How Much Longer Will The Good Time (The Rally Has Not Been Long Enough, To Be “Times”) Last?
May 9, 2008
I am not for sure about that answer but I have to admit the charts overall still look like they are trying to make a bottom. But like I have continuously warned about: if volume does not come back into this market on the upside, we are in danger of reversing some decent base building and that will probably discourage a lot of market participants which could open the door to more selling.
However, there is nothing wrong with being prepared, but until the market actually cracks, I will have to go with the short-term to intermediate term uptrend and ride the wave for however long it wants to last. The sad thing is that the way some of my stocks that looked great just a couple of weeks ago now look only average to somewhat above average. This is OK but in a brand new bull market, we would normally have 5-6 near-perfect to perfect charts right now. Instead I have one. One chart STILL looks “hot” out of about 4 or 5 that were starting to. Basically this has been the theme ever since April 2006 but thank God some gems here and there have still been able to shine through the rough.
It has been a long time since a WHOLE BUNCH of stocks setup in proper to perfect bases and then broke out and ran away. The truth is, I am only finding a few gems here and there and usually when I find a gem it fails. However, for every 3 or 4 that fail and that we can cut quickly thus saving ourselves a LOT of pain, we will always have one that can run. They might not be of high quality like AFSI but as long as 1 or 2 are around I guess that is good enough. But the further we go along without these near-perfect to perfect charts setting up or even holding on the more problems we will run into in the future.
It was good to not see the market follow-through on the selling that hit the market yesterday, after we were down midday, as the market reversed early losses. But the lack of gains and some poor action in some of my better stocks after earnings were taken poorly just shows me that this market is probably not out of the woods yet. I guess it was sort of foolish to think that everything was clear considering there were a lot of people that I know that NEVER sold their stocks–normally there is always panic selling as John Q. public finally gets the crap scared out of them via the heavily-biased left media. If these morons that report the news actually understood how economics work maybe we wouldn’t see this at every bottom. The fact that some in my family that are known for doing the wrong thing at the wrong times have not done what they normally do is my clue that a “for sure” bottom has not been fully enforced.
The investors intelligence cam out yesterday and that showed that newsletter writers have already returned and embraced the new bull with 44.4% coming in bullish and only 32.3% bearish. That tells me they are already hoping that the worst has passed. The VIX is below 20 which is yet just another low level that tells us that the crowd has become complacent with the current market and needs a good scare. A VIX this low makes it REAL HARD to find, buy, and hold Monster Stocks for significant gains as you simply can NOT get the huge returns with a low VIX. The crowd is also bullish on the RM.com, marketvane, and AAII surveys showing that the crowd is bullish on equity prices at least in the short-term. I hope they are all right as I love making money as much as the next guy but something tells me that betting with the crowd is not the wisest of plays. But if that crowd is right I’ll take whatever gains we can get.
What I do find positive still about this market is that oil went up .16 to 123.69 hitting an intraday high of 124.57. Since oilandgas stocks make up 6 of the top 20 industry groups based on six-month price performance, the IBD 85-85 index managed to rally 1.2% which outpaced all the other stock market indexes. It is always nice when leading stock lead but I don’t think it is that bullish when the whole market’s leadership is based on oilandgas. Well it is not all oil&gas, in the top 20 industry groups, 3 are in the transportation group, 3 are in the machinery group, 3 are in the metals group, 2 are in the building group, and the medical and chemical sector have one each. So really, the market is being made up of four leadership groups: energy, metals, machinery, and transportation. This is where it is at and this is where I want you to focus. Why?
Because there were 108 new 52-week highs to 162 new 52-week lows and 42 of those new highs were in the energy sector. That clearly tells me that if you want to make big money in this market, you have to be long oil stocks. How much longer can the run last? I don’t know and nobody else knows. But they continue to breakout and run. With oil stocks being so extended on some daily charts, it is wise to watch for pullbacks and bounces off the 50 DMA on strong volume. If you can get a low vol. pullback followed by a higher volume bounce it might be worth getting long some of these high-flying strong fundamental growing oil stocks. Besides these stocks, 7 new highs were in the metals, 6 in the medical, and 5 in the metals. So in these past two paragraphs, along with the last four post, I have made it more than clear where the leadership has been.
If you are still having problems finding winning stocks, you might want to take a trip to the energy sector. Solar stocks are just starting to get hot too. This is definitely the only game in town that has some juice with some follow through, besides metal stocks. Some of the oil stocks to keep an eye on for low vol. pullbacks include WLL, PVA, PDE, CNQ, WFT, SPN, CRZO, FTI, SU, APC, SD, NXY, NBL, and PXP. That is just a few of the TOP QUALITY longs based on fundamentals and price performance. Other high quality stocks in the other groups include MT SID NUE MEA CHD BHP CLF.
Even though I am nervous about this rally lasting, like I said yesterday, I hope that I am a contrarian indicator of myself and that we blast off and continue higher. It is possible that if we continue to rotate into some of the tech, retail, and other financials that have been catching a few bids that this market could take off. Especially with the NYSE short-interest ratio HITTING ANOTHER ALL-TIME HIGH of 12.94!! This means it now takes a full 13 days to cover all the shorts in the NYSE. Now, when you take that data and combine it with all those high quality growth mutual funds that I keep listing in my mutual fund list in the forums, you possibly have a very bullish mixture that could unleash a powerful rally. I hate to think that all these amateur short-sellers are going to be rewarded with a falling market. But if they are, that can only set us up for better chances in the future to make a ton of money. Or if they are wrong and they are all squeezed by the big elephants buying that will occur when they return, I will take what we are given and just pray more stocks setup in chart patterns.
The put/call barely fell to .81 but is still above the .80 which confirms that the options amateurs are still a “little” busy with the puts. When this put/call gets to under .70 for a few days then I will be real nervous that we have gotten too relaxed. But until then, when I take the persistently higher put/call with the constant all-time high hitting NYSE short-interest ratio something tells me that the public is a bit too pessimistic.
However, all of this depends on your time frame and I still believe that you want to be a little long here, not short, and even though I thought getting more long than cash heavy was the right decision, I now believe it might be right for the best to go 50% long/50% cash. But if we get a few more distribution days and the leaders continue to crack and my last “perfect” chart breaks, I will be turn from a cautious bull to a cash heavy wave hunter as surfing will be my priority over messing with this choppy and insane market. Hopefully, the market will trend on us soon. Aloha and I will see you in the chat room, where we are always in an uptrend!! ALOOOOHA!!! Maui No Ka Oi!!! 808 4-LIFE!!!!!!
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October 1992, when President George Herbert Walker Bush ran for re-election against Bill Clinton, the economy was 18 months into a recovery. But as Investor’s Business Daily noted, 90% of the newspaper stories on the economy were negative. Yet the following month, when Clinton defeated Bush 41, suddenly only 14% of economic news stories were negative!
But only a cynic would suggest a liberal media bias.
–Larry Elder