Downtrend Is Still In Effect And That Means Being Short Is Right And Being Long Is Wrong, For Now

November 6, 2008

I know a lot of people were excited after the big rally last week. But like I keep making reference to nobody was chiming in on the volume. The fact that volume was so low on the rally was the clear sign to me not to trust the most recent rally. I did not chase stocks higher and believe that now in only two days I am being proven correct in my analysis.

I did go long a few stocks to test the longs water, just in case we might rally higher. Too bad it looks like they are not going to work and that I will probably end up having to cut them completely in one or two more days if the downtrend continues. And I have to be honest, there is no reason I can see it stopping. Not with me still having new short positions to take from my scans.

The fact that there are shorts still in my scan indicate that plenty of stocks are still near or within 25% of their 52-week highs making them good short candidates. If the downtrend last too much longer, we will not have a lot of short candidates left and will instead have to start looking for new longs.

The one thing I must remind everyone is that there is NOTHING wrong with being 100% in cash right now. Those investors who are long cash are doing anywhere from 25% to 45% better than those long stocks this year. Obviously, if you have been short this year, like we have been since the March rally failed, then you know that this has been the right way to invest this year.

The only problem with shorting is that it can be very hard to time and that can make it rough for new investors. But that is OK. If you are a new investor and you want to short, try not to get anything over 25% of your account short here and make sure it is near a 52-week high and by the 50 and 200 day moving averages. If you have that along with a lot of distribution then you probably have a good to decent short candidate. And right now it is obvious to me that this is the right place to be.

When it is time to go long again, as my past record has proven, I will turn from bear to bull and go long. But right now besides small cap banks and medical stocks, there just is not much out there for me to touch on the long side. The only good news is that there were actually 10 stocks in my main long scan on a very ugly day for the indexes.

Everything is still the same, the trend is down, and cash is still king for 75% to 90% of us out there. The rest of the group, if you are experienced, you may short at will. We shall see what tomorrow brings. Aloha!

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