I Have More To Say And I Must Say It; Stocks Selloff On Higher Volume

November 8, 2007

When everyone reads the last post that I posted it might look like that I am giving up being a bull forever. Please do NOT get that confused for what it really is. It is for just now. The market that I have been bullish on since August 16 is now no longer a market that I embrace. However, as for the bull market from 2003. It very well could have another leg to go after this round of selling is over. We only need 7 stocks to go up 5% everyday and the rest of the market could selloff and we will still be hitting new highs on the Nasdaq. So things must be looked at in perspective.

For now, I am definitely changing my preferred bias from bullish to bearish. It has been a very long time since I have seen so many more charts look really good on a shorting standpoint compared to a bullish standpoint. The pullback in 2004 basically offered very few shorts during that time. The one in 2005 was even less bearish as many top stocks made very green bases during the pullback. Then when the pullback was over, since I was focused on all the green charts it ended up being a good year despite the overall lame performance by the market. In 2006 there were more stocks to make money off of shorting, starting with the homebuilders. But now there is just a TON of shorts to pick from. And they are from all sectors too.

Of course the most beat up sector has been the banks, mortgage, insurance, real estate, and retail stocks. But now the technology and a TON of old leaders are getting involved. Now chemical, oil and gas, internet, and steel stocks are losing it. These were the leaders of the bull market from 2003 and now they are all starting to see some hit here and there. If history repeats itself it wont be long till the old leaders selling moves into the current leaders selling. Since the leaders of this leg in the market are the late movers in this five year market and the old “real” leaders are starting to sell it doesn’t bode well for the future of this market.

However, there are pockets of safe havens and leading stocks have definitely, until today, been a very smart place to be. The big leaders continue to do well. GOOG, AAPL, RIMM, FSLR, and BIDU are all still chugging along and after reviewing their charts I have to say that they are all still very bullish charts and if you are long these stocks you should remain very long. However, all of these stocks have been in incredible runs and if you have not taken any profits I definitely recommend that you take some profits. Especially in FSLR. That is just an amazing gap higher. In my opinion, that could be an exhaustion gap if this market is in fact going to continue to selloff.

And that is very possible because as I look now CSCO is down 9% and the Nassy futures are down 20.50. I don’t know if that will put enough fear in the market to put in a short term bottom but something tells me it is going to continue to be choppy here. There are simply too many distribution days on the NYSE, SP 500, and Nassy. And the once leading SP 600 is now following-through on the breakdown below the 50 and 200 day moving average. The SP 600 and Russell 200 are officially in downtrends in the short, sub-intermediate, and intermediate time frames. That is not bullish. That index is in fact very bearish at this point in time.

I have to admit that I am long two stocks that I would love to see keep rising. APPY has lost its perfect max green BOP filled chart but it is still in an overall uptrend and I am expecting the leftover strength of all that accumulation and max green BOP will help power it higher (this happens a lot with stocks with max green BOP for a very long period of time). Then there is FNDT. A stock many in the chat room are familiar with because I have bought it in my IRA account and it is not moving higher right away.

For those that do not know, I rarely go long stocks in the IRA. I wait for perfect to near-perfect charts and then I go long those in the IRA. However, there has not been a lot of perfect charts with top fundamental ratings. The last one that worked was AFSI on 4/13 and 4/16. Since that very successful long, I have taken three stabs at high quality longs in the IRA. The first was SNDA. After working for a while it reversed and failed. It was sad to see but since the entire market took a turn for the worse it really didn’t bite hard. Then there was BLL. Granted the max green BOP was not there for a month or more and there wasn’t more green BOP before the bounce/breakout but the fact that it failed was a surprise. Now we have FNDT.

FNDT still has not failed as it is above the 50 day moving average and still has max green BOP but the fact that it did not move higher immediately really chaps my behind. HRZ, TESO, and AFSI recently spoiled me as they were a quick 3 for 3 that all produced at least 70% gains in under six months each. So watching FNDT fall back makes me very upset. And since the BOP is still max green and the stock is above I still am holding all of it and can not sell any of it due to me being a very disciplined trader.

You sure wouldn’t want to sell it now before it violates your sell rules and miss out on another 70% plus gainer in six months or less. So “hope” has me sitting here “hoping” that FNDT has seen its lows and is ready to move higher. Even a very experienced trader like me will try to inject his opinions and hopes and dreams into the collective atmosphere of the world of stock trading.

So here I am starting to build a decent size short positions and yet holding a couple of longs that I would love to see blast off to the moon. I am asking a lot from the market. But since the leaders are taking us up while the broad market is selling off, it seems safe to say really great stock pickers are going to do very well here as very select longs and shorts are moving in the right direction. The shorts more so now than the longs.

If nobody saw the breadth figures today, I suggest you open up your IBD and check out the amount of stocks hitting new lows compared to stocks hitting new highs. On the NYSE there were 98 New Highs to 283 Lows, on the NASDAQ there were 54 New Highs to 348 Lows, and on the AMEX there were 45 New Highs to 55Lows. Breadth was decliners beating advancers by a 15 to 1 margin on the NYSE and by a 5 to 1 margin on the Nasdaq. Overall, this was a very ugly day. The put/call did hit 1.03 showing that some fear entered the market. So it is possible there might not be that much downside in the short term as things did get a bit panicky.

I hope everyone escaped without a lot of damage to the portfolio. I apologize about getting so excited yesterday about this market. It was just that there were so many high quality longs that showed up that it was just hard to believe the market was not going to move higher. The only good thing is that I did tell you all that I did not love anything out there except FNDT. The rest were mediocre but definitely worth going long.

Recently, I have been going long a lot of second rate stocks and I think it is time to stop that. Sticking with the winners is the way to go. I am long 117 top quality CANSLIM stocks and am long another 50 very high quality speculative stocks. However, I have trimmed back a lot and without all the extremely pretty and perfect charts so I feel comfortable here even if we crash tomorrow. So stick with the best like FSLR and days like today wont be bad at all. Even if we look at FNDT and know it is up 1% after hours it is only down 2%. That is not that bad at all. It is all perspective.

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