Mixed Volume Selling Hits All Indexes Hard As Bids Disappear; A Lot Of Nasty Selloffs Start On Lower Volume
December 17, 2007
Today was nothing new under the sky as the market continued its overall trend of going down with the Nasdaq 100 falling 2.5%. The heavy selling amongst the big caps indicates that there is very few safe spots and the once popular big-cap tech stocks are now no longer safe as the markets selloff appears to be spreading to almost every sector including oil.
The selling appears, at first, to be not that bad as you see volume below the 50 day volume average. But the fact that volume was higher on the NYSE than the day before, and according to IBD the Nasdaq also (on my charts volume appears lower), indicates that the few funds operating right now are distributing stocks. This made it the third day and second day for the Nasdaq and NYSE respectively since the November 28th follow-through from the IBD indexes.
I see and hear a lot of investors that want to buy stocks down here to grab a “bargain” and get something at a “discount” with a “great” dividend. All I have to tell these people is that this is a horrible idea as every stock’s chart amongst the better performing stocks the past five years look horrible and broken. Even though some of this is on low volume like the major market indexes right now, I think some people forget that a lot of big selloff start with low volume.
This one “technically” did not. If you look at weekly charts you can see all the big tall red bars (distribution) spread all over the indexes this year. However, the most recent selloff is coming on lower volume than the November drop. What people don’t realize is that after the initial selloff in March 2000 the market rallied on low volume then began its nastiest selloff on very low volume that picked up as it moved along. I can also remember this happening after the January 2001 rally when the market sold off on lower volume much lower till the April lows. Then it did the same thing over again leading to the 9/11 attacks. In 2000 and 2001 when the big selloff started it is safe to say a lot of the downtrend occurred on lower volume.
After a very long downtrend, the stock market sold off one more time on lower volume from July 2002 to October 2002. But that was the low volume selloff that was combined with a lot of subtle accumulation days that then led to the rally from October to November on strong volume. After more low volume selling from December to March, everyone finally gave up. But sadly, for them, they gave up at the bottom. All that previous accumulation followed by that last bout of low volume selling was what led to the Nasdaq’s huge rally in 2003.
The way this market looks right now, we are nowhere near that 2002 moment. To me this completely looks just like March to April 2000. The leading big-cap stocks are just now starting to show some cracks after rallying on lower volume and a lot of negative divergences in technical indicators. I am now personally going to be short RIMM AMZN and GOOG in the AM as I see signs of possible topping combined with the current action of the stock market which is the most important thing to me.
I tell you what, just getting off the chart theme–well, not really–this market looks really bad. They always say it looks worse before the turn. But this could get much uglier and you better hope it does because a rally here would be pathetic, to say the least, with the VIX at only 24 up ONLY 5% today! This index has NO fear in it and confirming it is the put/call which didn’t move at all today staying at 1.03. How can there be fear in the market when put buying and a lack of call buying happens. There isn’t. And once again, the final confirmation and my favorite bottom forecasting tool: the investors intelligence survey, like I posted twice the past three days, had bulls RISE and bears FALL. It needs to go the other way.
So with there being no fear out there and with almost all of my charts being destroyed, it sure doesn’t look good for the market. But a funny sidenote is that the few good looking charts out there…are in my accounts. If it is green and mean, I am long. And even though I don’t like cheap stocks, I am coming for QSC on the next breakout as long as BOP doesn’t drop from the max green territory. Besides those few longs of mine, the markets are simply too red and nasty to be worth going long.
The other proof that being short is the right side is that almost everything I short works. There are obviously cut losses and we had one day where we had to cover a bunch of shorts quickly. But besides the few 3-10% losses, we have a lot of shorts producing quick gains (CLP 31% FAF 26% RNT 23% SHOO 22% PVH 21% COH 21% MI 20%). Also my recent shorts are going down immediately and my new longs are very mixed with a lot more failing now than working. Thank God I go short and long and am not a permabull like I was called quite a few times in the chat rooms and amongst some of my peers. I am a simple chart reader.
And anyone that can use a price and volume chart that can analyze sectors and the market will tell you that this market is in big trouble. When you look at charts like GRT and look at other stocks in the bank, REIT, insurance, mortgage, and finance industries, you can see a ton of carnage that looks just like that. Heck, just look at my shorts and the quick gains they are producing. It is ugly.
And if you don’t believe my analysis maybe you will listen to Dennis Gartmann who said the market will see new lows by the year end. Confirming the problems with the market is Louise Yamada who posted a picture of the bank/brokerage stocks with dividends simple line price chart. She showed how it has freshly broken six year support and is in big trouble based on her analysis. She said six-year breaks are HUGELY important. Another statement confirming his outlook is to be long defensive stocks like PEP and CCE. She said to buy on pullbacks to the 50 dma. These intelligent technicians are doing what I am doing. Simply following the trend.
I am going to continue to post ‘past big winners’ on my ‘longs’ section of the website to keep you motivated to know that there is always a green BOP filled winner all the time, even during bear markets. I have one more chart to post from the 99-00 era that was a big winner. I did not think it was green and pretty enough to post but I should post them all since it was up 400%. Still LMLP is the one you want to stare at and let soak in your brain. That is the beautiful chart you always want to buy and those are the ones you want to see to know you are going to make a lot of money.
Right now, they don’t exist. The one that was most recently working was AGX. After my buy, it fails. And now here it comes back again jumping right off the 50 dma on huge volume. This doesn’t happen in a strong market. If you notice all those longs in 99-00 posted you will notice they almost never even break the 50 dma. Some do but not by much and most normally hold right there and go back up. When you see my winners from April 00-August00, January01-February 01, September 01- January 02, October 02- March 03, and March 03-May 06. The period from late 06-now only produced a handful of “big winners” and they really haven’t been anything amazing. Until we see what you see in there, it is going to be hard to make money on the long side.
For now I am going to focus on the short side and concentrate on keeping a good amount of cash ready for when we get one of these moments and I find a chart like RICK and DAR. Hopefully, though, they act like RICK and not like DAR.
We are probably in for a rough week for a lot of traders and it is best if I get some rest before tomorrow’s trading session. With that I wish you the best, God bless, and be careful out there. MAKE SURE TO CUT THOSE LOSSES NO QUESTIONS ASKED! Aloha!
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