Bullish Intraday Reversal For Second Day In-A-Row Has Stock Indexes Closing Near The HOD (And Is The Reason Why You Should Not Panic Sell And Watch Stocks Intraday); Leading Stocks And Semiconductor Stocks Take Charge Which Is Just What You Want To See During A Rally

April 26, 2008

I am not sure how strong and long this commentary is going to be as I have been surfing some giant waves and have been spending the past two days at the beach most of the day watching the surfing contest at Ho’okipa amongst the HS ripping groms. These kids paddle out into 10 foot face POWERFUL HEAVY waves and charge like it is nobody’s business. All of these kids surfing today were experienced but if any of them would have been newbies THEY WOULD HAVE BEEN KILLED as the waves were way too much for most mortals. These amazing kids not only surfed these waves but a lot of them now need to go spend an extra $300 to $800 for new boards as I saw at least seven surfboards break in-half! Yes the waves were that big.

What is the point of that. The point is that the windy, rough, and scary conditions were almost too much to hold a contest and the fact they did today was pretty dangerous. I take the conditions to at Ho’okipa and see a correlation to this recent market. The only exception is that the big waves do not relate to big gains and big trends but are like the volatility and lack of follow-through in this market. This market is not a market for newbies. Newbies paddling out into 10 ft. waves that are wind blown and AS ROUGH AS CAN BE is a disaster waiting to happen.

Recently, I saw some people get upset that they lost a lot on GU. Why? Why was GU a large position? There was NOTHING perfect about it and I made it clear this stock was not a large stock. Yet some thought it was worth paddling out, after they watched BRKR’s board break and wash up on the shore, and they went long a NOT PERFECT stock GU. GU hurt when it fell over 15% which is about as painful a loss as I can handle. Luckily I had nearly nothing of this stock as I hate buying IPO’s that are NOT loaded with max green BOP, huge volume, and a 99 EPS rating in IBD. If you are paddling out into the waves of this market right now, you are asking for trouble. You could drown, hit your head and die, break your board, or break your back if you get hit with the waves in the conditions we have right now. Instead MOST OF YOU should still be on shore waiting for the wind to die down, for the lines to clean up, the crowd to go away, and for the clean peeling sets to roll through. When that lines up perfectly, then you paddle out and CHARGE!!

Until the conditions are perfect, MOST OF YOU newbies need to seriously put the gun away (stop going heavily long on margin) and need to get out the longboard (buying big-cap stocks breaking out of sound patterns with great earnings and HUGE average daily volume). Once you get comfortable buying the big cap stocks and dealing with this methodology, then you can get nuts and move your way down to the small-cap stocks where the big money has always been. Value or growth, it doesn’t matter to me, as long as the waves are good (stock is breaking out from a sound pattern).

I am not picky, I will surf anything, AS LONG AS THERE ARE WAVES. I know how to hold 100 stocks. Not only can I hold 100 stocks I know how to keep 90 of them 10% and 10 of them 90% of my account. In this market, I think the only safety is by being long quite a few leading stocks, and as the week goes, move the money out of the weak to the strong. That is why you see me long a lot of stocks. What most of you can’t do is follow that many. Trust me, my first few years I could not either. But as I progressed I noticed I would hold more and more stocks as I learned how to hold for the BIG GAINS. And since I have not been completely confident with this market since April 2006, when the uptrends stopped being “easy” and downtrends stopped being “easy.” Now everything is hard to make money in as a low VIX continues to pressure gains. It is like a long lull waiting for big swells. We constantly get waste to chest high waves, while we are waiting for the double overhead barreling sets.

This massive swell will come again and heck it may start shortly as the SOX index, Nasdaq index, and IBD 100 and IBD 85-85 indexes are definitely “rounding out” bottom patterns which makes them look like they could be putting in a real bottom here. The last bit of confirmation will be volume. Once I see a massive set roll through that is lined up perfectly, then I will drop in on the perfect stocks that are setup like my ‘past big winners.’

BTW, I have decided to split up my ‘past big winners’ by year so that I can move away from 2003 (there are still 10 stocks to list that were up over 100% that were loaded with max green BOP and volume) and start posting a few winners in each of the years from 2004-2007. So you can look forward to that and then if you don’t believe THE EXACT SAME PATTERNS THAT YOU SEE IN 1999 2000 2001 2002 AND 2003 EXISTED IN 2004-2007, I AM ABOUT GOING TO PROVE TO YOU THAT WAS NOT THE CASE. Even if we do not get any in 2008 (and so far it does appear that we have two of them that start with letters of the alphabet that are near the front of the list), you can bet your life’s saving that by 2009 WE WILL GET SOME.

Well, after this odd start, I guess I will get to the action. Overall, for Friday, I was very happy that the market was able to put a second day of an extremely bullish intraday reversal. This was the second day in a row I watched traders “semi” panic and either sell stocks intraday or talk about selling stocks when some stocks sold off hard. I can guarantee that if I would have been awake, in the room, watching the other forums and chat rooms, and watching my stocks sell, I can not deny the fact that it is possible that I would have sold a little bit of DAR and ICO on Thursday. Those stock had some EXTREMELY bullish reversals that at the time of the selling appeared to be major reversals. By the EOD, they were back to being in a normal uptrend. Thus proving that intraday trading, when you are trying to HOLD for the BIG LONG MONSTER STOCK gains, is NOTHING but a dangerous and a potentially disastrous situation waiting to happen. How many of you panicked out of ICO and DAR on Thursday? If you did, make sure you learn your lesson.

When is it OK to sell a stock intraday? BRKR was a perfect example. BRKR gapped BELOW the 50 DMA thus making it OK to fully sell as soon as you wanted to. I, however, believed the trend would be moving back up as this stock was under some HUGE mutual fund growth (the past four quarters mutual fund sponsorship increased 65 73 83 and 87). However, I guess they decided to not support the stock immediately as it continued to selloff throughout the day. I apologize for telling some people to not fully sell when it was clearly under the 50 DMA. That is my fault and I did cost you a little bit of money. However, after the first break you saw me sell 25% (if you are at least a gold subscriber) and many subscribers sold 50% to all as they are not allowing the stock to move against them after they go long. This market is VERY unforgiving.

But with every BRKR, there is a WSCI CMP MTL GENC GEOI MCF EBIX and MTL (all longs–MTL CMP were very large positions–are up between 40% and 155% the past year). So as you can see the market is not that bad. But it is definitely not that good either and if any of you have done your research on my website and studied some of my past big winners from 1999-2003 you will see that the patterns that showed up then are not showing up now.

And since so many of you are demanding to see charts from 2004, 2005, 2006, and 2007, I have asked my Web Designer to split up the ‘Past Big Winners’ into years. I still have 10 longs that I held in 2003 that gained over 100% but they were all small positions–my biggest positions were HIL, TRAD, EPIC, EVOL, TASR, FMDAY, USNA, EGHT, SIGM, and SWIR in 2003–so I have decided to move on to the years of 2004-2007 and I will add one to each year rotating as I go along. That way you can, by the end of the week, hopefully, see a ‘Past Big Winner’ from each year so you can see the power of this methodology works AT LEAST!!!!!!!!!!!! (LOL) one time per year. And I don’t know about you, but if I could only invest one time during the year and make a killing while getting to surf ALL DAY, I would be in heaven. However, normally there will be about 5-20, depending on it being a bear market or a bull market. Last year, there were 3 perfect longs and about 5 perfect CANSLIM (but not chart wise) longs. So you can all look forward to that as some of you have wanted to see the charts for a while now.

Now, getting back on track (I told you I would be all over the place after getting too much sun, getting too much surf, and eating too much food), there are two things that are happening in this market that make me very happen on a price basis. The IBD 100 index is leading the market higher, which is a confirmation of the strength (albeit however small it is) in the overall market, along with the Semiconductor index. The SOX is a sector everyone always wants to see moving higher because EVERYONE and their brother remembers 1997-2000. People like me will NEVER forget. Times were good and RMBS was the stock EVERYONE was in love with (minus INTC, OF COURSE). However, right now, the SOX is drifting higher and whenever I see that, along with the IBD leading the market, I get a smile on my face. I hope this is a good precursor for this market. If it isn’t, I will not be surprised but I am glad to see this index getting a mini-pop.

NOW, remember, I am not talking about JUST THIS WEEK with the IBD 100 (I am leaving out Thursday when the index fell as a rotation out of old leaders into new leaders appears to be starting). The IBD 100 was actually lower this week but it was up over 2% on Friday well outperforming the market. But the NEW stocks that are entering the IBD indexes are making up for the OLD IBD index leaders which are being dropped out. For now, this will make the performance weak. But in time the IBD indexes will be leading. The new stocks in the indexes are showing some great strength and once the old leaders are out this should act better. However, I wanted to make that clear as I have been talking a lot about leading stocks being strong but the market mistreated the IBD indexes this week. It mistreated the old metal and chemical stocks. It was A-OK with the new stocks entering the list.

That list of new stocks can be found by looking at the NEW stocks that have recently entered the IBD 85-85 and 100 index, along with the stocks on the Market Pulse “leaders up in volume” area. There are a lot of stocks making big moves but sadly the terrible thing is NOTHING IS PERFECT. There are loud bases everywhere and even though some things are shaping up there are more stocks that look ugly, are trending down, or are actually moving higher on heavy distribution. THAT! is always odd to see.

Some recent action that has caught my attention, and I saw it catch the attention of IBD’s “the big picture,” is the bullish patterns in SINA, SOHU, and BIDU. BIDU has what appears to be a solid base setting up but I want everyone to remember that volume is supposed to be QUIET in the base. Not loud like BIDU. You are not supposed to see every week come in on above average volume. Yet that is exactly what we have with this base which is much wider, looser, and more active than any other base that BIDU has built. As for SINA and SOHU, go back to my past big winners in 2003 to see when I first discovered these gems. SINA and SOHU are a blast from the past and the bases today look HORRIBLE and WIDE compared to the previous bases made from 2006-2007. This pattern is an almost EXACT REPLICA of the 2002-2004 to 2005 rollover period that SINA and SOHU built before. History always repeats itself.

Speaking of history, you would think that we would have learned that stocks that have made big run ups of at least 500%, that NOW EVERYONE talks about, and has gone through a few splits is probably not going to be a great long. Recently, a lot of people have been asking me about BIDU, RIMM, and ISRG as possible longs. I think all three could be OK longs but believe me the past leaders of one bull market are almost never the new leaders of the next. It does happen a few times but not most of the time. 95% of the time, the next big winners, the next year, will be brand new fresh stocks that are breaking out to new highs for the first time. These stocks have usually IPO’ed the past eight years and show some great EPS and sales growth. My two biggest long positions are still stocks that no one is talking about yet the fundamentals are beautiful, the chart is beautiful, and as long as the 50 DMA can hold, things should be good. But the way this market is acting, I am not expecting anything like the gains I received in 1999 and 2003. I am VERY realistic. And I hope everyone reading this is too.

I will repeat, this is a very difficult market to make money. Some markets are easy when stocks are rallying across the board on heavy volume and some markets are hard. When the markets are making small gains on light volume, you better believe it is going to be very hard.

You know what else is hard? Learning how to drop in on a 10 foot face wall of water when you got another 50 guys paddling for the same wave. Yet I think I am going to make another attempt at trying to kill myself tomorrow up north. I doubt the surf will be 10 feet but even if it is close I am still going to make an attempt. If it is too big I guess I will come back to my side and surf Honolua Bay. Either way, I will be gone all day as I drive to the north and/or upper west side to work on my surfing, since I am not writing columns anymore. I will be back later that night to post some more commentary and internal numbers that can better help us prepare for the upcoming market.

But obviously, we can just keep it simple and say, the trend is slightly up on the sub-intermediate and shorr-tmer side and down on the long-term making it one mixed market. You definitely want to be a little long right now, anticipating getting 400% long if we can get volume on the rallies, with a LOT of cash ready to put to work when perfect charts setup and breakout. I can’t wait for that to happen. Aloha for now, I am going to enjoy the waves and I want everyone to know that later on during the week a HUGE SOUTH SWELL IS GOING TO LIGHT UP MY BACKYARD. I am sure I will miss part of a day or two this week. But as long as volume remains low, I don’t think it is going to matter much.

Aloha, for now, I will see you before I go out surfing and will check back at the end of the day when I paddle back in. Hopefully, these extra-large northwest and south-southwest swells is a “forerunner” for some HOT max green BOP filled, huge accumulation, low volume pullback, RS line leading, 99 EPS, stocks that are breaking out of bases that are round and lasting at least five weeks. Keep your fingers cross that we are seeing a rotation from old leaders into new leaders and that these nice charts will be right around the corner. ALOOOHA! SURF’S UP!!!

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