Nice Intraday Reversal Takes Stocks Well Off The Lows, On Much Lower Volume; Wall-Street Goes On Vacation

August 20, 2007

Today was easily one of the most dull days my scans have ever seen. There was not a single scan of mine that had more than 32 stocks in it. That pretty much told the tale of the market today, as today’s intraday reversal came on volume 30%-40% lower on both exchanges. Therefore, I continue to believe we are in the middle of a dead cat bounce.

However, since the market doesn’t give a crap about what I think, I am going to have to support my thesis. The fact that there are still absolutely ZERO charts setting up in what I would consider beautiful bases is the top reason I don’t see us making much headways any time soon. Second, there were 27 new 52-week highs to 105 new 52-week lows. That clearly shows that the action underneath the market is much weaker than what a select few are leading the indexes to show. When stocks like RIMM and CROX continue to do well, the majority of the other stocks are simply acting horribly.

But we are not going to top until GOOG AAPL RIMM CROX BIDU etc..top because until they top the biggest weight on the market will continue to hold the indexes up. This is why it is not smart to be short here. Look at what I just posted on my “new shorts” section. This pretty much explains the situation in stock shorts right now. The fact is until these high priced leaders top, the market will not top. And without new leaders, we are not going to get a bull market, so expect more wild volatile sideways random action for now.

Here is what I posted on the shorts section:

Not only were there no shorts in my scans but even if there was it would be hard to take them considering how poorly the short setups are working right now. Obviously, the market, is telling us it not only is not the right time to be long, it is not the right time to be short. Just look at the action in RIMM and CROX and you can see when the leaders are hitting all-time highs and nearing them. When that is happening it sure is not the right time to go all-in on the short side.

This also shows how important discipline is. Imagine if I was cocky like most â€œsmartâ€ TV anchors and went all-in on my shorts. Well, I sure would be hurting. Trust me, when the right time to short comes, I will be putting a lot more than $500 in each short. ATI is still the only short where I have invested more than $1,000 in it. That is not even close to being 1% of my portfolio. When we get another 1999 and 2003 moment on the long side, I will be all-in. And when we setup like we did in September 2000 and March 2002, I will be all-in on the short side. Right now, the right side, is the sidelines.

The other clearly troubling thing I saw today was the 3-month treasury bill. That thing dropped 66 basis points which was its biggest crash since the 1987 stock market crash. That is just unbelievable! With action like that in the credit markets and with so few good looking charts out there, I must reiterate one more time to keep cash heavy and not make any big bets at this stage of the game.

Can we continue to get a rally here? Sure. We are oversold, the put/call has come down to .88, NYSE short-interest ratio has come in and appears to be stalling out around 6%, the bulls are at their lowest point since 2003 in the AAII survey, and the VIX has climbed quite handsomely. However, with everything I have mentioned before, unless we get some nice chart formations again, I can’t possibly see how this can be more than a bounce right here. Something just doesn’t feel or look right. The Fed injection of money and the crashing of the 3-month treasury note is just too fishy, to go along with the market that is under distribution and this market that is lacking any nice charts.

Be careful out there. KEEP THAT CASH HEAVY. And sadly, I don’t even think we are safe in cash in the US Dollar. However, that is a macro subject on a micro website. And I don’t want to tackle this subject here right now. All I will say is look at a five year chart of the US Dollar. Aloha and I will see you in the chat room!

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