Another Wild Intraday Session Ends With Stocks Higher On Lower Volume; Some Very Nice Charts Are Starting To Be Created
March 5, 2008
It was another insane day for market participants as the market started off on an impressive note. But, just like the past umpteen amount of days, stocks then sold right off erasing all of the gains, and then spent the final two hours really doing nothing. But that is our market recently and the one thing that we can at least say about that is that the directionless market hasn’t changed thus not throwing us for any nasty surprises.
There was one surprise for traders today and that was the news that ABK would not be bailed out. This caused ABK to fall 18% today and despite the stock looking like it bottomed back in January, in fact, just might have been a temporary stop on the way to 0. There are many other stocks in this group that are in this position as PMI, MBI, and MTG are all, in my opinion, more-than-likely going to zero. I only wish I wasn’t focusing on longs so much when they broke down in October. I do regret not getting short these horrible stocks.
Another stock I regret not getting short is TMA back in August. This stock here shows the importance of patience. As all of you know, I do not cut my FINAL losses until a long is either below the 200 DMA or the short is above the 200 DMA. There are, of course, exceptions. But I would say 80-90% of all stocks fall under this requirement, once they have substantial gains. TMA is just one of those examples. Had you lost your patience with this short come the rally in February–which never closed above the 200 DMA–and covered it all, you are probably feeling a little silly. You should; your lack of patience just cost you a 92% gain on a short in seven months!!!!!!!!! If that is not hot, in a bear market, I do not know what else is.
Not all shorts are going to act like ABK, MBI, or PMI (the price has stayed below the 50 DMA the entire way down). Most of them are going to do what TMA did. While it is always OK to take big gains after a fall like that, to take all of the gains off the table before knowing that the actual trend has changed is very silly.
Before I get back on talking about this current stock market I want to make it clear that stocks like ABK, PMI, MTG, MBI, TMA are the reasons why you should NEVER play falling-knifes. If you buy stocks in uptrends, THIS CAN NOT HAPPEN. You can get a few gap lowers here and there, in a bull market. But usually by the EOD, those stocks will be back near the HOD. This is why gap lowers in an uptrend never scare me out. As you can see by most charts, when a stock is in an uptrend, gap lowers usually are supported as long as they are near a moving average or key support. It is the time when those stocks gap lower are not supported and further selling on heavy volume occurs that it is time to leave. But as long as you are not buying stocks in downtrends you can not suffer these kind of losses. Cutting your loss short keeps you out of horrible stocks.
Why is it important to cut our losses? Do you remember a great long for us named NAVI that we completely got out of for a nice gain in December? Take a look at the “buggah” now! Even if you did have too big a position remaining, and after the day of the gap lower on 12/10, you sold it all, you are still doing much better than the “Cramer, Marcin dip buyers” did going after NAVI. Since our final sell (for a profit), NAVI has fallen an insane 50%. Thank God for the CANSLIM methodology. I will never have to worry about another NAVI happening to me. And trust me it happens more than once. Let’s take a look at another one.
Do you remember a volatile little gem that we gave a chance to named LGTY? Not only did it fail once in October on the breakout. It failed again in December when it tried another move. The second failure should have been a huge warning that something was very wrong with the stock. I mean, heck, if a stock forms two solid bases on strong accumulation and low volume and fails both of them and the market is trending lower, you better get out of the stock. If you didn’t you sure are hurting today as LGTY gapped lower and sold off today for a nasty 41% haircut. That is a 41% devastating hit. If you did not cut your final loss when we did, you are now down 52%.
Two stocks, one made me money, one left me with a small loss; to many, those stocks ended careers. If only those who were on the other side of the trades would have known a few basic facts about technical analysis, the painful losses could have been completely avoided.
These examples go along with the IMA, C, and GS columns that I have published over at Realmoney. I doubt Cramer is reading them but I pray his subscribers are. Because had they listened to TA 101, they would have saved their ass instead of possibly still buying IMA–a stock Cramer is still “not passing up.” At least he is buying AUY which is a stock in an uptrend. I only pray that one day he will realize that the stocks he buys moving up continue to move higher while the stocks he buys in downtrends selloff at vicious pace. Maybe one day but I doubt it.
Back to the market, despite the wild sessions that we have been seeing recently there are still a lot of high quality CANSLIM long candidates showing up that are producing nice slow steady gains. As long as these commodity related longs, with a few pollution control, medical, and other defensive names, keep setting up and breaking out of well formed price/volume/BOP patterns I will continue to poke around and get long a nice basket of leading stocks. Since there is no telling of what a stock might do in this market as some stocks have been destroyed overnight, I will keep the longs spread out as it seems every stock in these leading sectors are doing well but there isn’t one particular stock FLYING in the face of the others.
Along with these nice longs, though, I figured I would be slashing shorts that are making either real bottoms (based by volume and price action) or are breaking above key moving averages. However, all of my shorts are trending sideways, moving lower on high volume, rising on lower volume, trending sideways, and moving lower again on higher volume. So therefore the shorts that I have seem to be ripe for more lows. The bad apart about that is that all of my shorts, obviously, are in very weak stocks which happen to be in more innovative sectors of the economy.
Commodity longs are fine as they make the same dollar that every winner does. But a sub-25 VIX is going to make it hard for AUY to produce a 550% gain. I would be ecstatic with a 100% gain. Along with those, food, steel, silver, oil, solar, medical, agricultural, machinery, pollution control, and chemical stocks are looking great but I doubt we are going to see anything fantastic there. And as for the stock I said I wasn’t going to name anymore until it finishes its perfect chart kind-of did that by losing its max green BOP. At least it is still green. But it is also moving to new highs which if it continues to do is great for my current position. But bad for the HOT chart that might have become a large position. Oh well, I am sure there will be more in the future. Heck, maybe NEU can go sideways for five weeks. That would be HOT with its price, volume, and max green BOP pattern.
But besides these commodity stocks, which are bear market leaders, not much else wants to lead. Those sectors listed above are not good for the overall health of the market and basically signals that we have a major dose of inflation hitting us across the face. Even when you look at the new highs to new lows it is still very clear where the market is leaning towards. There were 62 new 52-week highs, basically ALL commodity or defensive related, to 244 new 52-week lows. On a day that the stock market was up, that is not good at all. This tells me that the market does not want to rally. It tells me that inflation is gang-busters which will cause commodity stocks to probably go parabolic (look at all the powershares DB funds on an arithmetic chart to see the exponentially growing price and volume) thus giving us good returns there and horrible returns at the check-out lane.
That with the large amount of new lows and all the horrible economic numbers that keep coming out, like today’s ISM index still low reading, is not going to bode well for this market in the long-term. There still are no max green BOP perfect charts (NEU is now the closest), there is not any huge accumulation in the stock market indexes, there is not enough fear in the sentiment gauges, and there are no real innovative and technology leaders in the industry groups that are starting to setup beautiful green BOP filled well-formed bases. Instead stocks like AAPL MSFT BIDU GOOG show you how the innovative technology companies are doing since the November top.
The bottom line is that this mess will continue tomorrow and could continue for a few more days or a few more years. NOBODY actually knows when this market is going to bottom or fall apart again. The ONLY thing we can know is how to react to either an upside breakout, a downside breakout, or more consolidation. This will allow you to make money no matter which way the market decides to go.
The most important thing is to be patient and update your watch list with fresh candidates as you wait for a new bull to start. And when it starts I promise you I will be there. Am I missing the longs now in XIDE or AUY or MTL or JRCC or GEOI or BVN or COIN or CMP? So when the next 1999 and 2003 comes around, with all of these charts that will look exactly like my ‘past big winners,’ there will be no way in hell I will not be ready. That day sure isn’t today. Not when the put/call goes from a near-fearful reading of 1.27 down to 1 today after a lame rally that saw ABK not get bailed out. That news and the selloff that followed should have kept that put/call up there. Instead it fell to 1 and the VIX dropped to sub-25. People are full of fear and too pessimistic? Maybe in the short term. And that is probably why people are looking for shorts, WHEN I AM GIVING THEM SOME VERY PRETTY AND GREEN LONGS. This will also be why if another low volume rally starts, I will be excited to short it again. That would put the former leaders around that historically high odds time to short stocks. FIVE TO SEVEN MONTHS AFTER A STOCK TOPS. This is when they fall the fastest, hardest, and in the least volatile manner down. We will see if history can’t repeat itself.
For those that still are looking to buy the NASTY AND UGLY stocks that are below the 50 and 200 DMA’s, you need to go to my most recent Realmoney columns on IMA, C, and GS. Read those three columns and tell me it you don’t see the same thing in all three stocks. Just like you will see the same thing in all of my ‘past big winners.’ HISTORY WILL FOREVER REPEAT ITSELF, NOTHING IS KNEW UNDER THE SUN, AND IT IS NEVER!! DIFFERENT “THIS” TIME. Aloha and I will see you in the chat room!
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I’d love to read those realmoney articles, but I refuse to pay for a subscription at full price at Cramer’s site. Sorry! I’d much rather keep subscribing here.
ROFLMFAO! I love this stuff. You should sign up for 30 days and read all my columns at once then when it finishes up cancel. LOL.
I will send this to my editors so they know that Cramer does keep a lot of people from subscribing.
But don’t forget you are cutting your nose off to spite your face.
There are a lot of very great contributors:
Helene Meisler
James DePorre “RevShark”
Mark Manning
Alan Farley
Steven Smith
Dan Fitzpatrik
also sometimes the columnist conversation can be a great laugh. But for $20 a month, the site is cheap.
I have been reading and making thestreet.com, realmoney.com a part of my daily routine for over ten years. I started reading thestreet.com in 1997. At least I believe that is when it was. It was new then and I knew it would be the best. It still is. There are a lot of great people there besides Cramer.
If you can afford it, seriously, it is worth it. It is NOT! a coincidence that the BEST active investors in my chat room were all realmoney.com subscribers before subscribing to me. If the best subscribe to RM. Maybe you should too.
Before RevShark wrote for RM, he also read them and thestreet.com.
That is not a coincidence. But…I definitely understand.
Joshua:
Today’s commentary (3/5/08) is a lesson worth reading. For the past year I have been day trading. The result was that I “made” less than $10K in profit – but generated over $100K in commissions!
I have subscribed to a number of sites over the years: marketmentor.com (Fitz’s site); wizards of wall street; realmoney.com, sharkinvesting.com, etc. Now I am down to just realmoney.com, Rev Sharks’ site and yours. I have been investing or trading for more than 30 years but I can honestly say I have gotten more good ideas for your site in the last month that I have gotten from all of the sites combined.
Hi Joshua,
I am mostly in cash, but have been making consistent money recently off your short picks, even during the last month (CETV, CME, MYGN, SIGM). Thanks!
I have been reading your commentary here and on the earlier blog site for more than a year now, and it has helped me immensely. I was having a hard time making money on longs during 2007, but at least for now, the shorts are treating me well.
My two cents is that when I look at the NASDAQ chart, I see a ton of downside resistance around 2200-2250, the bottom of the current trading range, plus also if you connect the lows of mid-2004, mid-2006, and early 2008. But if breaks through to the downside, it will be off to the races again for the shorts.
Tom
THANK YOU TOM AND JAMES. I DEFINITELY APPRECIATE IT.
I APPRECIATE ALL OF YOUR KIND WORDS.
GOOD ANALYSIS THOMAS. IT LOOKS LIKE WE ARE GOING TO DO THAT.
LAST NIGHT, AFTER GOING OVER MY CURRENT SHORTS I WAS WONDERING HOW COME THERE ARE ZERO THAT NEED TO BE SOLD (I SOLD OFF CETV BECAUSE OF THAT INSANE VOLUME AND SUPPORT YESTERDAY). BUT BESIDES THAT NONE OF THE OTHER STOCKS GAVE A “GET OUT” SIGNAL.
NOW, AFTER LOOKING AT THE MARKET SELLING OFF AGAIN, IT MAKES SENSE. HOWEVER, THE LONGS FROM YESTERDAY ARE ALL HOLDING UP ABOVE SUPPORT AND THE STOCKS THAT ARE PULLING BACK ARE DOING SO ON LOW VOLUME. SO I CONTINUE TO FEEL LIKE THE MARKET NEEDS TO BE SHORTED ON LOW VOLUME RALLIES AND COMMODITIES NEED TO BE BOUGHT ON LOW VOLUME PULLBACKS.
long: commodity stocks
short: the market
So much for the bounce I expected those nice longs to bring.
This is why I keep saying cash is king.
I thought maybe something could develop. But when you get a bunch of nice longs and this is how the market acts, that is not good. Not even CMP cooperated by making a max green BOP flat base. It continues to drift higher and now BOP going the wrong way.
It is still all about the shorts.