A Very Wild Intraday Session Ends With Stocks In The Plus Column; Day One Of Rally Attempt

November 20, 2007

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.

I guess I understand why they would have don that, since the Nasdaq did not eclipse its recent lows until after the morning gains but still with the other indexes all failing and the Nassy being, possibly, the only one to follow-through I believe they would have made the wrong call. Remember, that this also goes with follow-through days. Technically, if only one index follows-through to the upside (but not right after a rally failure–one or two days) it is time to get bullish and look for great longs. If you don’t see any great longs, like we wouldn’t have if the Nasdaq would have followed through today, then you know not to get bullish and instead should be vigilant for a rollover.

Which is what I expect this bounce to eventually do. Since I only had one new short tonight and when I go over all my charts I can see that there are a lot of nice charts but that none of them are very exciting I have to think that this rally will not last. However, I just had eight new shorts last night (they didn’t do that bad; there were no full sells) and the market moved higher and if you remember right before the market broke (confirming that a big move down was coming; we got that too) I had a lot of longs and instead the market sold off. So maybe the low amount of longs is actually bullish and the Thanksgiving rally will start again. I wouldn’t really take that to the bank with a stamp of guaranteed on it but this is seasonally a very bullish time of the year.

The Fed, however, could kill that holiday spirit, if market players decide to worry too much on the fact that the chances for a rate cut before the year is over is out the window. That would take away the one remaining possible bullish catalyst for this market. The fact that there is no good news coming out of the media (imagine that!!) and the problems in the financial/homebuilding related stocks looks to be growing does not help the market at all, especially if the players feel that the Fed is not out to help them.

And that is exactly what the pros must be thinking because the charting landscape is littered with ugly and red charts everywhere. The few green stocks out there are either in historically bear market leading sectors (insurance, medical, drugs, consumer durable, food and beverage, tobacco) or in stocks that trade an average of 2,000 shares a day. So the quality that we had in 2003 and 2004 is definitely not here right now. Even the quality in August this year is no longer there. However, as quickly as this market turns, if we don’t eclipse today’s lows in the next three days and we have another up day over 1.5% on stronger volume then we will be back in bull mode again.

The bottom line at this moment is to not be a bull or a bear in a hardcore manner. Stay agile and take the great short setups and take a little bit of the long setups from beautiful chart patterns (like FFH). Even though many of these fail, even if we can keep a win/loss ratio around 33%, we should be able to come out on top, if we cut our losses before an 8% loss and we get 25% plus gains in the ones that work. Combing that with the shorts we are finding is a great way to make money as we wait for a market bottom so that we can go back to making big money again.

I still believe in the longer-term we are building a top. But I am not a big enough arrogant jerk to marry my analysis and will turn if the market turns. If BIDU, GOOG, RIMM, AAPL, and the Nasdaq hit new highs and the HORRIBLE AND UGLY charts of the once leading SP 600 and Russell 2000 start retaking the 50 and 200 day moving averages, you better believe I am going long and going to try to find the best looking charts out there with great fundamentals. I believe deep down in my heart that that is the best way to trade, if you have more than an hour to give to this daily. As Jim Cramer said on “mad money” tonight, “The riskiest way to invest is to buy and hold.” To add to that, in my opinion, the best way to invest is the William O’Neil CANSLIM system.

There just isn’t anything better. If it wasn’t for that stupid paper, I wouldn’t be where I am today. It not only saved my life (as horribly sad as that sounds; even though it is true) but has allowed me to live almost eight years on Maui trading stocks for a living. That is a pretty good ringing endorsement if you ask me. If you have the time, you should definitely take the time to master this system. Then you can be in markets like this and think like me….this is lame.

Why do I think it is lame? Don’t forget some of us have been around a long time. We remember when 2% moves from one day to the next was very calm and an up 8% day was volatile. What would some of you do if you were short, with the long term trend, and on 1/3/01 at the closing bell the NYSE is up 2% and the Nasdaq is up 14%. Go check your charts, it happened. That example should be a clear example of why it is so important to not short a market that has been moving down for a prolonged period of time. The Fed, in a collapsing market, if you just short willy nilly could wipe you out one day. Never short an extended market or any stock down for many days in a row and extended from either the 50 or 200 day moving averages.

Aloha and I will see you in the chat room where some lucky subscribers got to see a day long personal meltdown. Trust me, if you were me, it would have happened to you to. I am sure a lot of others would not have been able to even write commentary tonight if some of the shit that happened to me happened to you. My addiction, love, and passion is your gain and my pain. I hope everyone is making some to a lot of money and if you are not I am at least praying that you are learning to save yourself from serious losses.

If anybody ever has any questions, never be afraid to ask. Aloha and I will see you in my chat room!!! (the real goodbye)

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