bell on Wednesday:
Screw This Market; Nasty Selloff After Such A Strong Day Is A Clear Topping Signal
November 7, 2007
I am losing my bullish bias. All my hard work yesterday was rewarded with this!!! Screw this market. Sell all laggards, cut your losses in stocks not working, take in some profits, and raise cash. This market is in for some rough times. Even if it turns around I don’t care anymore. The easy money is being made on the short side now. It is time to get rid of the bullish bias. This is the most confusing market I have EVER seen. Since 1996 I have never seen a market so screwy. Get out of your new longs and take profits. It is time to start selling. If there is nothing wrong with your longs, keep holding.
What makes all of this worse is that today I just loaded up on FNDT in my IRA. This is now the third buy in a row I have made in my IRA that has been a loser (SNDA, BLL, and now FNDT). Right now, I freaking suck, so it is best to not follow my trades unless you really like them. The easy money off the August lows has come and gone. I don’t know what the market is going to do next (probably goes lower) and with all of this volatility I do not want to be a part of it.
I have never seen such a freaking crazy market. The 2000 top has NOTHING on this wild action. If we are not topping, then damn it I really have lost all ability to read the market. Right now, it is unreadable. Anyone bullish or bearish is just asking to get punched in the face. I will continue to take both longs and shorts and will keep everything 1% or smaller of my initial equity.
I am so upset words can not even express how upset I am. Screw this market!!! Have a great evening. Aloha!
I was upset at the time because I felt like it was possible the market was going to rally hard the very next day offering up new longs. Thankfully, the caution that I suggested was rewarded as the Nasdaq sold off 4.4% the past two days. For those that listened to me and took money off the table, way to go. We missed out on some major carnage.
Now my style now forces me to hold at least 10-20% of a long all the way until it closes below the 200 dma (that is why I am still long ZNH even though I KNOW it has topped). The reason I do that is because I have been stopped out of a TON of big winners by not waiting for this event to happen. I am bringing this up because even though I am still long over 100 stocks, it is only because they are above key support and the 200 day moving average. There are about 25% of stocks in my portfolio that if I traded my old style would be complete sells. It would save me money to cut them now, I am sure. But like I just said, I guarantee, my returns would not be as strong if I did not adhere to this rule. I would have been out of MA, IHS, and many other stocks that I am instead enjoying large gains in. I have missed out on too many huge winners to not adhere by this rule.
But, if you are in a stock that no longer posses a green chart with a strong uptrend, you should probably get out of it. This market has definitely changed and this selloff is MUCH different than the rest. This is the first selloff where there is no safe haven. They have finally gotten to ALL of the leaders. There was only one group, come Friday, that did not suffer any selling, and thanks to the exhaustion gap following great earnings (earnings always look the BEST AT THE TOP) FSLR put in, it is probably safe to say that group is done. When I look at the angle of ascent of FSLR, JASO, and SPWR and then see the island reversals in all three stocks it becomes clear that these stocks now look like they have topped.
JASO is the best example of this. After a large uptrend the stock makes its biggest one day move on Thursday by putting in an exhaustion gap off of FSLR earnings. Then the very next day, it gaps lower on its largest volume ever, losing more than it gained on the gap higher, and BOP went red. This is very ugly action after such a bullish previous day. This was the last sub-sector that was holding up in the market. Now they have gotten these too.
The day before was the first day we officially saw all four leading stocks of this five-year bull market all selloff on strong volume the same day. When you look at the strong volume of the selling in all of these stocks, you can see that there have been very few days where we have seen back-to-back days of selling like this in all of our leaders. What makes this even more evident that the leaders are topping is the fact that the fifth and sixth horseman have problems too (GRMN and FSLR).
FSLR's action the past three days confirms the poor action in the leaders with everything I just listed above with the solars. But the first official leader of the bull market that started October 2002 was GRMN. Anyone who has been following GRMN recently knows that the stock has more than likely put in a real top and if you are still holding on to any shares I hope it is only 20% or less as the volume and follow-through selling after a five year bull market simply can't be ignored. This stock has topped. All of our leaders have topped. Now the next step is waiting for an area to short.
Before I go over where I want to short these leaders, first I think it is important for you all to understand why these stocks may be topping. If you look at a chart of BIDU going back to 2005 on an arithmetic chart, you will notice that the stock has pretty much been a very tight stock trending higher until early/mid October where it had its first huge volume selloff. That was the first warning that real dumping was occurring. Then after an extreme rally, the stock has rolled over on heavy volume the past two days. What this stock currently has going for it is that the stock is still above the 50 day moving average. But by looking at the recent distribution in the chart and noticing the very wide trading range recently appearing, it appears the stock is done. With the market already under distribution it isn't going to shock me when this leader falls.
RIMM is the same way since the 2002 lows as it has been in a steady uptrend. Around June this year, the uptrend starting to move at a more exponential slope and along the way RIMM did an excessive 3 for 1 split. After that, the stock rallied on lower volume (not bullish) and then had a breakout (could be exhaustion) gap on huge volume. Since the gap in June was the breakout, this is possibly an exhaustion. The rally that followed the gap was also on lower volume and now the past two days the stock has sold off on heavy volume. The two day decline of 14% on large volume is the most severe selling the stock has seen since its rally started and is a clear sign that there is not much left in this former leader. The good news, like BIDU is that it is above the 50 day moving average. So if you are long there is no reason to sell all of it but if you have not locked in any profits you better do so.
The worst looking of the leaders on the short term is GOOG. GOOG's 9% drop the past two days has come on very large volume and when you combine the two days of selling it is the heaviest volume since March 2006. If you look at a two day chart on an arithmetic scale you can see the drop is the most severe drop the stock has seen since it started trading and the drop looks very nasty on the chart. The long uptrend line from September has now been broken on huge volume which is a clear profit taking signal. Just like the other leaders this stock remains above the 50 day moving average but it too is so weak in the short term that it would not surprise me if we go right through that line. However, if you are still long some, keep holding. Until the 200 day moving average is broken there is no reason to get out of all your GOOG long.
The last leader that is holding up is AAPL. Once again, a two day chart shows the severity of the 11% drop the past two days as the candlestick bar is much longer than anything else you can see on this chart. This stock started to get roughed up in August as it had a LOT of selling hit the stock but back then the stock found strong intraday support on most of the days that the heavy selling hit it. That caused it to rally off the lows to the November highs. The problem with the rally is that the majority of it was done on lower volume. That indicated that the retail crowd was the only crowd interest in buying it up here. That low volume rally has now been met by heavy volume selling, just like most low volume rallies are. This stock is resting on the 50 day moving average and looks the weakest out of all the leaders. If you have not taken profits on this stock, you better take some profits on this one. However, until it closes below the 200 dma, I don't think you should sell all of it.
The only leader that has broken is GRMN. I am using GRMN as an example for the rest of the leaders in what I want to see before I go short. Because shorting leading stocks before they are ready to be shorted leaves you in massive pain. Just ask all the short sellers of these leading stocks in February and August. I am sure they are still feeling that pain. I know many traders who shorted some of these leaders both in February and July/August. Both times they felt it. Some think shorting GRMN right here is the right play now. I still don't think that is the case. GRMN still hasn't failed the 200 day moving average so it is still possible it could bounce here and break through the 50 day moving average and go on to new highs. While I doubt that will happen, I will tell you what I would like to see happen so that I can short this stock.
I would like to see GRMN touch the 200 day moving average and begin a rally to the downtrending 50 day moving average (if you look at the average, you will see it has turned lower). I would then like to see it bounce around the 50 day moving average for a while and/or rally above it and break back down below it. Then I will wait for a high volume selloff around the 50 and 200 day moving average. If you look at the stock DNB, you will see what I would love to see GRMN do. If GRMN breaks down just like DNB did in the middle of October, I will load up in GRMN. The other reason that I would load up is that if GRMN ends up looking like DNB, we can guarantee that the market will be still selling off like it has been recently. There has been a ton of distribution in the stock market the past few months and if the leaders start selling off I truly doubt volume will be low.
Even though I was getting bearish on Wednesday, I have to admit I still wasn't ready to abandon the bull case, as I know that it is hard to stop bullish momentum. But there were two stocks on Thursday that gave me "hope" that the bull was going to continue. One was the stock you read about earlier called FNDT. The other one was EXLS.
FNDT was not a perfect chart at all as the stock did not have two straight months of max BOP. But it did the second best thing which is to bounce off the 50 day moving average, put in a very bullish intraday reversal, breakout to or near recent highs on extremely strong volume, and do it with BOP going max green. Well FNDT did the latter and three days later was looking great as the stock was breaking out to new highs and closing at its HOD with BOP still max green. So obviously the stock deserved to be in my IRA. I only put what I consider the best looking charts in there. I have to admit I normally want a lot more max green BOP but I was getting very trigger happy in this market as the lack of perfect charts was driving me crazy.
But the stock market slapped me right in my face the very next day as it slammed FNDT almost 3%. That was enough to officially kill the beautiful chart. Well it was still beautiful but the chances of failure rose. And sure enough come Friday the stock closed below the 50 day moving average on heavy volume a clear signal to sell almost all of it. I am now holding 25% in my regular accounts since I went long on 11/1. But the buy in my IRA on 11/6 has been completely sold. So that now makes the last three longs in my IRA all losers. And with FNDT failing (it had such a nice chart and extremely strong fundies with good estimates) it was one of my last hopes that this bull market was not over finally being destroyed. As this five year bull market appears to be ending, I am slowly coming to the acceptance that it is over.
My final hope that the bull market was not over yet came on Thursday night as I did my scans. I happened to come across a stock that had a 99 EPS rating and had some great fundamentals overall once I started to delve deeper into this stocks story. Not only were the fundamentals incredible for EXLS the chart was very long and the right side seemed very sound with the slight accumulation and green BOP spread about. The best thing about the chart seemed to be that the RS line was leading the price into new high grounds by such a great margin that if the market was putting in lows (which I was not sure if it was or not because the leaders were just cracking and I was not sure a short-term oversold rally was going to happen or not) this stock would explode higher. So I even went long quite a bit despite the weak market because this stock looked so good.
But proving once and for all that being long is now completely wrong, the stock gapped slightly and sold off all day long ending just slightly off its LOD. Just like FNDT, this was a complete sale as it immediately reversed the breakout. Now since I follow my rules hardcore, I still own 20% of this long for my accounts and 25% in the Conservative CANSLIM port on our website since it did not close below the 50 day moving average/24.71 level. But back in the old days I would definitely have sold it all by now and I recommend that if you have a smaller portfolio that you sell all of it. This stock was so pretty on Thursday, despite the nasty market selloff. If this stock would have rallied off of an oversold bounce the gains would have been great and might have produced a great stock. In a bull market this chart pattern in a stock with this kind of fundamental power in EPS and sales growth would produce 80% plus gains (80% is the move off the closing lows in July to the highs in November). However, a stock that fails this kind of super strong nice pattern is definitely in the wrong market environment. Sadly, for the stock, it takes a perfectly amazing pattern that would have rocked in a bull market and throws it the ground and kicks it in the gut. How rude!!
Is it possible that the market could put in a huge bullish reversal on Monday and then give us a follow-through day four days later? Of course it is. Anything can happen in the stock market. That is why you must never marry the bullish or bearish side. You must always stay flexible. I will tell you this though, if we do get a follow through in the next five days, it is going to take months to produce hot charts. There are very few charts that look like NYX. And before NYX becomes a new long it is going to need to move sideways to slightly higher a bit longer as it is still too deep in its basing pattern from the November 2006 highs.
Some of the reasons why I personally think that we will not bottom any time too soon is because no matter how many people say that there is fear out there I do not see it. I did see that the AAII bear ratio hit 50% which is high but I have seen the Investors Intelligence numbers recently and I believe that is at 22% right now. At the lows in August it was 35% bears and 45% bulls. With the bulls also at 55% right now, I doubt we are at the lows right here. Even at the February lows the bears hit 30% so I am not sure how there can be too much fear in the market right now. On the realmoney.com site I see 35% are bullish and 41% are bearish. In August the bears hit 60% and the bulls hit less than 25% so this bull/bear survey is off the bottom mark too.
But the most important sentiment indicators, imo, are the ones where actual money is put on the line. In that case, the put/call ratio is always one of my favorites to look at. One of the most interesting things I saw this week was that on Wednesday when the market sold off the put/call went from .96 to .90 CLEARLY signaling that there was absolutely no panic put buying during the selloff. That was another bearish warning that something bad was coming. Well on Thursday the ratio spiked up to 1.10. But then on Friday with the Nasdaq falling 2.5% and the IBD 100 falling 3.2% the put/call ratio actually fell from 1.10 to 1.03!! It is simply stunning that an index can selloff 2.5% and the options players bet against the trend and buy the dips since that is what they have been used to since October 2002. The put/call ratio dropping two of three down days this week despite the selloff is the most clear indication that there is no fear out there in actual market players.
The last place to look for fear is the VIX index. The VIX did increase 33% the past three days and that is a major development but just as there was no real fear in the selling in February there is no real fear in this selling right now either. The lows in August were put in once VIX got over 35. What proves my point that the big money is made with a high VIX, the rally that followed produced many brand new longs that made 25-100% gains in three months or less. If the VIX would have gotten over 50, we would have had a ton of 50%-200% gainers. That is how the VIX works. The higher the VIX the more money we make in our longs. The higher the VIX the worse the selloff is to give us fewer stocks to focus on. The few stocks that produce hot pretty green charts always become our new longs that give us huge fast gains.
Right now, the VIX is at 28.50 and until the VIX gets to 35 there is no way that we can even begin to talk about a market that is too oversold and needs to bounce because the market has gotten too bearish too fast. No matter what the talking fundamentalist blind-traders say on CNBC, you must follow your charts and listen to their silent voices. The charts speak louder and more truth than any analyst on TV or on the radio ever will. Those who told me to buy banks all the way down the past few months could have saved their clients a bunch of money if they would have learned to use charts. God bless Don Worden and his TC2007. I don't know what I would do without it. Without it, I wonder if there even would be any stock market commentary by me. This is the greatest way to make a living. Definitely one of the hardest. But still one of the best ways to make an honest dollar!
Aloha and I will see you in the chat room where no matter what market direction we are in we always stay in control and make money (except for this week--it sure was painful; ouch!). ALOHA!!!!
Screw This Market; Nasty Selloff After Such A Strong Day Is A Clear Topping Signal
November 7, 2007
I am losing my bullish bias. All my hard work yesterday was rewarded with this!!! Screw this market. Sell all laggards, cut your losses in stocks not working, take in some profits, and raise cash. This market is in for some rough times. Even if it turns around I don’t care anymore. The easy money is being made on the short side now. It is time to get rid of the bullish bias. This is the most confusing market I have EVER seen. Since 1996 I have never seen a market so screwy. Get out of your new longs and take profits. It is time to start selling. If there is nothing wrong with your longs, keep holding.
What makes all of this worse is that today I just loaded up on FNDT in my IRA. This is now the third buy in a row I have made in my IRA that has been a loser (SNDA, BLL, and now FNDT). Right now, I freaking suck, so it is best to not follow my trades unless you really like them. The easy money off the August lows has come and gone. I don’t know what the market is going to do next (probably goes lower) and with all of this volatility I do not want to be a part of it.
I have never seen such a freaking crazy market. The 2000 top has NOTHING on this wild action. If we are not topping, then damn it I really have lost all ability to read the market. Right now, it is unreadable. Anyone bullish or bearish is just asking to get punched in the face. I will continue to take both longs and shorts and will keep everything 1% or smaller of my initial equity.
I am so upset words can not even express how upset I am. Screw this market!!! Have a great evening. Aloha!
I was upset at the time because I felt like it was possible the market was going to rally hard the very next day offering up new longs. Thankfully, the caution that I suggested was rewarded as the Nasdaq sold off 4.4% the past two days. For those that listened to me and took money off the table, way to go. We missed out on some major carnage.
Now my style now forces me to hold at least 10-20% of a long all the way until it closes below the 200 dma (that is why I am still long ZNH even though I KNOW it has topped). The reason I do that is because I have been stopped out of a TON of big winners by not waiting for this event to happen. I am bringing this up because even though I am still long over 100 stocks, it is only because they are above key support and the 200 day moving average. There are about 25% of stocks in my portfolio that if I traded my old style would be complete sells. It would save me money to cut them now, I am sure. But like I just said, I guarantee, my returns would not be as strong if I did not adhere to this rule. I would have been out of MA, IHS, and many other stocks that I am instead enjoying large gains in. I have missed out on too many huge winners to not adhere by this rule.
But, if you are in a stock that no longer posses a green chart with a strong uptrend, you should probably get out of it. This market has definitely changed and this selloff is MUCH different than the rest. This is the first selloff where there is no safe haven. They have finally gotten to ALL of the leaders. There was only one group, come Friday, that did not suffer any selling, and thanks to the exhaustion gap following great earnings (earnings always look the BEST AT THE TOP) FSLR put in, it is probably safe to say that group is done. When I look at the angle of ascent of FSLR, JASO, and SPWR and then see the island reversals in all three stocks it becomes clear that these stocks now look like they have topped.
JASO is the best example of this. After a large uptrend the stock makes its biggest one day move on Thursday by putting in an exhaustion gap off of FSLR earnings. Then the very next day, it gaps lower on its largest volume ever, losing more than it gained on the gap higher, and BOP went red. This is very ugly action after such a bullish previous day. This was the last sub-sector that was holding up in the market. Now they have gotten these too.
The day before was the first day we officially saw all four leading stocks of this five-year bull market all selloff on strong volume the same day. When you look at the strong volume of the selling in all of these stocks, you can see that there have been very few days where we have seen back-to-back days of selling like this in all of our leaders. What makes this even more evident that the leaders are topping is the fact that the fifth and sixth horseman have problems too (GRMN and FSLR).
FSLR's action the past three days confirms the poor action in the leaders with everything I just listed above with the solars. But the first official leader of the bull market that started October 2002 was GRMN. Anyone who has been following GRMN recently knows that the stock has more than likely put in a real top and if you are still holding on to any shares I hope it is only 20% or less as the volume and follow-through selling after a five year bull market simply can't be ignored. This stock has topped. All of our leaders have topped. Now the next step is waiting for an area to short.
Before I go over where I want to short these leaders, first I think it is important for you all to understand why these stocks may be topping. If you look at a chart of BIDU going back to 2005 on an arithmetic chart, you will notice that the stock has pretty much been a very tight stock trending higher until early/mid October where it had its first huge volume selloff. That was the first warning that real dumping was occurring. Then after an extreme rally, the stock has rolled over on heavy volume the past two days. What this stock currently has going for it is that the stock is still above the 50 day moving average. But by looking at the recent distribution in the chart and noticing the very wide trading range recently appearing, it appears the stock is done. With the market already under distribution it isn't going to shock me when this leader falls.
RIMM is the same way since the 2002 lows as it has been in a steady uptrend. Around June this year, the uptrend starting to move at a more exponential slope and along the way RIMM did an excessive 3 for 1 split. After that, the stock rallied on lower volume (not bullish) and then had a breakout (could be exhaustion) gap on huge volume. Since the gap in June was the breakout, this is possibly an exhaustion. The rally that followed the gap was also on lower volume and now the past two days the stock has sold off on heavy volume. The two day decline of 14% on large volume is the most severe selling the stock has seen since its rally started and is a clear sign that there is not much left in this former leader. The good news, like BIDU is that it is above the 50 day moving average. So if you are long there is no reason to sell all of it but if you have not locked in any profits you better do so.
The worst looking of the leaders on the short term is GOOG. GOOG's 9% drop the past two days has come on very large volume and when you combine the two days of selling it is the heaviest volume since March 2006. If you look at a two day chart on an arithmetic scale you can see the drop is the most severe drop the stock has seen since it started trading and the drop looks very nasty on the chart. The long uptrend line from September has now been broken on huge volume which is a clear profit taking signal. Just like the other leaders this stock remains above the 50 day moving average but it too is so weak in the short term that it would not surprise me if we go right through that line. However, if you are still long some, keep holding. Until the 200 day moving average is broken there is no reason to get out of all your GOOG long.
The last leader that is holding up is AAPL. Once again, a two day chart shows the severity of the 11% drop the past two days as the candlestick bar is much longer than anything else you can see on this chart. This stock started to get roughed up in August as it had a LOT of selling hit the stock but back then the stock found strong intraday support on most of the days that the heavy selling hit it. That caused it to rally off the lows to the November highs. The problem with the rally is that the majority of it was done on lower volume. That indicated that the retail crowd was the only crowd interest in buying it up here. That low volume rally has now been met by heavy volume selling, just like most low volume rallies are. This stock is resting on the 50 day moving average and looks the weakest out of all the leaders. If you have not taken profits on this stock, you better take some profits on this one. However, until it closes below the 200 dma, I don't think you should sell all of it.
The only leader that has broken is GRMN. I am using GRMN as an example for the rest of the leaders in what I want to see before I go short. Because shorting leading stocks before they are ready to be shorted leaves you in massive pain. Just ask all the short sellers of these leading stocks in February and August. I am sure they are still feeling that pain. I know many traders who shorted some of these leaders both in February and July/August. Both times they felt it. Some think shorting GRMN right here is the right play now. I still don't think that is the case. GRMN still hasn't failed the 200 day moving average so it is still possible it could bounce here and break through the 50 day moving average and go on to new highs. While I doubt that will happen, I will tell you what I would like to see happen so that I can short this stock.
I would like to see GRMN touch the 200 day moving average and begin a rally to the downtrending 50 day moving average (if you look at the average, you will see it has turned lower). I would then like to see it bounce around the 50 day moving average for a while and/or rally above it and break back down below it. Then I will wait for a high volume selloff around the 50 and 200 day moving average. If you look at the stock DNB, you will see what I would love to see GRMN do. If GRMN breaks down just like DNB did in the middle of October, I will load up in GRMN. The other reason that I would load up is that if GRMN ends up looking like DNB, we can guarantee that the market will be still selling off like it has been recently. There has been a ton of distribution in the stock market the past few months and if the leaders start selling off I truly doubt volume will be low.
Even though I was getting bearish on Wednesday, I have to admit I still wasn't ready to abandon the bull case, as I know that it is hard to stop bullish momentum. But there were two stocks on Thursday that gave me "hope" that the bull was going to continue. One was the stock you read about earlier called FNDT. The other one was EXLS.
FNDT was not a perfect chart at all as the stock did not have two straight months of max BOP. But it did the second best thing which is to bounce off the 50 day moving average, put in a very bullish intraday reversal, breakout to or near recent highs on extremely strong volume, and do it with BOP going max green. Well FNDT did the latter and three days later was looking great as the stock was breaking out to new highs and closing at its HOD with BOP still max green. So obviously the stock deserved to be in my IRA. I only put what I consider the best looking charts in there. I have to admit I normally want a lot more max green BOP but I was getting very trigger happy in this market as the lack of perfect charts was driving me crazy.
But the stock market slapped me right in my face the very next day as it slammed FNDT almost 3%. That was enough to officially kill the beautiful chart. Well it was still beautiful but the chances of failure rose. And sure enough come Friday the stock closed below the 50 day moving average on heavy volume a clear signal to sell almost all of it. I am now holding 25% in my regular accounts since I went long on 11/1. But the buy in my IRA on 11/6 has been completely sold. So that now makes the last three longs in my IRA all losers. And with FNDT failing (it had such a nice chart and extremely strong fundies with good estimates) it was one of my last hopes that this bull market was not over finally being destroyed. As this five year bull market appears to be ending, I am slowly coming to the acceptance that it is over.
My final hope that the bull market was not over yet came on Thursday night as I did my scans. I happened to come across a stock that had a 99 EPS rating and had some great fundamentals overall once I started to delve deeper into this stocks story. Not only were the fundamentals incredible for EXLS the chart was very long and the right side seemed very sound with the slight accumulation and green BOP spread about. The best thing about the chart seemed to be that the RS line was leading the price into new high grounds by such a great margin that if the market was putting in lows (which I was not sure if it was or not because the leaders were just cracking and I was not sure a short-term oversold rally was going to happen or not) this stock would explode higher. So I even went long quite a bit despite the weak market because this stock looked so good.
But proving once and for all that being long is now completely wrong, the stock gapped slightly and sold off all day long ending just slightly off its LOD. Just like FNDT, this was a complete sale as it immediately reversed the breakout. Now since I follow my rules hardcore, I still own 20% of this long for my accounts and 25% in the Conservative CANSLIM port on our website since it did not close below the 50 day moving average/24.71 level. But back in the old days I would definitely have sold it all by now and I recommend that if you have a smaller portfolio that you sell all of it. This stock was so pretty on Thursday, despite the nasty market selloff. If this stock would have rallied off of an oversold bounce the gains would have been great and might have produced a great stock. In a bull market this chart pattern in a stock with this kind of fundamental power in EPS and sales growth would produce 80% plus gains (80% is the move off the closing lows in July to the highs in November). However, a stock that fails this kind of super strong nice pattern is definitely in the wrong market environment. Sadly, for the stock, it takes a perfectly amazing pattern that would have rocked in a bull market and throws it the ground and kicks it in the gut. How rude!!
Is it possible that the market could put in a huge bullish reversal on Monday and then give us a follow-through day four days later? Of course it is. Anything can happen in the stock market. That is why you must never marry the bullish or bearish side. You must always stay flexible. I will tell you this though, if we do get a follow through in the next five days, it is going to take months to produce hot charts. There are very few charts that look like NYX. And before NYX becomes a new long it is going to need to move sideways to slightly higher a bit longer as it is still too deep in its basing pattern from the November 2006 highs.
Some of the reasons why I personally think that we will not bottom any time too soon is because no matter how many people say that there is fear out there I do not see it. I did see that the AAII bear ratio hit 50% which is high but I have seen the Investors Intelligence numbers recently and I believe that is at 22% right now. At the lows in August it was 35% bears and 45% bulls. With the bulls also at 55% right now, I doubt we are at the lows right here. Even at the February lows the bears hit 30% so I am not sure how there can be too much fear in the market right now. On the realmoney.com site I see 35% are bullish and 41% are bearish. In August the bears hit 60% and the bulls hit less than 25% so this bull/bear survey is off the bottom mark too.
But the most important sentiment indicators, imo, are the ones where actual money is put on the line. In that case, the put/call ratio is always one of my favorites to look at. One of the most interesting things I saw this week was that on Wednesday when the market sold off the put/call went from .96 to .90 CLEARLY signaling that there was absolutely no panic put buying during the selloff. That was another bearish warning that something bad was coming. Well on Thursday the ratio spiked up to 1.10. But then on Friday with the Nasdaq falling 2.5% and the IBD 100 falling 3.2% the put/call ratio actually fell from 1.10 to 1.03!! It is simply stunning that an index can selloff 2.5% and the options players bet against the trend and buy the dips since that is what they have been used to since October 2002. The put/call ratio dropping two of three down days this week despite the selloff is the most clear indication that there is no fear out there in actual market players.
The last place to look for fear is the VIX index. The VIX did increase 33% the past three days and that is a major development but just as there was no real fear in the selling in February there is no real fear in this selling right now either. The lows in August were put in once VIX got over 35. What proves my point that the big money is made with a high VIX, the rally that followed produced many brand new longs that made 25-100% gains in three months or less. If the VIX would have gotten over 50, we would have had a ton of 50%-200% gainers. That is how the VIX works. The higher the VIX the more money we make in our longs. The higher the VIX the worse the selloff is to give us fewer stocks to focus on. The few stocks that produce hot pretty green charts always become our new longs that give us huge fast gains.
Right now, the VIX is at 28.50 and until the VIX gets to 35 there is no way that we can even begin to talk about a market that is too oversold and needs to bounce because the market has gotten too bearish too fast. No matter what the talking fundamentalist blind-traders say on CNBC, you must follow your charts and listen to their silent voices. The charts speak louder and more truth than any analyst on TV or on the radio ever will. Those who told me to buy banks all the way down the past few months could have saved their clients a bunch of money if they would have learned to use charts. God bless Don Worden and his TC2007. I don't know what I would do without it. Without it, I wonder if there even would be any stock market commentary by me. This is the greatest way to make a living. Definitely one of the hardest. But still one of the best ways to make an honest dollar!
Aloha and I will see you in the chat room where no matter what market direction we are in we always stay in control and make money (except for this week--it sure was painful; ouch!). ALOHA!!!!
Sunday, November 04, 2007
Stocks Bounce Around But Rally To Close Near Their Highs Of The Session, After Thursday's Selloff; Bears Can't Get Much Going To The Downside
Stocks ended slightly higher, with the Nasdaq leading the way, as stocks pretty much stayed range bound intraday. The boring trading looks rather tame and unreadable at first glance. But when you consider the selloff we had the day before, it has to be taken as a bullish sign that all indexes closed near the top of their intraday range after selling off initially during the day. So, overall, I would think that we have to consider today bullish considering that the selling had no follow-through and the indexes closed higher.
Confirming the strength in the market was the IBD 100 which rallied 1.2% which was much better than the indexes .1% to .6% gains. This also helped the IBD 100 close up for the week by .6% which well outpaced all the indexes which all fell this week between .25% and 1.7%. The weak week can be taken as bearish by most since we saw the NYSE pop up with two distribution days and new lows constantly beat new highs all week. Even on Friday when the indexes closed higher, the new lows beat the new highs on all indexes. On the Nasdaq it was 58 new highs to 251 new lows, on the NYSE it was 90 new highs to 205 new lows, and on the AMEX it was 30 to 35. So even strong days now have more selling than buying underneath the big cap large stocks.
What some don't seem to understand at this point in the rally is how the market can be rising when so many stocks are breaking down or hitting lower lows. It is simply, really. There are seven stocks that make up 25% of the Nasdaq. MSFT, GOOG, CSCO, AAPL, INTC, ORCL, AMOV each represent 2% or more of the Nasdaq individually. So technically you could have every single stock in the Nasdaq selloff and as long as these seven stocks rallied by a very large amount the index would still close higher. This is why GOOG, RIMM, AAPL, and BIDU are holding us up. These leaders are holding the whole market up. When they go, the market will go.
But while we wait for that to happen, we still have a lot of stocks that are moving higher and enjoying this overall uptrend by the stock market. HMSY, SXE, ATRO, and OTEX are just some of the stocks that are still moving much higher while everyone keeps trying to short every uptick. There have been some great shorts out there in the banks, finance, homebuilders, mortgage, and insurance stocks. But these still don't even come close to matching the returns of top stocks in this market. As long as this overall trend of the market is up, no matter how many stocks are moving lower, it still pays to be long top leading stocks with great growth in their fundamentals. These stocks are still moving up and producing bigger gains than most shorts are producing currently. Until the big boys (GOOG RIMM AAPL BIDU) break, I am continuing to fire my bullets on the long side.
I also have sentiment moving in my favor. With oil rising and hitting $96 a barrel on Friday I guess that helped spook investors, along with the intraday drop in the market, because the put/call ratio ROSE from .94 on Thursday to .99 on Friday. For those of you not familiar with this contrarian gauge it usually works best to do the opposite of what these players are doing. Normally when the markets rise, the put/call false as more players buy calls betting on even higher prices. The fact that prices rose YET more people bought bearish puts shows that sentiment is NOT bullish. Especially when over 40% of those polled by the NY Times in October say that we ARE IN a recession!???! Are you kidding me?
The network news and CNN's blatant bias and lies about this economy is helping this stock market rise. They are creating the wall-of-worry that is necessary for stocks to rise. That is why the stock market is near all-time/seven year highs, despite "this economy being a mess due to George Bush's tax cuts." Give me a f****** break. This is the greatest story never told. 3.9% GDP is NOT a recession. Wake up liberals! The facts are waiting for you to discover them. Lower taxes always equals more revenue for the government when you cut capital-gains and income taxes. Saying anything else is a direct attack on good, honest, common sense filled Americans.
Another thing that attacks my common sense is all these market top callers. I am finding top callers everywhere. DRYS - top. China - top. USA - top. I am going to repeat, one more time, do NOT look for tops. Ride the trend higher and when your stocks start going on climax runs where they start making huge price gains in an almost straight up fashion start taking profits. Only after your stock has topped, closed below the 50 dma, and has either failed to rally back above the line or has rallied back above and then failed right back below should you consider selling all of your big winners. The other clear sell area is the 200 day moving average. I almost will never hold a stock that trades below the 200 day moving average. This did get me out of AAPL early. But big deal. I am still holding longs like IHS, MA, and OMTR which are well above their 50 dmas and are still in very strong uptrends. I have taken plenty of profits in these along the way up but in NO WAY would I ever lose my stake until that 200 dma is broken.
In IHS, for instance, I know many who sold all in March 2006 due to the way it was acting. Then it was May 2007 and then August 2007. The fact of the matter is when you have a big winner with great fundamentals you should never sell the whole thing as long as it is above the 200 day moving averages. The best and biggest winners will never go below this line. Or if they do they will rally back quickly, like AAPL did. Even GOOG broke the 200 dma. But if you notice it never sold off on heavier volume ever while it was under the 200 dma. If you look at BIDU you will see that this winner met its 200 dma in August 2006, March 2007, and April 2007 but never broke it. Just another example of the 200 dma supporting the leading stocks. One more is TNH. This is a high-growth chemical leading stock (still is leading). As you will see it bounced right off the 200 dma in August.
Back to the current market, we are still in a solid uptrend off the August 16 lows and our August 29 follow-through with plenty of leaders doing just fine. But we do have to realize that we are very extended with many leading stocks well above their 50 day moving averages. Stocks like DRYS and EXM are over 100% extended and that is pretty far. So some more consolidation here wouldn't be bad for the stock market. Going up everyday is not the healthiest thing for markets. Low volume pullbacks are violent and fast mini-crashes on huge volume are what is needed to help stocks setup in proper bases so that we can get more leading stocks to break out of sound bases. Right now, we have very few great looking charts out there.
The last great looking chart was in a very speculative issue and it has already lost its luster. For those that are not familiar with APPY go back and look at it on your tc2007 software. Study that price, volume, and BOP. This is what we are looking for in all of our longs. FNDT is one of the nicest longs we have had in a while for a CANSLIM candidate but the lack of max green BOP right before this bounce is a bit discouraging. Still we, at least, have some pretty charts out there. We are just completely void of perfect charts. That is probably due to this rally being five years old. Though I remember when FMDAY bounced at the end of 2003 before going on that huge run. That was the end of the 2003 bull. But still. That was just a minor break in this longer bull market in this great market. The greatest story never told. This is truly as Kudlow says "a Goldilocks economy."
Until this market rolls over and the leading stocks all breakdown like GRMN (which STILL hasn't OFFICIALLY topped yet--it could easily rally back to new highs and run to $150) there is no way I am jumping off the bull train. I will poke a short here and there and hope I get more FAF, SHOO, COH, and CLP type of stocks. But will not look to go for broke on the bear side until those leading horseman die. Until they die, the longs are where the big money is at. You don't believe that to be the case? Well how do you explain what is below? I know. It is a very bullish market and leading stocks are getting rewarded in a very lucrative way.
Aloha and I will see you in the chat room where you can guarantee that I will be there and in control no matter how rough or big the waves get...this, however, is unlike my real-world surfing skills. Have a wonderful weekend.
top current holdings: SXE 74% WG 94% IMA 100% IHS 232% MTL 60% NTLS 65% DECK 188% KOP 52% PTEC 51% ANO 332% OMTR 345% BCSI 76% BPHX 58% CNH 139% MOS 287% HURN 78% DSX 56% LFL 56% ICOC 80% MA 282% SXC 59% EBIX 82% PRGN 53% RICK 50% AUXL 54% APPY 116%
Confirming the strength in the market was the IBD 100 which rallied 1.2% which was much better than the indexes .1% to .6% gains. This also helped the IBD 100 close up for the week by .6% which well outpaced all the indexes which all fell this week between .25% and 1.7%. The weak week can be taken as bearish by most since we saw the NYSE pop up with two distribution days and new lows constantly beat new highs all week. Even on Friday when the indexes closed higher, the new lows beat the new highs on all indexes. On the Nasdaq it was 58 new highs to 251 new lows, on the NYSE it was 90 new highs to 205 new lows, and on the AMEX it was 30 to 35. So even strong days now have more selling than buying underneath the big cap large stocks.
What some don't seem to understand at this point in the rally is how the market can be rising when so many stocks are breaking down or hitting lower lows. It is simply, really. There are seven stocks that make up 25% of the Nasdaq. MSFT, GOOG, CSCO, AAPL, INTC, ORCL, AMOV each represent 2% or more of the Nasdaq individually. So technically you could have every single stock in the Nasdaq selloff and as long as these seven stocks rallied by a very large amount the index would still close higher. This is why GOOG, RIMM, AAPL, and BIDU are holding us up. These leaders are holding the whole market up. When they go, the market will go.
But while we wait for that to happen, we still have a lot of stocks that are moving higher and enjoying this overall uptrend by the stock market. HMSY, SXE, ATRO, and OTEX are just some of the stocks that are still moving much higher while everyone keeps trying to short every uptick. There have been some great shorts out there in the banks, finance, homebuilders, mortgage, and insurance stocks. But these still don't even come close to matching the returns of top stocks in this market. As long as this overall trend of the market is up, no matter how many stocks are moving lower, it still pays to be long top leading stocks with great growth in their fundamentals. These stocks are still moving up and producing bigger gains than most shorts are producing currently. Until the big boys (GOOG RIMM AAPL BIDU) break, I am continuing to fire my bullets on the long side.
I also have sentiment moving in my favor. With oil rising and hitting $96 a barrel on Friday I guess that helped spook investors, along with the intraday drop in the market, because the put/call ratio ROSE from .94 on Thursday to .99 on Friday. For those of you not familiar with this contrarian gauge it usually works best to do the opposite of what these players are doing. Normally when the markets rise, the put/call false as more players buy calls betting on even higher prices. The fact that prices rose YET more people bought bearish puts shows that sentiment is NOT bullish. Especially when over 40% of those polled by the NY Times in October say that we ARE IN a recession!???! Are you kidding me?
The network news and CNN's blatant bias and lies about this economy is helping this stock market rise. They are creating the wall-of-worry that is necessary for stocks to rise. That is why the stock market is near all-time/seven year highs, despite "this economy being a mess due to George Bush's tax cuts." Give me a f****** break. This is the greatest story never told. 3.9% GDP is NOT a recession. Wake up liberals! The facts are waiting for you to discover them. Lower taxes always equals more revenue for the government when you cut capital-gains and income taxes. Saying anything else is a direct attack on good, honest, common sense filled Americans.
Another thing that attacks my common sense is all these market top callers. I am finding top callers everywhere. DRYS - top. China - top. USA - top. I am going to repeat, one more time, do NOT look for tops. Ride the trend higher and when your stocks start going on climax runs where they start making huge price gains in an almost straight up fashion start taking profits. Only after your stock has topped, closed below the 50 dma, and has either failed to rally back above the line or has rallied back above and then failed right back below should you consider selling all of your big winners. The other clear sell area is the 200 day moving average. I almost will never hold a stock that trades below the 200 day moving average. This did get me out of AAPL early. But big deal. I am still holding longs like IHS, MA, and OMTR which are well above their 50 dmas and are still in very strong uptrends. I have taken plenty of profits in these along the way up but in NO WAY would I ever lose my stake until that 200 dma is broken.
In IHS, for instance, I know many who sold all in March 2006 due to the way it was acting. Then it was May 2007 and then August 2007. The fact of the matter is when you have a big winner with great fundamentals you should never sell the whole thing as long as it is above the 200 day moving averages. The best and biggest winners will never go below this line. Or if they do they will rally back quickly, like AAPL did. Even GOOG broke the 200 dma. But if you notice it never sold off on heavier volume ever while it was under the 200 dma. If you look at BIDU you will see that this winner met its 200 dma in August 2006, March 2007, and April 2007 but never broke it. Just another example of the 200 dma supporting the leading stocks. One more is TNH. This is a high-growth chemical leading stock (still is leading). As you will see it bounced right off the 200 dma in August.
Back to the current market, we are still in a solid uptrend off the August 16 lows and our August 29 follow-through with plenty of leaders doing just fine. But we do have to realize that we are very extended with many leading stocks well above their 50 day moving averages. Stocks like DRYS and EXM are over 100% extended and that is pretty far. So some more consolidation here wouldn't be bad for the stock market. Going up everyday is not the healthiest thing for markets. Low volume pullbacks are violent and fast mini-crashes on huge volume are what is needed to help stocks setup in proper bases so that we can get more leading stocks to break out of sound bases. Right now, we have very few great looking charts out there.
The last great looking chart was in a very speculative issue and it has already lost its luster. For those that are not familiar with APPY go back and look at it on your tc2007 software. Study that price, volume, and BOP. This is what we are looking for in all of our longs. FNDT is one of the nicest longs we have had in a while for a CANSLIM candidate but the lack of max green BOP right before this bounce is a bit discouraging. Still we, at least, have some pretty charts out there. We are just completely void of perfect charts. That is probably due to this rally being five years old. Though I remember when FMDAY bounced at the end of 2003 before going on that huge run. That was the end of the 2003 bull. But still. That was just a minor break in this longer bull market in this great market. The greatest story never told. This is truly as Kudlow says "a Goldilocks economy."
Until this market rolls over and the leading stocks all breakdown like GRMN (which STILL hasn't OFFICIALLY topped yet--it could easily rally back to new highs and run to $150) there is no way I am jumping off the bull train. I will poke a short here and there and hope I get more FAF, SHOO, COH, and CLP type of stocks. But will not look to go for broke on the bear side until those leading horseman die. Until they die, the longs are where the big money is at. You don't believe that to be the case? Well how do you explain what is below? I know. It is a very bullish market and leading stocks are getting rewarded in a very lucrative way.
Aloha and I will see you in the chat room where you can guarantee that I will be there and in control no matter how rough or big the waves get...this, however, is unlike my real-world surfing skills. Have a wonderful weekend.
top current holdings: SXE 74% WG 94% IMA 100% IHS 232% MTL 60% NTLS 65% DECK 188% KOP 52% PTEC 51% ANO 332% OMTR 345% BCSI 76% BPHX 58% CNH 139% MOS 287% HURN 78% DSX 56% LFL 56% ICOC 80% MA 282% SXC 59% EBIX 82% PRGN 53% RICK 50% AUXL 54% APPY 116%
Tuesday, October 30, 2007
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!!
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!!
Monday, October 22, 2007
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%
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%
Saturday, October 13, 2007
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%
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%
Sunday, October 07, 2007
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%
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%
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