Stocks Selloff A Day After Strong Gains, Once Again, But Volume Comes In Lower; Bottom Callers Are Starting To Wonder About Their Bottom
February 21, 2008
Today proves one thing: CASH IS KING. There is no other better way to start this commentary off tonight than by reiterating what I have been saying for the last few weeks. This market simply has no direction and since around January 15-16 the market has basically gone nowhere, just trading in one giant range. This tightening range is showing up as symmetrical triangles on the daily charts of the Nasdaq, SP 500, and other indexes. The problem with this is that the range is tightening on lighter volume. Lighter volume consolidation patterns usually lead to a breakout in the same direction that the base came from. That trend is down.
So with the market coiling up for a move, the 50 day moving averages coming very close to the indexes as resistance, and the volume shrinking, it could be safe to say that the next move for this market is a break lower. With the indexes being so close to the moving average line it just seems that there has not been enough buying pressure to push the markets above the moving averages.
That move lower could either become our next leg down or this could be just another step in a long drawn out range bound process but no matter which way it ends we at least know that we should be out of the market and avoiding getting heavily involved. There simply is no direction in the market on the short term and with volume being below average most of the days it is a clear indication that the big money is not active and until they get active there should be no reason for you to get active. I will say it one more time: cash is king.
And for those of you who are bullish…why? I see absolutely no reason to be long this market overall when you have such a pervasive downtrend below the 50 DMA of the indexes along with so few beautiful bases and charts setting up in stocks with great fundamentals. When you have this ugly kind of action in so many stocks and your only stocks rallying are your commodity and defensive issues then you should probably position yourself in a defensive position and refuse to get very long here. Too bad I still see some that think the market is moving higher simply based on the fact that the market is still holding above the lows. Yeah, that is true. But for how long?
It seems to me that with the internals so weak and fear non-existent that is simply is impossible to move higher. Breadth was more than 2 o 1 negative, there were 79 new highs to 170 new lows, showing that new lows still are beating the highs, the VIX is only at 27, and the put/call only rose to .96 from .91 despite the hard selling in the market. These internals clearly point to a market that is not yet ready to rally. These are not the internals you see in a market trying to setup from a real bottom.
Now I want to talk about something I witnessed on RM today. Hewitt whatever his name is decided to come out and attack Rev on the merits of TA vs FA. I guess this jokester did NOT take the time to visit my site and did NOT go through my past big winners when he decided to send me an email shortly after I joined to let me know how smart he is.
Well sadly since I did not hear from him, and he made the comments he did today about Rev’s book, it is obvious he doesn’t do the proper research to learn how to make the big money. I guess he is so happy with his style he has decided to blind himself to the truth that his FA vs TA argument is flawed based on the fact that most people that use TA WITH STOCKS don’t just use TA. They use TA and FA in combination to come up with a system called CANSLIM. Duh!!! Hello children (Hew, Kass, Cramer, Marcin, and the rest of those egotistical fools–they are fools for denying the success of the CANSLIM system), don’t you see the results that O’Neil has put up? Don’t you see the returns of his CANSLIM followers that use this strategy? I just don’t get it. And maybe that is why we are not losing a lot of money here and so many of them are. Last time I checked, IMA VZ SGP C sure did not make me money and since I was told to not cut my losses I am probably broke if I am that person that went long this trash.
Which brings me to tomorrow’s RM column on IMA which is going to basically throw egg in the face of the bottom callers. I have no clue why people can not buy BRAND NEW 52-week highs when they know historically stocks FIRST hitting new highs continue to hit new highs and stocks that FIRST hit new lows continue to hit new lows. Before a stock can move up 2500%, if first has to move up 10%. Since 2000% winners do not come from negative returns, it doesn’t make sense to hold on to losing stocks. Only buying and holding new highs can produce gains. You can not make money buying and holding new lows. But to me this seems simple.
It just doesn’t make sense to blindly buy stocks based on either TA or FA alone. It makes way more sense to find the HOTTEST charts and then look at the fundamentals. And if both line up with superior growth, you start a position as described per O’Neil’s book “How to Make Money in Stocks.” Using a form of TA and FA seems to make a lot of sense to me. Kind of like an X-ray and surgery. I sure wouldn’t want only one and not the other.
The fact is that this market sucks and is not offering ANY stocks that produce huge gains up or down with a clear “for-sure” chart pattern is just the nature of the game. This happened exactly in 2000. And if you review my past big winners, you should notice that a TON!!!! come up in bull markets like 1999, 2003, 2004, and somewhat 05-early 07. But in any other kind of market, notice you only find one to five in a year. 2000-late 2002 was very hard and November 2007 till however long the VIX stays under 35 will be very hard too.
For those of you looking for my 2007 and 2006 winners, the easiest thing to do is go to my site at mauitrader and look through all the post when THE MARKETS WERE IN UPTRENDS and look at the bottom of the commentary entries. There you can see the returns of all longs I held up over 50%. What you will not know is which ones I had a lot of but you can figure that out by looking at the chart and the fundamentals. But by looking at those returns and looking at my returns from 1999 (I left out 1998 due to poor records/no records) till 2005, you can see what can be gained in bullish markets that are fresh and in bullish stocks in top sectors in bear markets). By reviewing all of these past winners, NO MATTER WHAT YEAR THEY ARE IN SINCE HISTORY AND CHART PATTERNS ALWAYS!!!!!!!!! REPEAT THEMSELVES AND HAVE SINCE AT LEAST 1890, you will know exactly what to look for before loading up on something. This market environment, unless it is in the gold, oil, steel, metals, medical, or another commodity group, is not good for looking for HUGE winners. You simply can’t find them. As each year went by since the 2002 lows, fewer and fewer stocks are making 100% or more moves. Each year it has declined and now nothing is moving because the market is so weak. How is this bullish?
The fact of the matter is that it is not bullish for most traders. Very few traders know to be long MTL and AUY heavy right now, like I do, and instead see RIMM pop and most of them flock there. But RIMM BIDU GOOG AAPL are under severe selling pressure and when this rally is done they have a lot of overhead resistance that can force prices down. AUY and MTL are clean as can be. They are in solid uptrends, from hot industry groups that are zooming up the industry list, and the fundamentals are fantastic making them the clear leaders in this market.
The smart thing to do, if you have not been able to recognize the leadership change, which is easy to do if you always check the IBD 197 industry groups and focus on the top 20 groups watching the rotation and checking on the ones entering the list from the furthest away, is to keep checking for the new fresh bases in these groups.
Recently the steel stocks have shown up again after topping in 2006 and coming in with them the oil and gold stocks are back. Some stocks like SWC represent platinum, and when you see charts rallying on HUGE ACCUMULATION and green BOP like that, I get really excited and start to monitor it. If SWC can go sideways on low volume and then breakout on strong volume from a 5 week or longer basing pattern I would be very happy. If it does that with BOP staying green to max green, I will not be afraid to load up because the company is expected to make money by the end of the year (.85 for 2008). These are the chart patterns that catch my attention and get my watchlist active.
Seeing stocks like this is bullish….for metal stocks. When you see tech stocks and new innovative companies trading for more than $25 a share make these bases, it will be bullish for the market. But for now it is only bullish for these commodity stocks which should be bearish for the overall market.
So if you are not quick and nimble and ready to get long some commodity stocks, I must recommend that you put that cash to work in bonds or wherever you like to park it. 0% this year, 0% this year, and 1000% the next year is still 333% gain annually for three years. So remember, you only need a REALLY BULLISH bull market like 1999 and 2003 one time to make a career. Hopefully, all of you are preparing for that and my past big winners are helping keep you involved in this market that is void of charts.
Aloha and I will see you in the chatroom!
PS: I just learned a new subscriber quit his dayjob to “trade” stocks. All of you that traded 1995-2002 should know what that means.
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Comments
7 Comments »
My MOBE:
http://www.bigwavetrading.com/2008/02/21/mobe-5-22-03-to-12-2-03/
Hi Josh,
Regarding FA vs TA, I talk about TA to people too, and most are skeptical. If you don’t take the time to see the patterns and profit potential unfold for yourself, I guess its hard to believe there’s that much structure to capitalize on. I think the general attitude is that if you could just read the market like a book, everyone would do it and be rich, therefore it must not be true. Its a naive oversimplification of the art, and their preference to hold on to that view is their loss, and our gain. We just need (want) them to keep pumping the money in blindly and perpetuate all those market dynamics and processes we can profit from. Go ahead…make our day, and our year.
I LOVE THAT COMMENT!
100% BRILLIANT, MATE!!!
Josh,
you are the man with SIGM. What do you do in these type of situations? Would you take some off the table now and let the rest run and if it rallies on low volume keep playing it? Or do you just say I made 14% and close your position. Thanks for your site. I am constanly learning.
Felix
Maybe you take in 20% but it is just now cracking. Why would you cover????
That is trading scared and comes from not knowing your past. I would do what you said at first: partial out of some. But never say…oh 14% is good enough. I expect 50% from all my shorts. So far we have only had two I think do that (SHOO and SGMS)
You are very welcome. Keep learning and reviewing my past trades. That is the only way you can learn to hold for the big winners. Not sure why you want to cover it all when IT IS JUST STARTING to breakdown but take 20% in to take some profits. I know I will take at least 10% off.
I was thinking it may find some support at 35 but when I look at the weekly chart there is tons of distribution. You are right, I am trading scared. I shouldn’t be fearful of losing a profit but hopeful to make more since the trade is going according to plan. Thanks.
Yes. I bet Author Ego can find us a bunch of quotes from Livermore on this subject.
Author can you find any for us?
We are afraid of losing the gains we have when we should be afraid of missing MORE gains with the stock tanking. We should be hopeful of it falling 90%; not hopeful for the current gains.
The trend will always be your friend, Felix. And I will be too. Keep up the great work. I love it when smart people answer their own questions. I LOVE IT!!!!! Great job.