A Weak Open Lingers All Boring Day Long As Stocks Close Lower On Lower Volume; ORCL Disappoints AH
March 26, 2008
It was an extremely boring day on wall street today as a pair of really negative economic reports failed to get the bears to take advantage of the macro backdrop. Considering durable goods announced by the Consumer Department fell 1.7% in February, crude oil bounced $4.68 to $105.90, and new home sales were the lowest since 1995 there was plenty of reasons for the market to take the gains and hammer them into oblivion.
But that didn’t happen. The market did fall on the day but the early morning losses found some buyers and after one more turn near the final hour stocks closed with minor losses, with the DJIA and SP 500 leading the way lower with a .9% loss. The good news, though, is that leading stocks, via the IBD 100, rallied .2% on the day and the SP 600 only lost .4%. So there was some relative strength in the leaders and the small-caps which is always what you want to see in a rally.
Too bad another thing you like to see is volume. Since normally heavy volume is good for rallies, it can’t be that great that we constantly rally on lower volume. However, when those low volume rallies are followed by lower volume pullbacks it is possible that in the future we could have a market rotate into a market where heavier volume comes from the combined low volume pullbacks and rallies. This is what happened post July 2002 to the October 2002 bottom.
So things are getting just a little bit better as we are not seeing a pickup in distribution and the hope of bulls is that this will convince the cash on the sidelines to come back into the market. And you better believe there is some cash on the sidelines. I think each day for the past two weeks I have seen at least one of the two mutual funds profiled in IBD carry at least 10% cash. I have seen quite a few 20% cash positions and simply can NOT remember a time since 2002 that I have seen this number so high. Eventually this cash has to come back in to the market but nothing says they can’t let the market selloff on lower volume one more time. And nothing says that that selloff can’t be a 10% or greater decline. That would really have the bottom callers looking stupid. That is if they still actually have any credibility after telling us anywhere from 3 to 10 times that the market had bottomed from November to the recent lows. So take their commentary for what it is.
I am hoping some of these leading stocks that are now showing up in my scans near their old highs with OK-decent (still am missing HOT HOT HOT charts; you do NOT have powerful bull markets WITHOUT these) charts can turn into HOT charts. In fact, I am praying that maybe with a few weeks to a few months of work they can maybe create and setup in one more low volume base with green BOP and then all breakout on huge volume. If this happens, I will be much more bullish on this market as I will have my green charts back in my possession.
If you have a subscription to realmoney.com, you can see 11 stocks that I profiled today with BEAUTIFUL chart patterns that with just a little more work could ALL be great longs. However, like I just said, they all still need work. And when I say work I mean tighter bases with lower volume and more max green BOP and a market with a lot more volume in it on the up days. If this doesn’t show up, there is no way I will be participating in this rally on 400% margin. No I will instead carry a few long positions higher, take those strong gains, and then will look to load up on my ex-leaders from the 2003-2007 bull market. Without a ton of accumulation in the indexes, EVERY rally is suspect.
A testament of that might be ORCL which has fallen 7% AH on either a miss or coming in-line. To be honest, I am not sure what it is, because I really don’t care about lagging stocks and there is NO DOUBT about it–ORCL is a lagging stock. Instead of paying attention to ORCL, which is important to the market, I was watching GOOG which also fell 5% AH. Depending on where they open in the morning, it could be a very weak market I am looking forward to waking up to. And trust me, waking up at 7AM HST, which is 1PM EST, is really fun to do when these days happen.
While everyone wakes up and tries to “play” the market and wonders what is going on, I get to wake up, see what excitement came about, and then come up with a game plan. This has always worked much better for me. Waking up before the bell rings and watching the market live and having to make impulsive decisions is not my idea of fun or profitable. If this methodology created the huge gains and could get me an 80,000% gain in ORCL in 10 years then I would do it. But I know better.
I know that right now CASH IS KING in this market where stocks really do have a very rough time producing any kind of gain. That is why I must recommend for everyone, ESPECIALLY NEWBIES, that if you go long a stock and it does not work out immediately, think about cutting some of it right away. Besides that make sure, no matter what, that if the stock drops 5% after you purchase it that you cut 20-25% NO MATTER WHAT. Never let a stock fall more than 10% NO MATTER WHAT. And if you go long make sure you keep it very small.
If you are a newbie and you are thinking of going short, you need to FIRST make sure you are proficient with making money on the long side during multiple time frames. If you do not have a history of making gains during bull markets that beat the market, well then, it is time to move on and give your money to someone who can handle the pressure that naturally come with this business.
Instead of focusing on ORCL or CSCO, I recommend trying to focus on stocks like WW, CLR, FST, XEC, DVN, RBN, or ODFL. Besides that, don’t forget, if you are new to this game, to always be focusing on the leaders in weak markets like the one we are in right now. As the market moves along and comes closer and closer to a bottom some of the leaders near the top will drop off but the ones that stay at the top will come out and become the next leaders. Just like how Chinese internet stocks started showing up after June 2002; that was a whole four-plus months BEFORE they would bottom and then blast off in October. So our leaders of tomorrow will show up in the bear market that we are in. But until we get more innovative groups near the top I doubt anything we have here is the next Chinese-internets of 2002-2003.
Therefore, let’s say it one more time, CASH IS KING! New lows are still beating new highs–today it was 71 to 38, the put/call fell to .91, the VIX is at26, the P/E ratio of the DJIA is 62.8, the market is getting overbought based on the oscillators on the bottom of Helene Meisler’s columns at TSCM, laggards and defensive stocks are leading, and bulls are at 36.7% and bears are at 41.1% in the investors intelligence survey. This is a very mixed market.
There is no doubt about it, unless you are focused on the exciting Household, Retail-wholesale building products, Tobacco, Building, Transportation, Metal Ore, Diversified Operations, Chemical, Machiner, Oil&Gas, Energy, Medical, and Pollution Control stocks, you are going to have an EXTREMELY difficult time making money in this market. The slightly good news is that two Semiconductor stocks made new highs today: RMBS and RBCN. EVERYONE and their brother always likes to see these stocks leading as EVERYTHING innovative, high-tech, and part of rapidly growing industries need a lot of these semiconductors.
Maybe when we can get more technology, computer, software, internet, and hardware stocks showing up in my long scans, we can put in a great bottom. Until then, ONE MORE TIME, CASH IS KING! Great luck out there and I hope you all are enjoying this market as much as I am. Can you get rich here? ABSOLUTELY NOT. Can you keep all your money while everyone else loses it? ABSOLUTELY YOU CAN! And if you do not feel as good about losing 1% compared to a market’s 20% loss as you do as gaining 100% to the markets 20%, you are not at the level you need to be. Once you have learned to enjoy saving money in bear markets as much as making them in bulls, you will be certain to ALWAYS be able to profit in EVERY market environment.
Aloha and I will see you in the chat room, where I am EXTREMELY PROUD that I do not EVER have to watch the first 2-3 hours of the market. How boring would that be for me and my scans? zzzzzzzzzzzzzzzzzzzzzzzzzzzzz. ALOHA!
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Dear Mr Hayes,
I live in S. Korea, and because of the time difference I would love to know how you make trades without watching the market. Please tell me, in detail if possible, how you do this.
By the way, I think you may be revolutionizing my way of trading. I have been successful swing trading, but I find that your style might be more in keeping with my lifestyle, and I read your commentaries everyday with great interest. Please keep up the great work!
Kerry Desrochers
For starters read the “Technical Questions” on the FAQ page: http://www.bigwavetrading.com/faq/
Thank you Josh!
I am so sick and tired of all these bottom callers trying to persuade us that this is the real bottom..while making sure that I forget that they’ve been saying the exact same thing since November. “Fish for the bargains at the bottom of the barrel”? yeah right, you get what you pay for…we can clearly see that these rallies are on low volume (but most people don’t read the charts) and cash is still very much king.
For all you newbies coming to this site here are a couple pieces of advice:
1. read the books, then reread the books
2. learn CANSLIM
3. study the charts of the past winners
4. subscribe to bigwavetrading.com
follow those four steps and your portfolio will thank you.
-surfbird
S. Korea! wow.
Kerry…no need to watch the markets intraday when you trade the way we do. Just need the open/close prices. Intraday is just noise!
No need to go into detail, evaluate open and close.
Joshua,
I’ve followed your posts since the Investors Paradise days. Thanks for the insight on your investing techniques. I apreciate being able to read your daily column again. Looking forward to the day when I will be a member here.
Ryan
This market is begging those who have OVERTRADING Disease to trade this market. Cash is Truly King.
Thanks for the specific newbie help today. It helps to watch the stocks you mention, even if cash is king and I’m not actually trading them.