Stocks Slip On Higher Volume, Giving Stocks Another Distribution Day; Distro Day Feels Very Weak As Top Stocks Did Well On Monday

October 16, 2007

It was another round of selling, after the attempted bounce on Friday. A lot of traders are asking if we are putting in a top and I have to be honest and tell them that I am not sure and do not care either way. It was bad that the markets fell 1% across the board but during the final hour stocks broke out above the intraday downtrend line signaling that there was some buyers willing to step up and buy the selling. Really weak markets tend to end with selling lasting till the close. The fact that the indexes flashed another “tail” on their daily charts shows that sellers are not in complete control and that bulls still rule this nest.

Right now, it still appears that stocks are selling off quite normally and I have to say that my personal portfolios are all holding up very well into this selling. In a truly bad market my stocks would be getting nailed if the market was that bad. The only top stock that clearly failed was NILE and the buy off NILE was coming from a very wide and loose bounce off the 50 day moving average. The pattern was much more crazy and volatile compared to the previous bases and uptrends, indicating to us that this might happen. So with that being the only real tragedy out there, I have to call today a success.

Even though today was the first day of selling in all indexes since the August 29th follow-through, the other clear noticeable bullish event was that the IBD 100 rose .1%. That clearly tells us, right there, that leadings stocks are holding up very well into the selling that we are seeing. Off-hand I can not remember what the IBD 100 did on Thursday but it also did better than the overall market. Just like my accounts, if this market was in trouble, the selling would have hurt the IBD 100 by a much larger margin compared to the indexes. So this just confirms that the selling is not bad…yet. It could always get worse later on and volume could pick up to the downside. But my job is to not worry about the future. My job is to make money now. If I don’t do my job I don’t eat!

Are there things to be concerned about? Yes. Chinese stocks are clearly entering parabolic stages. But the good/bad news in that is that if you compare their market to our 2000 Nassy, you can see that stocks like JRJC have only completed one stage of its uptrend. If this was truly like 2000, JRJC and CHNR are going to hit par or higher ($100 or higher). That and the parabolic shapes that are taking form in a couple of my beautiful dry-bulk shipping stocks like EXM and DRYS are another yellow flag that must be raised warning us of a possible end to the rally. However, no matter how these two areas do, it wont be a REAL top until the leaders like GOOG, RIMM, AAPL, and BIDU are chopped down hard, fail a rally, and then rollover on huge volume. When you see that scenario setup, trust me, it will be time to be short. You don’t have to nail the exact top to make a shitload of money on the short side.

HISTORY OF THE MARKETS BIGGEST WINNERS ON THE SHORT SIDE PROVE THAT THE BEST TIME TO ENTER THESE SHORTS ARE FIVE TO SEVEN MONTHS A-F-T-E-R THEIR TOP. This is when they fall their fastest and hardest, leaving traders to just make money INSTEAD OF BEING WHIPPED LEFT AND RIGHT AND FRONT AND BACK while the stock tries to setup in a trend. Stocks rarely, if ever, fall straight down right after putting in a top. JRJC and ZNH are perfect examples. Another Chinese stock is TNH. That stock looked like it topped twice before the current action in the stock. Yet there the damn stock is, still hanging around its highs. When the move in May doesn’t top the stock like TNH out, you know there is a powerful bull in China. Until BIDU has a few more days like Thursday, there just simply isn’t anything to worry about…yet.

Aloha and I will see you in the chat room where we know no fear of the stock market and silly talks of an October 1987 crash….well maybe some do. God knows I don’t.

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