Incredible Fed-Induced Rally Ends With Stock Indexes Closing At The HOD On Higher Volume; Remember, The Most Powerful Rallies Always Come In Bear Markets

March 12, 2008

There is no other way to describe today as rally other than “incredible.” But even though we can say today’s rally was incredible, is anyone surprised, after telling you that the market was extremely oversold and we could get a bounce as the put/call is at 1.41 which is extremely high? You really can’t say you are, since I have hinted that this was coming.

However, to the magnitude that the rally hit us, I had NO clue that was going to happen! Obviously, if I would have thought that was coming I would have partially covered a lot of my shorts that had huge gains. Instead, I had to do that today. And the beauty of that was that very few gave back more than 3% on the day. Considering where the majority have been shorted, that is darn good.

Too bad, the big-cap tech stocks are the ones that are not cooperating (FSLR, RIMM, BIDU) and it seems to me that many newbies are taking pot shots at these shorts. First off, I have warned you over and over and over to NOT short stocks UNTIL you MASTER the long side. Anyone who is shorting stocks that has no history of having consistent winners in their portfolio is being dangerously foolish. I thought I have made this clear but obviously I have NOT! Second, I don’t know how freaking clear I have to make it that my shorts ARE SMALLER HERE THAN THEY EVER HAVE BEEN. I was shorting in bigger size early on but when all of my big-caps either failed or got away from me, I have scaled back. And as the crowd grew more hostile and I saw the market get more volatile (relative to the recent market), I began raising cash.

EVERYONE WHO IS A MEMBER OF MY CHAT ROOM KNOWS THAT DURING THE PAST TWO WEEKS I HAVE BEEN STRESSING THAT GOING SHORT AND GOING LONG IS JUST TOO DIFFICULT RIGHT NOW IN THIS MARKET. THE STOCKS THAT ARE BREAKING WIDE OPEN ARE NOT THE STOCKS THAT LOOK LIKE THEY ARE ABOUT TO IMPLODE. THE CHART PATTERNS THAT SHOULD BE PRODUCING TSRA SGMS GOOG and AAPL TYPE OF RETURNS ARE SIMPLY NOT PRODUCING EASY RETURNS. THOSE NEAR-PERFECT PATTERNS FAIL AND THE HALF-ASS PATTERNS SUCCEED BEYOND ALL EXPECTATION WITHIN A SHORT AMOUNT OF TIME.

THIS IS EXACTLY HOW THE STOCK MARKET STARTED TO ACT IN 2006 WHEN WE STARTED TO RALLY ON PATHETIC VOLUME. EVER SINCE THEN MAKING A LOT OF MONEY HAS BEEN EXTREMELY HARD AS THE VIX WENT TO EXTREMELY LOW LEVELS. SOME MAY BELIEVE THAT THE VIX IS HIGH UP HERE BUT UNTIL MID-2004 THIS WOULD BE MID-RANGE WHERE WE ARE AT RIGHT NOW.

THE LACK OF VOLATILITY IN THE MARKET AND THE LONG UPTREND HAS MADE IT VERY HARD TO MAKE MONEY IN LONGS THE PAST YEAR AND NOW IT IS VERY HARD TO MAKE “EASY” MONEY ON THE SHORT SIDE. THUS CASH IS KING. I HAVE BEEN SAYING THAT FOR A LONG TIME AND TODAY’S MARKET ACTION PROVES WHY CASH IS KING.

Even though I understand how important it is to be in cash right now, it seems like most investors think that they must overtrade and be more aggressive and risky now that it is harder to make money. Instead, these people should be doing the exact opposite and the fact that some of them can not get their heads around this idea is something that will need to be fixed quit or else you can kiss your butt goodbye. If this market acts like this for a year or two, can you handle it? I can. You know why? Because I know the exact same stocks that have shown up decade after decade as the best stocks of all time will show up again. They always do. Even in our next uptrend, in case one would start now, there will be plenty of stocks to be going long. However, for newbies, you CAN NOT DO THAT JUST YET!!!!!!

You guys need to wait for a real follow-through day on volume that is MUCH bigger than the 50 day volume average on BOTH indexes (not just the NYSE, like today). Even if we get one of those, you still need to make sure that there are stocks setting up in proper bases, ready to breakout to new highs on strong volume that also have fantastic fundamental characteristics. Basically you want a bunch of CANSLIM quality stocks showing up in a wide wrath of leading industry groups.

If some of you think that we have had our “real” bottom today, I would like to ask you which of our new leading industry groups are going to produce us our next STLD, MT, TASR, TZOO, TNH, or POT. Is it the gold/silver stocks, the oil&gas-US Royalty stocks, or is it the fastest moving Tobacco stocks. These industry groups have climbed up the industry group rankings based on six-month price performance the fastest with each group moving from the bottom 40 to the top 20 out of 197 industry groups. These are the leading sectors right now if this market would become a bull and if that would happen you can guarantee that this is in fact a bear market bounce and nothing else. Tobacco and Gold/Silver stocks are clearly not a sign that this economy is warp speed ahead.

But instead of focusing on leaders, some very (I am sorry but what I am about to say is true :() unintelligent active-investors want to bottom dip and buy BSC. Listen, if that is your M.O., fine! I don’t care. But listen, buying “bottoms” is the MOST DANGEROUS play you can do in a bear market and if you are not sure why that is, damn you, you have serious problems. It is clear as day via looking at ANY ONE OF CRAMERS HORRIBLE RECOMMENDATIONS (SGY NYX GS C IMA NLY and many others) the past four months that buying stocks that are falling is a quick way to lose all of your money.

I can guarantee one thing. Those going long stocks at the start of the bull market, who are now in cash, that maybe play a little bit on the short side, are not sending me emails asking me how come they are losing so much money. First off, STOP TRADING until we get a real follow-through day with real technology and innovative leadership. Next, go to IBD’s website and go to their learning center and get going!!! Just start reading. Go over the Investors Corner archives, go over everything. The problem with the majority of people is that they have absolutely NO CLUE about history. They have not studied the past. They ask me for examples of great stocks and then they ask for more recent ones. HELLO DONKEYS!!!!!!!! WAKE UP!!!!! YOU ARE NOT GOING TO FIND A F-ING TASR OR TZOO IN THIS MARKET. YOU ONLY FIND THAT AT THE START OF BULLS. NOBODY CAN FIND THE STOCKS I CAN AND NOBODY CAN MATCH MY RETURNS BASED ON A SIMPLE BUY AND SELL ACTIVE INVESTING METHOD. THERE IS NOTHING DIFFICULT ABOUT THIS. HOWEVER, YOU GUYS LOOKING FOR TASR IN THIS MARKET HAVE LOST YOUR MINDS. IT DOESN’T EXIST!!!!!

The only thing that exist right now is pain. And many investors are suffering a lot of it unnecessarily. Most of this pain is caused by either shorting to heavily and not understanding that you must never risk more than a little in each short. The only time you should EVER load up is when we are going long at the beginning of a bull market. I might start out with just 10 to 20 longs, make some huge money, and then start moving them around and possibly get 200 longs by the time it is all said and done. And if any of you can pick 200 stocks that move higher and keep moving higher, besides me, join me and in ten years when I open up my firm we can make a heck of a team. But since I am still the only person I know that can pick so many damn stocks that work really well in bull markets, for now, that can stay a dream.

But in this market, if you expect my stock picks to work out all the time, you are crazy. That is simply impossible and I will be happy if 30-50% workout. Now, in a bull market, I average 75-80%. JUST ASK ANYONE WHO HAS BEEN A MEMBER WITH ME FOR MORE THAN TWO YEARS. The great part of having such a huge winning percentage is that my high holdings of stocks workout well for me since I am always rolling (well not always…but most of the time) them over into something new that is working. In a bear market, though, you will never get those kind of odds and thus will not be able to roll them over constantly into new potential big winners. You have to keep trading small and cash high because 33-50% is lame.

If you don’t know how I can be right only 1 out of 3 times and still make money……UGH….I don’t even know why you are here. Cutting a loss at 7%, and another at 7%, and then hitting a big winner like CBEY for a 60% pop takes care of itself. Even losing 10%, another 10%, and another 10% can be offset by the next one moves up 50%, will take care of you. And in this bear market, if you have been following my weekend post, you can see that we are finding ourselves plenty of shorts moving 20-50%.

Now if you are one of those “dip-buyers” that are telling me to buy BSC here, I can say this much: at least it has the capitulatory volume and intraday reversal to confirm that. But those jerks! were telling me to buy BSC when it was 150. Then when it fell to 100 it was a can’t miss, then at 80 I was a F-ing idiot for not realizing it was “too cheap,” and now I am supposed to buy it? And do what with it? Watch it go nowhere. Watch the stock take years to get back through all that resistance. Check out 1998 to 2000 for BSC. That was a pathetic selloff too. However, the darn stock went nowhere. But do you know how many stocks rallied 500% or more during that time??? 261!!!! There were 261 stocks that rallied at LEAST 500%, while BSC rallied 150%.

Why would I want to bottom fish, collect the STUPID dividend, and waste my life in this stock, while I miss out on JDSU and QCOM? Because had I been listening to some FOOLS back then, I might have bought BSC in 1998. That would have been a WEAK 150% return while the VERY FAMILIAR (to CANSLIM investors) stocks of PMCS NEWP, and PWER which rallied 3260%, 3579%, and 3688% respectively. CANSLIM investors new these names. So why do I need to bottom fish? All of these were breaking out to new highs BEFORE they started their huge runs! The same thing will happen during the next bull market. People will buy BSC now, make 20% and brag, and brag, and brag. Then come the next bull, their BSC will leave them with a 50% gain as they sell a rising stock too early. All the while PMCS, PWER, and NEWP come along for all of us CANSLIM investors to see.

And if you don’t think my charts were picking up AMCC which led the way, during that time, with a 5,355% return, guess again. It was in the scan almost daily. The problem was the setup was just never right to give a big run. My purchase was 5/1/97 with a premature final sell on 8/29/97 for a 58% gain. Not bad, but not good considering where it went. Notice how AMCC was only a 58% gainer yet the chart was extremely pretty? You know why it only gave a 58% gain during that time? The VIX. Guess where it was at? If you said 27, you are correct. Where are we today, oh yeah, 26.

So this is clearly the problem with dip buying. If you happen to go after the ABK and TMA, you end up broke and humiliated. If you happen to buy the UGLY stock, and it does move higher, not only are you probably in a new bull market but you are standing to the side watching hundreds of stocks produce massive returns.

With this being said, if you still think it is smart to go out and bottom fish the next BSC, do me a favor and do NOT send me an email. I do not care what you are buying. I don’t care about the reason. I don’t care about anything if it is below the 50 and 200 DMA. If your stock is this, you can keep it to yourself. I have studied my history. I know that every single one of the best winning stocks have come from the same similar background. Those characteristics make up the CANSLIM methodology. Using this CANSLIM methodology, you would have found EVERY SINGLE ONE OF THE STOCK MARKETS PAST MONSTER STOCKS GOING BACK TO 1950 WHEN O’NEIL DID HIS STUDY AND 1880 BASED ON THE TECHNICAL ANALYSIS STUDY BY JOHN BOIK OF THE GREATEST STOCK MARKET INVESTORS AND THEIR STOCKS.(EPS and sales were not provided before the 1930s).

So while you nibble away at your boring MSFT, IMA, GS, and BSC, I will go ahead and chill and wait for either the perfect setups to come around or for this low volume rally to run into resistance so I can start my heavy operation of shorting the past bull market leaders. If this market has topped, the best shorts are going to be in these LOVED stocks. Like I keep telling you, I have already been long most of these past leaders. The few that I missed due to the patterns not setting up were also perfect CANSLIM longs then. So to us CANSLIM investors, FSLR RIMM BIDU GRMN GOOG AAPL are not new to us. We have heard, seen, and smelled these stocks for over three years (less on FSLR BIDU).

Now, with everyone noticing them and people talking about them like they are the savior of this market, it is obvious to me which side to be on. That is the short side. However, as Jesse Livermore first illustrated for us back in the early 1900’s, it can take two or three tries before you get it right. However, when the ex-leaders are cracking and the market is selling off you want to make sure you are short these stocks (I am ONLY talking to the experienced at this point). But you don’t just short everywhere and anywhere. RIMM was a great short, where it was at on the chart, right there at the moving averages. IT JUST DID NOT WORK THIS TIME. Look at the volume on today’s rally. Where the heck is it? I can’t find it. This is just short covering and that coming from a very heavy volume selloff in November to January is not good. The accumulation/distribution is very poor in this stock, just like it is in almost every single stock priced above $100. I have a scan that consist of stocks over 100 per share. There are currently 124 stocks in that list and out of those 124 all but 25 are in downtrends. What is worse, they don’t look like normal downtrends. They look like the same patterns from all my other shorts that have been either good shorts for me or turned out to be good shorts without me. This is yet another bearish sign for the market.

The other one is new highs to new lows. Not only is everything about this rally very weird on the sentiment side but people that think we have a real bottom forget that after the 2000 selloff started it wasn’t until 2002 around November that new highs started to catch up to new lows. It is no coincidence that come March 2003 when the market had its HUGE follow-through day, new highs were beating new lows. If we had 22 new 52-week highs yesterday and they only increased to 29 new 52-week highs today, you can be sure that this is just a bounce and nothing more than a bounce, for now (obviously ANYTHING CAN HAPPEN; but this is ridiculous). The other problem is new lows were at 746 yesterday and the new 52-week lows today was still up at 391 today. Not good.

But this bounce can keep bouncing. Especially with the put/call still up at 1.17. The put/call is still high which means the crowd is making too many bearish bets. The crowd has to become FULLY bullish again, before the low volume short-covering rally will turn back into our bear market decline that we are 80% chance still in. Even if we get a follow-through day, do not get too excited until those charts return.

If you happen to think that today’s gains, since they were so large, “JUST MUST MEAN THAT WE HIT A BOTTOM!”….think again! If you go to my new shorts section you can read there the same stats I am about to post here just without the dates (dates in the shorts area).

The best nine days for the Nasdaq, since it started in 1971, have all come between the dates of 5/30/00 and 5/8/02. Yes, for those that do not know these FACTS, you see that correctly. The best six days of the Nasdaq occurred during the bear market of 2000-2002. And it doesn’t get any better for the DJIA. The DJIA has rallied over 400 points only four times before today; they all occurred from 3/16/00 to 7/29/02. Yep that is right, the best four days (now fifth) for the DJIA came during the horrible bear market of 2000-2002. What is even better is that the best day for the DJIA is a 499 point gain on 3/16/00. If you wet your pants and got psychotically bullish after that incredible move and went all-in long, you were rewarded with an incredible (sarcasm) 6% gain to the 9/6/00 top. Almost six months of work and you got a 1% gain in each month. NICE (sarcasm)!

Hopefully you happened to sell right at the top, because after the six month joke of a rally in the DJIA, the market rolled over on huge volume and began a nasty selloff in September that eventually led to an almost 400 point decline (379 points) on 10/12/00. If it took a 400 point gain to get long and it took an almost 400 point gain to scare you out, you were one lucky fella!! You managed to only lose 8%, while the best active-investors were going long the LEADERS during the March to August period and going short shortly after the market broke apart in September.

The best traders hit it coming and going. They don’t just try to hit it once, pray that it works, and then walk away a defeated fool. NO! They learn their history and they know what they are going to do before they even get into the market. They have a plan for any outcome, no matter what the market does, because we are always prepared.

CANSLIM investors are the U.S.A. military under General Petraeus. We have an enemy and that enemy is Wall Street and all of its lies. No matter how many times the market straps on a vest and tries to blow us up, we simply can not be beaten because we have the best methodology that guarantees us safety in bear markets and riches in bull markets. It is not easy to learn and that is why we do so well. Take the time to learn this and you can change your life. Or else you are going to be buying WLP and shorting ATAI all the way to the poor house.

Please, for the love of God almighty, stop going short, stop going long, and just sit on your hands, park yourself in cash, and sit back and enjoy. Keep your watchlist updated and constantly ready to be put to work when we do have that REAL powerful follow-through day. We will have another one and I WILL BE THERE BUYING THE BEST STOCKS, WITH THE BEST FUNDAMENTALS, BREAKING OUT OF THE BEST WELL-FORMED BEAUTIFUL BASES. Aloha, pray for surf so I can have some waves to shred while I wait for this market to get more exciting, and remember, CASH IS KING, CASH IS KING, CASH IS KING. Aloha!

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