CROX Helps Stock Indexes Gap Lower As They Continue To Selloff To The LOD at the EOD On Higher Volume

November 1, 2007

Stocks gapped lower thanks to a negative sentiment off the CROX swoon and the expectations that the Fed had no reason to cut rates anymore. This seemed to weigh on the market and many stocks took very large hits. The worst was that the market according to my charting software sold off on higher volume marking a distribution day for the Nasdaq and the NYSE, SP 500.

The good news about the selling is that most of the wide selection of my current holdings had very normal pullbacks. Some did so on higher volume and I did have quite a few partial sells. But still less than 10 stocks were complete sells signaling that it wasn’t horrible. Even the recent longs I have taken are holding up, though they are not racing higher like they should be. It is still better than selling off, which most did not. Overall, this has to be taken as a slight positive. If it was really that bad, trust me, I would have had to have dumped around 10-20 stocks.

It was around 7-to-1 decliners over advancers on the NYSE which had a kind of severe selling feel to it. This horrible breadth is normally seen at the end of a decline. Not the start. 25-to-6 was the ratio on the Nasdaq, which confirms the wide margin on the NYSE. This along with the put/call racing up to .94 on this decline has the feel that the majority of the selling is in the books.

However, I still think it is prudent to prepare for a possible further selloff. As long as our charts hold up like they are there is no way I am going to panic. But if the distribution days keep piling up like they have been, we are going to have to start thinking about buying ONLY the best longs and avoid trading heavy until a clear trend becomes clear. Right now, it is definitely very choppy.

I am still not going to get in the bear camp as long as GOOG, BIDU, AAPL, and RIMM are still just a few cents off of new highs or still hitting new highs. We have had one leader get hit and on an arithmetic long term weekly it looks like it might have topped. It will be one to watch to say the least. If the stock can find support and continue to rally it will confirm the super strength in this market and help Barton Biggs look like a genius. If the stock rallies back to the 50 and 200 day moving averages but goes nowhere and then breaks down at those moving averages, I would look to short this ex-leader.

For now, shorting GRMN is not a smart move with the stock so far above the 200 day moving average. Trust me, there is a TON of support that this stock can find before finally moving lower. It is best to wait till the 200 day moving average catches up to the price before starting any shorting operations.

I think it is best to step back and take a look at each stock individually knowing that we are in a bull market but that we have pressures. If you see heavy volume reversals and selloffs, sell some of your stock off. If you stock has pulled back on lower volume and looks normal, hold ALL. Don’t sell a stock for the sake of selling because you are loaded with fear. Let the charts tell you when to sell.

Sometimes, like CROX, it doesn’t work. But most times it acts like DRYS and works very well. Aloha and I will see you in the chat room. I will have a very long weekend blog and I apologize for this one being short and sweet despite the big selloff. I am trying to convey that I am in complete control here and trying to teach you that you should NEVER panic on big down days.

Remember, the biggest down days happen during bull markets. Not bears. Unless you are leading up to a crash. If that is the case you will already be in a downtrend but the huge down days should be a warning that a huge down day will be coming soon. Thankfully, we only have the SP-600 and Russell 2000 that look like their down days are sick. I still doubt that these indexes are going to crash any time soon. However, it does bear watching how the small caps are dying before the big caps (they always lead at the end of a bull market). But as long as the Nasdaq leads, it is all good. Aloha!

Posted by Joshua Hayes | Filed Under Market Commentary