It Is All About Oil And This Very Weak Economy; Stocks Fall On More Subprime Bad News
February 28, 2008
Stocks started off weak as an afternoon reversal yesterday continued to weigh on stocks today. But shortly after the open stocks found some footing and rallied ahead until news hit the wires of Bernanke warning investors that small banks with big investments in real estate may collapse in the housing slump. That helped reverse stocks lower, and after that one more feeble attempt at a rally failed, stocks then ticked lower to end the day down around 1% across the board. It wasn’t an ugly day but it wasn’t a great pullback either.
One of the more unusual things about this market that has really gone absolutely nowhere the past month, but has seen a lot of intraday action, is that despite there being a lot of charts completely broken out there, the market continues to hold up. Now, this is obviously due to the oil stocks as they make up a very large portion of the SP 500 and NYSE now. But the fact that the market is holding up with this many ugly stocks out there is quite impressive.
The other thing with these ugly charts is that they are everywhere. That includes stocks moving up or down. Some of my best longs right now do not have pretty chart patterns. What they have instead are very incredible fundamentals and they are in a very hot industry group which is climbing up the charts. These oil stocks have done so with wedging and V-shape patterns and have made those gains on yellow BOP. There are very few out there that are setup in nice patterns.
Those that are setup for potential nice patterns will be written about in my column for RM tomorrow. There are some stocks out there in this incredibly strong group that have now rallied for a lot of days in a row on strong volume and with BOP going green. It would be nice if a lot of these stocks could pullback or move sideways for a few weeks on low volume with green BOP. That would give us a lot of nice chart patterns to consider buying once the stocks broke out.
But besides these hot oil, gold, steel, food, and other commodity stocks, there simply is nothing else that is doing well. Also watching pollution control, medical, beverage, and tobacco stocks run up the list of top groups is not bullish either. So for all of you who are out there and think that the final bottom of this market has been seen you should realize that since those 1/22 and 1/23 reversal days, the market has only risen three times on much higher volume. And even after those three big up days the Nassy has nothing to show for it. The only index that looks impressive is the NYSE and that is obviously due to its heavy weighting into commodities.
There is no doubt that this market is very wild and choppy on an intraday basis but overall on a daily chart you can see the index is tightening up into one coiled spring right at the 50 DMA. This can be said about all the indexes. Even with the NYSE and SP 600 looking stronger than the Nasdaq since the January lows, it really doesn’t matter because from the tops the trends are still down and the volume trends are still very bearish. Therefore, this coiled spring should probably break to the downside as once a trend is in motion it stays in motion.
Since the November highs, that trend has been down, and that is why the smartest investors are looking to get short here on the low volume rallies. And that is what we have with so many indexes right at the 50 DMA. They are all hitting this important psychological line on low volume which just increases the chance of a higher volume failure. The leading stocks and their charts confirm the weakness in the market. Stocks like BIDU are right there, AAPL is getting close, and GOOG has a bit more to rally before it finds resistance at that line. But when it does, it would make a lovely short to add to.
Now, while I have been short these stocks for a while now since the January top, only 1/2 of them have produced significant worthwhile gains of 20% to 35%. Sadly three failed: FSLR AMZN and RIMM. But those three will remain on my watchlist as future shorts while the others I will continue to monitor to look for places to add to my current batch of shorts.
The most difficult thing I am finding with this market continues to be that HOT charts do not exist and that is making it hard for me to load up on any one stock at any given moment. Instead there are a lot of great stocks with strong fundamentals that I buy a lot of. This seems to be the smart thing to do in this environment with the market going whichever way it wants and then ending up nowhere by the time it is all finished. This is why unless you are daytrading with huge margin and a high success ratio, doing anything else but sitting in cash is dangerous.
I know the commodity longs have been great. But a lot of people are just now getting interested in them. ONCE AGAIN, the public, is now interested in a product that has already been in an extremely bullish phase for such a long time. I received an email from someone, today, asking me if it was safe to buy MTL now. I was kind of shocked because I gave this as a long a while ago. But this just continues to prove that most investors have no clue where they are supposed to buy. Buying extended stocks is a sure sign that you will not do well in the stock market. I recommend most new investors make sure to NEVER chase a stock more than 5-10% past its pivot point (if you dont know what a pivot point is go to www.investors.com).
As long as you don’t get too excited about the commodity charts now, you will probably have a much better chance of getting long some of our favorites, if you will just give yourself a few days to let them pullback. If they blast off now and never pullback well then your lesson of not buying my 50 DMA bounces/breakout plays will have been learned. If they pullback on low volume you can then go in there and get your toes wet by buying some of the top stocks in the top industry groups on low volume pullbacks to the 50 DMA. You just have to make sure you are on top of it and monitoring them. And you might as well pay attention to these because besides chemical, ag, silver, gold, steel, food, medical, oil, solar, pollution control, tobacco, and telecom, everything else is moving lower and that is exactly how it plays out in a bear market.
I have a feeling we are getting closer to the moment where we will only be going long oil stocks and soon will be looking to be shorting the leaders once again. Hopefully, RIMM BIDU GRMN GOOG AAPL AMZN FSLR can all setup perfect short patterns that have been discussed in O’Neil’s book on shorting ad naseum. As those that have studied the past and read the book KNOW, the best time to short a former leader is NOT the day it tops BUT FIVE TO SEVEN MONTHS LATER!!
It takes a long time to create the perfect short patterns but if you study three recent GREAT shorts you will see that these topped way before I went short the “perfect” breakdown that led to massive gains in SGMS SIGM and CBEY. These stocks prove that stocks take a while to top. The best shorts come five to seven months after a top. Remember that!
Now, I must admit, this stock market is holding up very well. But the same thing happened after the initial leg down in 2000. From April to the end of August stocks rallied, appeared like they bottomed and all was good, and then crashed! The very same could easily be happening now as past leaders come off from their top spots and even the chemical stocks power is drying up. The one thing that happened then that happened now is that volume was huge on the selloff that led to the rally that was on low volume. This is yet another low volume rally after a massive heavy distribution selloff. There is no way, the way this market is moving higher, that I would ever fall in love with this market. How can I? Where are my EGHT charts?
Once I see more volume to the upside in the indexes and see a LOT (not just one like CMP) of charts setup like that then I will re-embrace the bull side. But for right now their is no way I am buying this BS when there is a possibility that Ben is going to lower rates another 50 basis points. LOL. If he does that I will just go in and buy the best commodity longs, with the best fundamentals and most beautiful chart patterns. Because God knows too much money chasing too few goods equals only one thing. INFLATION!
I feel like there isn’t much else I can add to the commentary, that I have not hit on at some point during the past week. If you have any questions that you would like to ask me feel free to leave them in the comments section. My Realmoney.com column will highlight the best oil&gas charts based on chart and fundamentals, tomorrow. So you can look forward to that. This sector is just on fire and oil rising $2 to $102 sure does help fuel that fire.
Cash is king, if you are a newbie; if you are an experienced active investor, getting a little long, a little short, and a lot cash is king!!
Aloha and I will see you in the chat room, where I continue to wonder where in the heck ALL!!!! of my experienced long-term members have gone. We had 15 people in the chat room out of 50 platinum members and only one member was there that has been there from the beginning. My question for everyone is: where in the heck are you all???????????????? I can understand one or two not showing up, but there are about 10 subscribers that are not even showing up during hours anymore when they used to be around ALL THE TIME!! Come on guys, get in the game! You don’t pay me money for nothing, do you? GET IN THE GAME! ALOHA!!!!
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4 Comments »
Joshua:
I’m a newbie to your site but a somewhat experienced CANSLIM investor. I “discovered” you on RM and Googled for your site (not surprisingly, I’m also a fan of RevShark, who was worth the price of RM all by himself until you showed up). I’m definitely getting my money’s worth here so far. You provide clarity to the CANSLIM strategy that I think is very helpful. I’ve also gotten into Telechart thanks to you, and I agree with you that it’s a great product. In any case, thanks for re-energizing my interest as an investor in an otherwise very difficult market. I expect I’ll be following you for a long time.
Brian
I LOVE IT!!!
I LOVE TO HEAR THAT!!!!
Thank you for being a part of this team!
ANYTIME YOU FEEL DOWN ON THIS MARKET!!!…please remember to go and review all of my ‘past big winners.’ After seeing enough of these and seeing those returns if that does not energize you…NOTHING will!!!!
This too shall pass. I am SO GLAD I have re-energized you. I love this profession more than almost any other “thing” I have done in my life. I am very happy my passion can be passed on.
I look forward to many years of swapping ideas with you!
What is funny is that you are subscribing to RM for the same reason I was until Kristin Bentz approached me. LOL. I was only reading Helene and Rev. WIth Manning, Schiller, Fitz, and Farley being of interest. Besides these fine contributors, none of the other “professionals” interest me. Why? LOL. Because I have seen their track records.
Brian, THANK YOU FOR THE KIND WORDS. Your words ENERGIZE me.
ALOHA!
Love to hear these comments!
Congrats
Excellent comments, I’m actually reading everyday, just too busy to show up in the chat room recently, life is too colorful here in shanghai ^_^