If You Have Some Big Gains In Your Short Positions, It Is Time To Take Some Profits (20%-50%); Stock Indexes Gain Ground On Lower Volume Marking Day Two Of Rally Attempt

January 10, 2008

Well it might have been a day of gains on the stock indexes but there is plenty that is left to the imagination if this is all the market can do. Stocks put in a very wild intraday session that led to the indexes rallying at the EOD giving the indexes nice gains by the close, with the IBD New America index, the Gold index, and the AMEX showing the biggest gains with 1.3% to 1.4% rallies. This was a positive way to end the day, after the gains earlier in the day that were produced by “busy Ben” were erased. But as I said earlier there were many signs underneath the market that continue to give the impression that this is nothing but a oversold bounce. Hint one is the low volume. I have never seen ANY meaningful bottom be made on such light volume, after such a severe bout of selling that we have enjoyed since early November.

I am clear that nobody knows where the market is going to go at any point in the future but I just don’t think it would be a wise idea to trust this rally and think that we have seen a bottom. Some of the obvious reason for that is that I already see people talking about buying the bargains in the beaten down sectors. Which oddly enough happened to be the sectors that all rallied today with the banks, brokerage stocks, retail, REITs, and homebuilders all doing the best. On top of that the big news was in a stock that has been beat up CFC. Rumors that BAC was interested in CFC (see below) gave the stock a 50% pop today. If this was truly a rally, that we should all be getting excited about, I think we would see some new “flavor” from the tech arena. The simple fact that we don’t have fresh faces showing up is clearly a red flag to me about this rally.

Besides having the most beat up groups rally today, there really wasn’t a whole lot of strength as there were still 438 new lows to only 83 new highs. This number isn’t that bad at TRUE bottoms. And besides that weakness, we have confirmation that this is not a fresh bull since the stocks that are making new highs are ALL the stocks you see rally in bear markets: medical, tobacco, insurance, oil, and metal ore etc… . IMO, It doesn’t get any more clear that this is a rally that is going to favor the defensive stocks, if the market does decide to rally.

More confirming facts that this is a weak rally is the fact that our past leading stocks FSLR, AAPL, RIMM, GOOG, and BIDU were all down again today. That is the second day in a row of gains for the market and losses for the ex-leaders. That’s right, you saw that. I said it; ex-leaders. When you have a market bounce and you see no fresh leadership in stocks setting up and breaking out of HOT bases and your old tech leaders decide not to rally and continue their topping process, you know you are in a rough tape. If this market doesn’t continue to selloff, I definitely can’t see it going higher. That means besides a bear market we could have a flop and chop market that mirrors the 1968 to 1982 horror that traders had to live through during that time. And I wouldn’t throw that out because we have another Jimmy Carter talking a big game full of lies and mission impossible promises: Barack Obama. This guy is being worshiped over his stage presence. What a joke our country is becoming. I wouldn’t be surprised if I we go through another period of stagflation with him in office. What hell that trading environment would be.

I forgot to mention yesterday that the new investors intelligence readings were released and they are finally starting to move in the right direction for a market to make a bottom in the future. The bulls came down to below 50% with a 48% reading and the bulls inched up only 1% to 26% bearishness. While this number is nothing amazing, it is good to see it finally move, considering the damage that has been inflicted to the indexes and stocks in the homebuilders, banks, REITs, and retail sectors. It is still just simply amazing that during all of this major selling (distribution) by important pension and mutual funds that newsletter writers just remained bullish. This tells you that most newsletter writers that charge thousands for subscriptions a month to multi-thousands for yearly subscriptions are just as ignorant as your typical new trader. That isn’t a bad thing for the trader…unless he is paying for that information. Someone is; hopefully it isn’t that newbie.

Another interesting note about Thursday’s market session is that the put/call came back down to a very complacent .79. And that number confirms all the bullish talk I heard today of the market bounce. Some people are way more excited than I am or they should be. Maybe I am wrong. But if I am wrong, I have plenty of time to get long and make a lot of money. Some of the best investments in a new bull market come weeks after the follow-through day. It is true that the earliest breakouts right after the follow-through are the best. But the best are usually found after the first three weeks and before the first two months post-follow through day. TASR came almost four months, if I am not mistaken. I would have to look to see if I am right but it is too late here on Maui and I am too tired.

So on that note, I wish everyone a very prosperous Friday and I will see most in the chat room! Let’s make some money and try to change some lives in the process. Aloha and I will see you in the chat room.

Subscribe To Site: