There Sure Is A Lot Bullishness Out There After Today’s Huge Lame Bounce; Real Bottoms Come With Volume, Unlike What Cramer Tells You (How Often Is He Wrong?)
March 18, 2008
It was another incredible day in the stock market as this time major market indexes rallied higher anywhere from 3.5% on the DJIA to 4.4% on the IBD 85-85. These gains were incredibly impressive and once again had the DJIA up over 400 points at 420.41. However, after you get past the % gains in the indexes today there really isn’t a whole lot to get too excited about.
First off, before you go out calling a bottom to everyone you know, remember, we have been here before no less than nine times on the SP 600 and six times on the NYSE, and every time we have heard people come out declaring a bottom they have been wrong. So, please, I beg of you, stop calling a bottom. If anything can be said we have a good chance of a very strong bounce but, come on, perma-bulls let’s look at the facts (I will get to those later).
Second, volume was pathetic. The SP 500 came in with volume above average but sadly this was no impressive showing as volume was lower than the day before. This is a replay of every other rally attempt that has failed since November. Something tells me this will not be any different in a few months. Even worse, the Nasdaq’s volume while a tad higher than the day before (not the convincing 20% over the previous day I am looking for) but it was below the 50 day volume average.
When the stock market has powerful days where the indexes are up over 3% yet volume is below average or weak overall you can almost guarantee that what you are truly seeing is a short-covering rally. Short-covering rallies, unlike the LIE Cramer told you today, do not start REAL! bull markets.
If you go back to the bottom in 2002, you can clearly see that almost every single up day came on higher volume while there were very few heavier volume pullbacks. This is what started to turn the accumulation/distribution rating to an A on the indexes by March of 2003. When March came and the indexes followed-through on huge price gains and volume, it was obvious that institutions went back to work; not short-covering! The fact that we can look at EVERY single major stock market bottom and find a significant volume surge, which is the footprints left by big institutions, with huge price gains proves that the big boys are what makes a bottom. Low volume rallies like this fail.
But the key is your time frame. If we are talking the next few days. Well, heck, duh! Of course, the stupid market could rally for a few days to weeks. But unless there is a day where the market is up 2% or more on volume 20% higher than the day before and above average there is just no way I am going 400% on margin in my IB account. Only a fool would load up here.
And even if this fool did load up here, unless it is the next TASR and he has made a lucky purchase, we can wait 4-10 weeks and wait for that perfect stock like TRAD back in 2003 which went on to make a 500% gain in six months. I wonder how those bottom-guessers did back then compared to CANSLIM investors. I am pretty sure I know.
So go ahead and try to bottom tick GS (which I covered today, btw), I will continue to go long the stocks that show up with my criteria. And then when the day comes where the next perfect stock setups (check out my ‘past big winners’ on my longs section at my .com address to see the chart patterns I LOAD-UP on; you should! be able to see the same similar patterns in each and every one.) and breaks out, I am sure by the end of the run the person that bottom ticked GS will not be getting the return I will be in the next TASR, TZOO, SINA, SOHU, NTES, SSYS, EVOL, EPIC, FMDAY, ALVR, TRAD, IST, DSTI, AFSI, TESO, HRZ, PTT, and many many more.
Right now, the problem with my methodology is that you are not going to find a lot of “hot” charts. You simply can’t. The bear market just started back in November and as anyone that has been following me for a long time knows from October 2002 to January 2007 I was a RAGING bull. After the selloff in February I got cautious but remained bullish and so it remained until November when the internals got really ugly and the charts finally broke down confirming the numbers.
So after being a bull for five years, I changed with the trend and have become bearish. Well as of right now, I don’t see how I can change that opinion until I get more stocks setting up and breaking out of clean bases on my past big winners and the two new longs tonight. Those longs are not perfect but one of them is near-perfect…it is sadly just in a horrible market. If it was “perfect” we could get real big. But thanks to this nutty market we must continue to keep it smaller. Remember, CASH IS KING.
It simply is not smart to trade heavily when there is no clear trend. I want to continue to remind you all that the greatest traders ever (Livermore, Baruch, Wyckoff, Loeb, Dreyfuss, Darvas, Lynch, Ropell, and O’Neil) never bought stocks that were moving down. N E V E R. Why in the heck any of you would want to do something the greatest traders ever did not do is BEYOND me. I simply can not believe we have books out there proving what works from the greatest yet people still do not listen. Stunning. I guess it is too much hard work.
So while I hoard my cash (which is now 50% of my accounts) and wait for those charts to show up that you all can see in the ‘past big winners’ section, there is nothing I can do but wait for those beauties to show up. The last thing I want to do is do what my angry emailer did last week and buy BSC all the way down after buying TMA all the way down from last August. If the greatest traders did not do it, I am not doing it. They definitely never traded like that.
Let’s say we do have a bottom and stocks do head higher from here. The first problem is that our leadership is horrible. We do not have any technology, banking, new fuel, or innovative technology sector leading. Instead we have the gold/silver, chemicals, oil and gas, and other commodity stocks leading this market down. If the market turns and we have to focus on the new leaders, well those would end up being tobacco stocks, oil/gas-US Royalty stocks, gold stocks, small regional banks, and transportation-Rail stocks. If you think this is going to lead to a brand new fresh bull market you are mad! LOL.
These stocks are your typical bear market bounce leaders. They fall the least during the downtrend and when the markets rally they outpace the market thus making good longs as the new leaders. Too bad these new leaders never produce big gains and since so many will shake you out it just isn’t worth playing for newbies. However, experienced investors can see that the Transportation-Rail led today, and has been one of the best groups the past six months moving from number 100 to number 6 on the IBD 197 industry group list, with a 5.1% gain. Then they can go out and get some leaders like KEX, CSX, or GWR. All three have very bullish charts and I guarantee will do a lot better than the stocks the rag-tag bottom fishers are jumping in after. How much more do you think LEH or BSC is going to rally???????????????????????
The fact of the matter is that people are focused on the wrong bank stocks. Instead of looking at this trash that has been CRUSHED and MUTILATED, we can move on to the new leaders like the very pretty HCBK or CBU and even others like ABN TMP OFG and IRW. Compare those charts to the charts of LEH and BSC. Now tell me you were right about telling me to go long BSC a week ago!!I would LOVE to get long HCBK and CBU but the charts must stay green (preferably max green BOP) and the price patterns must round out. If that happens, I wouldn’t mind adding these leaders to my 25% long positions (50% cash, 25% long, 25% short–biggest cash position since June/July 2002).
I know I have said it over and over but please everyone, do not fall for the lies and out-right reckless advice that I am seeing given on TV and on some financial websites. Remember there were 15 ratings on BSC with 5 buys and 10 holds. There was not one single sell. So if you think the sell side has your interest at hand you are very mistaken. They need to sell to you. So when you see these guys come on TV tomorrow telling you that you can’t miss anymore of the gains or else you will be left behind, please remember the following stats.
The other four times (not counting the fifth day since it just happened on 3/11) the DJIA has risen 400 points it has led to a bounce and then a rollover to new lows (July 24, 2002, July 29, 2002, April 5, 2001, March 16, 2000 and now March 11, 2008). The best day for the DJIA was March 16, 2000 when it rallied 499 points. How did that go for the market? As far as I can remember, it went nowhere for six months, and then went tumbling down.
What about the Nasdaq? Since the start in 1971, the Nasdaq’s nine best sessions all came during May 2000 to May 2002, not during the 2003-2007 bull market. Its best day was a 14.7% gain on Jan. 1, 2001. That rally lasted a whole month, before leading to one massive selloff into the post 9/11 lows.
So these are the facts. Facts are what matters in the stock market; not personal opinions. Personal opinions is not going to get you a big winner like EGHT which from the late-October bounce off the 50 DMA to the late-November climax top gained a beautiful 295%. 295% in one month isn’t bad considering that was a full year after the October 2002 bottom. SO WHY DO WE NEED TO PICK THE BOTTOM?????? Exactly! You do not have to. It is a fools game and a game usually reserved for non-CANSLIM experts who don’t need to gamble.
History has proven year-after-year, decade-after-decade that the stock market’s biggest winners all have the same 7 characteristics. They all form to make up the acronym CANSLIM. Once you take the time to learn this methodology and TRUST IT that it will work for you in time, you can transform your life from a lifetime pursuit of mediocre returns to a lifetime pursuit of passions with all the free time you have being a CANSLIM active-investor. If I was ONLY trading my portfolios and scanning my charts, I could get all of this done in 3 hours every day 5 days of the week. Not bad for 15 hours of smart work.
Don’t be fooled by the gamblers who bottom-guess. We have a winning system on our side. Right now, it says, it is best to be patient. Therefore, I will not be pressing anything on the long or short side. CASH IS KING! Aloha and I will see you in the chat room where we have a great crew of professionals and newbies that make me so happy seeing there amazing progress. I am simply amazed guys. You all are amazing. I can not believe how well you are all doing. Keep up the great work!!!! ALOHA!!!!!!
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“The Tale of Two Tuesdays”
What does 836 points on the Dow get you? 68 stocks hitting new highs, that’s what. 836 points ain’t what it used to be….
Author_Ego
17 to 1 advancers to decliners on the NYSE
Extreme? Yes.
39 new 52-week highs and 285 new 52-week lows today.
Someone told me that there are always more new lows than highs at the bottom. ROFLMAO. They need to check that March 2003 follow-through. I wish I still had the data.
Gosh I wish I could have surfed that COLD swell up northeast.
If anyone surfs and ever wants to exchange stock market lessons which normally run around $500 an hour one-on-one instead for a “guided surf-trip” let me know!!! Before my MS kills me or debilitates me for good, I would like to surf the USA or other places around the world (depending on our currency :().
BTW, put/call ratio fell below 1 to .96. That is still high on the short term and confirms that the bounce could still have legs but with the VIX collapsing to 25, don’t count on this lasting very long.
A VIX at 25 is SO DEPRESSING. Just when we thought we had a chance to make some big money again, this happens.
Thanks crazy stock market!
Futures this a.m. do not look promising. Once again, without volume and breadth, it’s not a rally but a one-day wonder. Great commentary, Joshua.
Futs have recovered somewhat…let’s see how the day shakes down.
Here’s a nice comment I found today to keep things in perspective:
At a Level I meeting I learned that the past 16 market rallies with a distribution day within a day or so after a confirmation day has led to 15 failures of the market rally. This now makes 16 out of 17 market rallies have failed with this type of distribution scenario.
Thank you for the VERY IMPORTANT!! statistic, Todd. 16 out of 17 rally attempts have failed when a distribution day followed within the next few days of a follow-through day. These are facts, not opinions.
More proof this market is FREAKING NUTS: GTU. So much for that HOT chart. Jesus Christ, NOTHING last! LOL.
F this market. Stay out!!! CASH IS KING!!!
Gold got slaughtered today…a few and far between with longs. Sheesh. But, what do you expect from a Bear Market?