Very Tight Trading Range On Lower Volume Hints That Traders Might Be Starting Christmas Early; Never Short A Dull Market

December 19, 2007

Stocks traded in a pretty erratic and tight range today, compared to the recent volatility that we have had in the market that yet has not showed up in the VIX as it fell once again much harder than the market to the 21.30 level. Despite the lack of volatility, some more speculative indexes are outperforming on the short term with the Russell 2000 up .27% today and the SP 600 up .16%. That combined with the IBD 85-85 index rallying .6% shows that leading and small cap stocks (which are usually more momentum/speculative type stocks) are making an end of the year Santa Claus rally looking ever more sure of happening. Especially with the last two days showing bullish intraday reversals in the indexes.

The one thing that has me feeling that the Santa Claus rally could be starting is that last night there were a few really great long setups and basically most worked extremely well with the best one performing the best. That is how it used to be until after April 2007. It has been a long time since near-perfect to perfect charts have worked with regularity. But so far the last three are working and all three show me gains. That along with the rest of the recent longs acting alright is a sign that the market is either ready to rally a little or I am just in the completely right stocks that are going to rally while the market falls.

While that is very well possible there are some other things that hint that it is the market that wants to move up a bit. New highs expanded today compared to recent action, even with the DJIA, NYSE, and SP 500 down today. There were 49 new highs compared to 370 new lows. Compared to yesterday, even with those three indexes down, you can see new highs rose and new lows fell. That is positive divergence. Also breadth was only slightly negative today which is much better than some of the up days recently that have still had really bad breadth.

Recently, I have noticed some talk of some saying that it is real bearish out there. To that I continue to say you are out of your mind. Some commentators have noted that there is a high level of pessimism out there and that nobody wants to buy stocks. If that is the case, how come the big caps fell and the small caps barely rose but the put/call went from 1.03 to .89 today. That seems to me that a lot feel bullish about a Santa Claus rally. And while that may work since we got a bit oversold and some nice charts have setup, nothing guarantees any rally will last.

I constantly remind you that the market hates uncertainty and despite the Fed telling us that they are going to make this the most transparent Fed, a ton of market participants feel in the dark. So with that in mind I am not sure how a powerful all-out rally is going to happen here. Especially when there is NO REAL FEAR in the market. Just watch Jim Cramer’s ‘Mad Money’ show and you will see that everyone wants to buy the “bargains” and wants to “average down” on this “for sure” winners.

Folks this is the same stuff I heard in 2000. Before 2007, no one sounded like this since then. Now they sound just like the same schmucks who repeated the same stuff in the early 90s bear market before the great bubble. You do not get bottoms when people want to buy the bargains. You get bottoms when people don’t call in to the show anymore. We are a long way from that. And if some of you need proof I will list it once again.

The put/call ratio shows no fear, the VIX shows no fear, the investors intelligence survey shows no fear, the ticker sense blogger survey shows no fear, and the general public shows no fear. If you don’t believe with the Cramer show, then why did I have someone I know walk up to me and ask “did you play Activision when the Wii announcement was made?” How do you think I responded to that statement from David E****? You guessed right.

Today’s market overall really was meaningless. In fact it was almost an inside day. But underneath I have listed the reasons today and yesterday to why I am leaning on the long side in the short term. HRBN, PDGI, NNDS, FFH, RICK, DAR, EGN, CSIQ, and MELI don’t show up in market that are about to crash. This market could slowly bleed itself to death, just like the 00-02 bear did. If it does that I will continue to find more OXPS, NNDS, XTXI, and CXO type of stocks (yesterday’s longs). But if we were going to crash, everything would look like CM. So at least you know that isn’t going to happen.

If we didn’t have any green charts I would be bearish short term. But I have now said everything I possibly can about why Santa Claus is coming to town and why being long is strong when winter comes along. Never short a dull market and never short a market that is not breaking down on huge volume. These are just all of too many reasons why we must be very flexible right now.

Now…will I be shocked if we go down 1% tomorrow. Sort of, only because so many nice to better-than-nice stocks have started showing up on the scans. But in a bear market, nice charts are quickly destroyed as selling in large swings can stop any rally when 3 out of 4 stocks are falling with the market. If we do pullback into Christmas, in all honesty, that should make you bullish on the sub-intermediate term as then “as wallstreet usually goes” a low volume pullback is followed by a higher volume rally. While a Santa Claus rally could invite higher volume selling. Either way I think have done a great job with keeping you guys on top of this market and no matter what happens one thing is very clear.

It don’t matter what way the market goes, our longs and shorts are both working. After the first intial wave of selling, I have basically bought a few stocks and have remained long about 100 others. That, along with my shorts that I add that mostly have turned out very well (CLP down 33% and COH down 27% in a bit less than two months), continue to help me do very well, despite my near fatal mistake with ASYS over a simple order entry mistake. Trading, like football, is a game of inches. You like that, men?

Alright, there is nothing really that I can add that I can think of. I think I have hit on everything about as well as I can without giving a live web presentation where I talk and use a cursor to show you everything on the charts. That would be nice wouldn’t it? Too bad I don’t know anything about this technology. I downloaded Mikogo because it looked popular. We will see how that goes. Aloha and I will see you in the chat room where everything is celebrated Kwanzaa, Chanuka, EID, Christmas, whatever! Happy Holidays!!

Subscribe To Site: