I Started Talking About The Parabolic Runs In Chemical-Fertilizer Stocks A Week Ago And Today They Confirmed The Analysis; Is Their A Possible Rotation Into Technology Stocks?

April 24, 2008

What a weird session! Finally, something interesting to talk about. And by interesting I mean that all the chemical-fertilizer stocks that I have been listing as “parabolic charts” in my forums the past week have finally sold off on very heavy volume. I am not sure if this is the ultimate top but we are very blessed to have an excellent futures trader amongst are midst and he has been screaming to short the commodities the pat few days. Now, while those selloff, finally, the stocks start to catch up. I hope this is the top to the commodities, but something tells me this will probably be just another short term adjustment.

Either way, it really doesn’t matter to me. I have taken my 400% and 500% gain from TNH and MOS back in 2006-2007 a long time ago and I am just waiting for these things to top so that I may try to take a piece of the pie back when they head back to earth where all stocks belong after a climax run.

Getting back to the action in the indexes, did anyone but me see the SOX today? It was up 1.45% and continues to look like THIS is where the money is moving into. I started mentioning this a few days ago and put in my blog last night that this appears to be what is happening. When I see ANSS, SKIL, BRCM, INTC, and MCRS all having similar round chart patterns, to go along with the SOX index, I start to get this real bullish feeling in my gut. i would love to see that bullish feeling turn into a hardcore bullish position sometime down the rode. The next selloff on the SOX will be key. We must see it make a higher low and can not break through the January, February, and March support.

The leading big index out there was the Nasdaq which came up with a 1% gain which was a nice turnaround from the .9% loss earlier in the day. I do not watch the market intraday but I can tell by the EMOTIONAL comments in the forums and in my chat room that some were quite nervous and worried about the selloff intraday. Once again, this is just another reason why it is STUPID to watch stocks intraday when using this methodology. The big money is made in the holding and sitting, not in the action. You should sit on your butt and do NOTHING in bad markets, and get long and sit on your butt while you are long the stock for big gains. The only time you should be trading is to either cut your loss or to take profits AFTER the chart tells you to make a move.

Never make a move without the chart telling you to do the move, first. That is an amateurs game and I hate to tell you this most of the people that are running OPM are professional amateurs. They do not know how the market works nor will they ever learn how it really works.

How it really works is with price and volume, or supply and demand, if you will. And in that regards the best index recently has been the Nasdaq as it sports an A- ACC/DIS rating for the past six month price and volume performance. The past two days show why as the index has rallied on consecutive days on higher volume. Volume was higher by 11% on the Nassy today and was higher by 10% on the NYSE, as the NYSE SP500 and DJIA rallied between .1% and .6%.

But the biggest and most noticeable performance came from an index NOBODY at any other financial website seems to follow. Too bad, because this is the most important index in the market as it focuses ONLY on leading stocks. This index swooned 2.3%, making it three days in-a-row that the leading index has lagged the overall market. In all of the greatest bull markets I have seen, which include the short-term rallies during bear markets, this index leads. When this index does not lead, it is darn near impossible to make steady consistent safe money in the market. Right now, it is not easy. The IBD lagging a third straight day and the IBD 100 falling 2.3%-which is a WIDE margin (3.3%) from the Nassy’s 1% gain-shows a market that is clearly not “all-clear.”

Could this be October 2002 as a new rotation is upon us? Sure! Is it possible we do not see a rotation? Of course. The market is nuts. And that has been seen recently with the insane price runs in commodities and commodity stocks. However, after a very long bull market that has started for most of these in 2003 and for others 2004, you would think that the run has to be close to over. Especially with all those chemical stocks clearly being in parabolic climax top runs. The machincery-farm stocks still look good but some have shown some sign of a selloff starting. The worst of the group is gold stocks.

Last night in the forums a subscriber mentioned he was going to short GLD. I told him ETF’s are for lazy people that can’t find stocks. I told him he should short KGC and AUY. Well, sometimes I should listen to my own advice and do what I preach. AUY (which I told RM readers two weeks ago wsa churning and topping fell 3% and KGC fell 7.5%). GLD fell 2.24% which was weaker than both AUY and KGC proving that if you just do a little bit of hard work and dig a little deeper, you can be right about a sector and not need to buy a broad basket out of fear. Instead, you can find those weakest stocks and get to hammering those shorts.

I also see a lot of newbies trading scared right now. For instance I saw someone sell 50% of IMCL today. WHY? Why are you making moves when the chart is not telling you to sell? Also some of you are using a hard 7-8% cut loss rule….uhm…that works GREAT!!!! as history shows the best stock s do not dip below this area after a breakout but if you are chasing the breakout and NOT buying it at the proper pivot point. Those that see a breakout, chase it beyond 5% on the non-volatile and more than 10% on the volatile, and then go long a market order can NOT use a hard 7-8% rule. The fact you are chasing a breakout is wrong to begin with. If it is not in that 5-10% window, you must just pass, if you are a newbie. And when it comes to selling you must make sure that if you are long a stock rising on max green BOP, huge volume, and great price action THAT YOU CONTINUE TO RIDE IT HIGHER UNTIL THE CHART TELLS YOU TO SELL.

Selling off 50% just because you feel that the stock should be flying is a bad idea. Evenutally you are going to do that and when we sell a stock too soon in a bull market you can be sure that sometime in the future you are going to see it again and be very upset you sold it. There are two stocks I am long now, that I NEVER SHOULD have sold but did before the November 2007 selloff got too bad. FSLR and MTL are longs again and MTL now has a 55% gain for me. But early I had a 250% and 90% gain. If I was still long from the original position, I would have gains of 330% in 10 months in FSLR and nearly a 200% gain on MTL. Neither one cut below the 200 DMA and now I am not longer long two HUGE WINNERS FROM THE ORIGINAL BUY. At least I am still long them now but I did leave some gains on the table by being “scared” that we would see more selling.

The other good news I see about the selling in ag is that my grocery bills, gasoline bill, and electricity bill should be lower. The other good news comes from a newspaper I am reading right now. The IBD echoes my sentiment and Rev’s sentiment today with the exact same visual analysis that I am noticing amongst my tech stocks basing, rallying, and possibly seeing a rotation of money into those stocks from ag. Here is what IBD has to say about today’s action:

Highly rated stocks from several other industries have joined the rally recently, breaking out and pushing to new highs.

It’s possible, then, that some of the weakness seen among agriculture and machinery stocks is the result of sector rotation. No stock or industry can keep rocketing higher forever. Eventually big investors will turn their attention elsewhere.

Even if rotation isn’t at work, many of these stocks had run up 20% to 30% in short order and were ready for a pullback.

If they see what I and Rev see, then we are in very good company. Let’s hope this rotation continues as this is the rotation dreams are made of. Whenever you have a powerful bull market, you want to see technology, high growth telecom, internet, and a broad range of other industries move higher. We are starting to see a lot of stocks attmpet to put in a nice round base and breakout on strong volume in a lot of technology sectors. If this action can continue, I will go from being luke-warm bullish to raging bullish and up my cash from 50% to 200% in a flash, as long as those near-perfect to perfect charts continue to show up.

SBUX and AMZN weighed on stocks after the bell and I assume the market will have to digest that in the AM. However, remember, bullish markets start with gap downs and end with stocks closing near the HOD. At the same time weak markets seem to have a lot of gaps that take the market higher and then sell them off till the EOD. So we shall see how the weak open is treated tomorrow. I am not sure what they will do to it but you can guarantee I will not be around to watch it. If I was I probably would be emotional like a lot of newbies and maybe do something stupid like sell DAR intraday or AXYS or ICO. If you sold near the LOD on Thursday and you saw the close by the EOD, I am sure you were left wondering what happened.

I on the other hand will wake up intraday and see what the market has in store for me until the closing bell. THEN AND ONLY THEN will i decide what to buy and what to sell. Intraday, I will be in the chat room helping the newbs to STOP TRADING INTRADAY! Aloha and I will see you in the chat room where no one can possibly be a newb after living through this market. ALOOOOOHA!

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