IBD 100 And IBD 85-85 Are Officially In A “Confirmed Rally”; Excellent Price Action Today Signals Bulls Have Indeed Regained Control Of The Market On The Short-Term
November 29, 2007 | Leave a Comment
The one thing this market should be teaching everyone right now, no matter if you are new or experienced is that it is always silly and stupid to marry either the bullish or bearish side. What we are seeing right now is a stock market that is going to do its best to make sure every single trader out there who is either a perma-bull or a perma-bear gets washed out by the wild (nothing compared to 2000-2002) crazy market.
I am seeing some traders starting to show signs of major fatigue which is a good thing for seasoned traders since the turning points usually come when everyone gives up. However, this time things are a bit different. We just put in what appeared to be–once again, for the third time–a real top in the market. This time, unlike the other two times earlier this year, the selling got every leader, including the horseman, and this time the only sectors that were escaping were only the sectors that do well in bearish markets. Medical, Drug, Biotech, Consumer non-durable, Defense, Food, Beverage, and Telco stocks have all been doing well but they haven’t been doing nearly as well compared to the good shorts in the weakest sectors.
Those big gains on the short side seemed to be confirming the topping market. However, something has happened that needs to force us to put our bearish mode on hold. If you have not taken profits or cut your shorts that have not been working already, well shame on you. You should have done that by now. I have told you over and over to NOT short oversold markets and to not short a rallying market until AFTER we hit resistance. So if you have been shorting heavy the past three days, shame on you.
The Largest Rallies Come In Bear Markets; Stocks Stage Huge Rally On Slightly Higher Volume Marking Day Two Of Rally Attempt
November 28, 2007 | 9 Comments
Today’s gains were extremely impressive, as stock indexes rallied between 2.6% and 3.3%, with the SP 600 leading the way. However, if we just get over the headlines of the market rallying over 3%, and we get down to some internals, we can see that today’s rally just might not be the start of a new bull market. Now, I know that might sound silly, especially since all you heard all day long that the market bottomed. But something tells me that this market might not be done on the downside. That something is history.
The first thing I look for, any time the market puts in a huge rally, in a bearish market environment or in a pullback from bull market highs, is if the volume was heavy. Higher volume than the day before is always important as it is the first sign of accumulation from large institutions. However, just having higher volume than the previous day’s volume is not the end all of all.
The second thing to look for to see how strong the volume is is the relationship of the volume to the 50 day volume average. When the market is up a lot, like it was today, for me to get bullish and not believe it is just a massive short-squeeze I have to see a major jump in volume. If you look at the NYSE and the Nasdaq, you will see that the volume was over the 50 dva but it was barely higher. Compare the volume today to the volume in late July to mid August. The volume that we saw on the downside was much heavier than what we are seeing right now. If that was not the case, the Acc/Dis ratings in the Nasdaq would not still be a C. Now on the SP 500 and the NYSE the Acc/Dis rating has turned into a B but the leading stocks IBD 100 is still very weak with a D.
Will This Oversold Bounce Hold? Depends On Your Time Frame; Day One Of Rally Attempt
November 28, 2007 | 1 Comment
Stocks put in quite an impressive oversold rally today that had many people talking of a bottom. However, is this a real bottom or just an oversold rally that will lead to another selloff? First, it pays to look at the sentiment indicators to see if we had any fear out there. If we did, then we probably put in a bottom. However, if we did not see any fear in the market the past two days then we probably have not made a bottom and instead have made just a short-term oversold bounce.
I know we keep going over these points, but when it comes to trying to find a “REAL” market bottom, it is very important to follow these as they almost always coincide with a bottom. But the put/call ratio is the first one I look at and when I look at it I see an index that fell yesterday during the selloff from .89 on Friday to .88 on Monday. So after making new lows for the month, the crowd was less bearish and making less bearish bets on the market. So there is no fear that. And confirming that, the put/call ratio fell to .83 on today’s rally.
Then there is the VIX. Every single index made a lower low in November compared to their first low, however the VIX did not make a higher high. The VIX did not even break 30 on this most recent decline in the stock market. On top of that, the VIX has already fallen 10% today back to 26.28. The VIX is an excellent index when it comes to judging fear and it is obvious that despite the market hitting lower lows, the index confirms traders were not fearful this time down. I hate to tell you all this, but that is not bullish. Bottoms form when there is either complete apathy or a lot of fear. We do not have that and everywhere I turn on CNBC and everything I read at realmoney.com says to buy this “bottom.”
Selloff Continues As Bottom Callers Continue To Look Foolish; Adding/Establishing Short Positions In The Stock Markets Former Leaders
November 26, 2007 | Leave a Comment
The selling we saw on Wednesday continued today, after a slight one day oversold bounce. The bounce we had on Friday was on a half day and was on no volume so obviously the selling today can’t be too surprising to trend followers as it was very clear the low volume rally would probably not hold. And it definitely did not as some indexes hit new 52-week lows like the Russell 2000. The index that led us up from 2002 is now leading us down as we continue to selloff. This index is now almost 15% off its highs for the year and the major indexes are off between 10% and 11% officially putting us back in a correction mode.
While the trend is down and I went over everything I could think of about the current market during the long weekend, I still have found some very important key technical data that says that we are not done yet. First of all did anyone see the equity put/call ratio in IBD? The market fell between 1.8% and 2.6% yet fear fell as the put/call ratio went from .89 to .88 today. This clearly shows that there is no fear in this market.
This Is How I Short Stocks
November 24, 2007 | 7 Comments
Now that we are in a clearly bearish tape, I want to go over how I prepare for shorts, look for my shorts, what I like to see in my shorts, and which stocks I decide to short. After I do all of this, I want to go over the way I look for my stocks and how I trade. There are going to be things left in and out but if I leave something out I will add to it later in the comments area. Also, in the hopes of not leaving anything out, it is possible that there might be some redundant TA items discussed. Unfortunately, you have to suffer through that, to make sure I don’t forget anything.
The first thing I need to make clear is that this is NOT the first time frame that I have been short since the rally from October 2002. I have a feeling some of you think that I was long the entire time and was never ever bearish before this selloff. That couldn’t be further from the truth. When the selling started in 2004, 2005, 2006, March, August, or now I had no clue it was either the start of a bear market or just a normal pullback in a bull market.
For that, I needed my charts and a few sentiment indicators. The charts I am speaking of are all my charts of every individual stock in the stock market and the sentiment indicators I prefer are the investors intelligence bull/bear survey, the put/call ratio, and the VIX. Those three seem to be more reliable than almost anything else at gaging when the market is near a bottom. These indicators allow me to view where we are at in a downtrend, which allows me to be prepared for the vicious oversold rallies that happen yet not lose my short position.
Stocks Selloff The Day Before The Beautiful Thanksgiving Day Holiday, Surprising Most Stock Traders Who Are Used To A Thanksgiving Rally
November 22, 2007 | 2 Comments
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. I WILL ADD SOME NOTES THAT WILL UPDATE SOME OF THE POINTS MADE ON WEDNESDAY, BELOW IN THE COMMENTS AREA. ENJOY YOUR USUAL LONG THANKSGIVING WEEKEND. ALOHA!
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.
A Very Wild Intraday Session Ends With Stocks In The Plus Column; Day One Of Rally Attempt
November 20, 2007 | Leave a Comment
There is no other way to talk about today other than to say it was very volatile and got the emotions of both bears and bulls moving in extreme moods. The market decided to gap open, move higher on its way to looking like it might be a follow-through day, then rollover and selloff to its LOD, only to then reverse and head higher sending the DJIA and SP 500 near their HOD. The market did back off in the final few minutes, however, and prevented the markets from closing at their highs.
Overall, I would have to say that it was a bullish victory for the bulls as the shorts had the perfect intraday rollover from a bullish open to work with. That kind of rollover could have unleashed a flurry of selling. But the market held well and despite all the talk from all the perma-bears in the free chat rooms the market refused to swoon.
Instead it put in a bullish reversal (not extremely bullish) on higher volume. If we pretend that the market would have rallied from the open all day long, today would have been a follow-through day for the Nasdaq. However, in IBD’s constant changing of rules, it shouldn’t matter as one index undercutting its lows (as the DJ and SP did the day before) negates the rally. However, IBD was still looking to call today’s move higher a follow-through.
So Much For A Bounce-Maybe We Will Get One Later This Week; Stocks Officially Kill Rally Attempt From The 11/12/07 Lows
November 19, 2007 | Leave a Comment
I expected that we would get a bounce as oversold as we were coming into Monday. But proving to EVERYONE, once again, that you never know what the market is going to do, the market decided to selloff. The only good news, for bulls, about today’s selloff is that the volume was lower than the volume on Friday. However, Friday’s volume was skewed to the up side thanks to triple witching of options. Still, the damage done by the selling was bad enough that volume really doesn’t matter.
At this point it would seem that we have come too far too fast on the downside and that a bounce must be soon. Well, if the market can’t bounce when the fear picks up in the put/call ratio and the market gives oversold readings all over the place, then maybe we shouldn’t expect a bounce. And even if we get that bounce should probably not think about going long that bounce because it is obvious there are no large bids for stocks currently.
One of the oddest things I saw today was that the VIX barely moved while the DJ, SP, and NYSE decided to fall 2%. With all of those indexes now below their recent lows on 11/12, the VIX should now be making a higher high. However, it has not and in fact is at a pathetic 26. This is a very complacent level and indicates that despite the selling no real fear has entered the market and even if we do bounce we should continue to expect the market to selloff.
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-Through)
November 17, 2007 | Leave a Comment
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.
Stocks End Lower For The Sixth Day Out Of Seven As Volume Comes In Lower; Oversold Rally Should Be Expected Here
November 16, 2007 | Leave a Comment
After a pretty flat open, stocks pretty much held steady until around 11AM when the downtrend started showing up. The trend stayed down most of the day, adding to the pain of the bulls, until the last 30 minutes of the day when a short and quick rally helped send stocks off their lows of the day. However, it was still a day mired in red and the SP 500 and Nasdaq each lost 1% and the DJIA almost managed a 1% loss losing .86%.
The good news for the bulls was that volume did come in lower today, after yesterday’s lower volume selling. The fact that the selling the past two days has been smaller than the previous day’s lower volume rally shows that the market is a bit oversold here and that an oversold Thanksgiving rally has to be expected soon. Combining the lower volume with the fact that the market has been lower six of the past seven days and you have some high odds of a rally coming to fruition.
There are some other technical items that also make me think we have to expect a rally soon. 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.
