When A Market Acts Like This After Giving You A Few Nice Longs It Is Very Bearish; Stocks Selloff On Lighter Volume, Sending Some Indexes To New Closing 52-Week Lows
March 6, 2008
There is almost no other way to spin this day other than extremely bearish. From the morning to the close, the market sold off all day, with the only bit of consolation coming in the form of lower volume. However, the ferocity of the selling with absolutely no bounce, coming after quite a few recent nice charts have setup, is very bearish. If this market can selloff like that on lower volume, imagine what it is going to do once institutional investors get back to selling.
When I woke up this morning and saw the damage, my first reaction, was sort of a bit of bewilderment as we jut had two handfuls of charts setup in very nice patterns in leading sectors. So when I saw the selloff I was immediately disappointed that the few longs that setup can’t even get the market going a little bit. This disappointment, is obviously not from the market being down (you should ALL know that I am VERY bearish on this market, by now) but the fact that even when it appears that it can bounce, it can not. With that kind of action, it seems impossible to think that any “HOT” charts can setup. So throw NEU and CMP to the dogs. They can’t be perfect anymore. Nothing can be, right now. The charts, minus the metals, are in trouble.
Not only are stocks in trouble, but every piece of economic data that comes rolling in is literally rolling off the charts. Today it continued with word that the total amount of all mortgages that were in foreclosure was .83% which was a record high. Not only that, but the delinquency rate hit 5.8% which is the worst since 1985. Data like that, combined with the Fed telling us that American’s debt on their homes is higher than equity in the home for the first time since 1945. That happens to be when they started keeping records. It is quite possible that this is the lowest ever.
When you see this and see the market acting the way it is, how you can want to be either buying stocks here or looking to buy stocks here is shocking to me. Everyone should be very worried that this could get a lot worse and that prices can get a lot lower. Do you think ANYONE besides me thought BIDU, GOOG, AAPL, and GRMN would be down 40% already from their tops? Then when you take a look at FSLR ISRG and RIMM, it becomes clear that the other leaders are not ready to rally either. When you see this action, along with the bank stocks crashing, I am just stunned that anyone could want to even consider being long here.
And trust me, there are a lot of people still very long. They are not selling as they feel that stocks are down too much already and that there isn’t much more to go. Therefore, they better stay long and in fact since the bottom is near it is time to probably add more to some of their losers. This is what people did in 2000 and by 2002 they were out!!!!! Those that added to stocks on the way down failed. I know they did; I was there! I watched, personally, over 10 people fail. People I would consider great friends. These fools couldn’t stop buying falling stocks. The worst guy lives on Maui. I was right there telling him what not to do and yet he did THE OPPOSITE!! It was psycho and shows how hard it is going to be convincing people the bull is over.
But I have just had a subscriber (Vivek) inform me that on ‘Fast Money’ on CNBCrap is telling viewers that they have to buy the banks here at new lows. That kind of advice has already done a lot of damage and is going to do more. I stopped watching that show in November, after starting to watch CNBC to help me feel when the turn was coming, due to it being over the top and the recommendations being HORRIBLE. This is what is going to get a lot of people hurt and this is why wherever you go and whoever you meet that you know that invest in stocks, you must tell them that CASH IS KING!
If anything this market should prove the benefits of cutting losses. Rather if it is CROX, HLYS, GS, C, IMA, TMA, ABK, or any other stock that has left a lot of people, that bought at the top, very broke, one thing can be said for cutting your losses: it works and it keeps you in the game. It is almost impossible to cut your losses fast and go broke. You would have to fail on every single one of your trades. And if my dumb ass, who has some of the WORST LUCK you will ever see (thank God I bust my hump), can make a lot of money in the stock market, by riding winners and CUTTING MY LOSSES FAST, trust me, you can also. All you have to make sure you do is KNOW that there will ALWAYS be another bull market, stay positive, and cut those losses fast so you will have more money to use on the next possible play.
And right now that is what everyone must do, if you are still trying the STUPID and FOOLISH game of bottom fishing. You must quit this VERY LOW ODDS game and move into cash. Cash is king because it will give you a time to reflect on your trading, allow you to get in sync with the market (in case you are bullish right now–if you were, you can’t be now), and have MORE MONEY available so when the next really great charts come along you can attack them like a shark. And trust me, they will come along again! I do not know when. NOBODY DOES as NOBODY CAN PREDICT THE FUTURE. But the charts you see in my ‘past big winners.’ are nowhere to be found in this market and therefore we must be patient and wait to go long stock charts that have these great patterns.
We can keep poking around with very strong chart patterns in stocks with great fundamentals (like AUY) or go long stocks with great patterns with fundamentals that are soon-to-be CANSLIM quality (like FDG). But unless you have a chart loaded with max green BOP for the past three months plus and a TON of huge accumulation there is no way you should go long anything with poor fundamentals. In this market, the stock needs to be in a top industry group (top 20 of 197 and moving up the list over the last 6 months) and have great fundamentals. Unless the stock has this, along with a strong to perfect chart, it just isn’t worth going long.
Proof of that can be seen in UDRL. One thing I will do that others WILL NEVER do is admit when they F’d up. I F’d up with UDRL. But it didn’t hurt my portfolio at all. First of all in the safe-CANSLIM portfolio on the forums only 1% of the account was used on it, in my portfolios the stock was under 1% due to the stock either not bouncing right off the 50 DMA or breaking out to a new high on huge volume. It simply wasn’t a move that I would ever load up. Compare that long to ANY! of my ‘past big winners.’ You will see NONE look like that on the buy day. So it was a very very good long, especially with all the fundamentals and sponsorship growth but it CLEARLY WASN’T PERFECT!
The fundamentals were already slowing the past two quarters and last quarter EPS went red and sales almost fell below 10% growth. So the fundamentals were going the wrong way which is CLEARLY a warning and signal that it is not a perfect CANSLIM long. Besides the fundamentals slowing, where is all the max green BOP? There is a lot of accumulation and green BOP but without the max green BOP and an actual very strong and bullish breakout or bounce off the 50 DMA it simply is a long you should never load up on. For those of you that did not know that, I am sorry. I can not help you do not completely know me yet. So if you got hurt with UDRL I apologize but you can ask any of my long-time members and they confirm that UDRL is not a pattern I would load up with.
What would I load up on? Take a look at the move ADBL made back in 2003 before launching a 150% move in a little under two months. That is what I am looking for. But I am looking for that price pattern with the BOP of EGHT. Once I see these, then I will be very bullish. But normally, as these prove in 2003, by the time they show up with these patterns, the stock market is already moving higher. Those that doubt the rally, like all the hard-core liberals in 2003, end up paying the price. Never let your politics EVER influence your buy or sell decisions.
The breadth of the selling in this market and the amount of new lows was very heavy today and that is why I am very confused by the sentiment. You would think that with the selling being so ferocious and breadth being so poor that the bearishness would have gone through the roof today. However, 46 new 52-week highs to 520 new 52-week lows did nothing to convince the crowd the selling was scary. Instead, the dominate thought is that every dip must be bought.
Taking a look at the market sentiment and the internals after a session like this shows that on the short term some fear is entering the market but not nearly enough for a bottom. The VIX jumped 11% today to 27.55 which is still laughable historically. What is strange about this is that the VIX is still a good ways away from the intraday highs in January. Meanwhile, a lot of indexes are much closer to their 2008 lows, with the Nasdaq just 20 points away. If the Nasdaq falls 21 points to a new low, something tells me that the VIX would not hit a new high. This is not bullish as it shows that there is LESS fear even though the market is LOWER.
When you take that data and combine it with today’s put/call reading we have two sentiment indicators telling us the market is actually “cool” with this selloff. The put/call ratio is at 1.21 after the close today. This is lower than the 1.27 that was registered two day ago when the market was over 2% higher. So despite the selloff, people bought more calls this time around than just two days ago. This shows the crowd is more complacent with the selling here than they were with the volatile intraday action.
On top of this complacency, the investors intelligence survey still shows more bulls to bears by 41% to 36%. The bears still have not beaten the bulls on any reading since October 2005. This is clearly a market where the IRA holders refuse to sell to take the loss are going to get crushed. And those that buy falling stock on margin are going broke.
Don’t be like the “barneys,” cut your losses fast, select only the best long or short candidates for you, and if you find them keep them VERY small. But for most out there, the mantra of the past few weeks remains the same: CASH IS KING! Aloha and I will see you in the chat room. The RM column will be posted before the closing bell, at the closing bell, or shortly after the closing bell.
RM column: I will be going over FSLR, RIMM, BIDU and teaching you how to spot climax runs/profit taking points with PBT.
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3 Comments »
Fast Money was telling its viewers to buy banks at new 52 week lows? CNBC does an amazing job of continuing the noise churning from the Wall Street Machine. They do nothing for their viewers, NOTHING. And to think that many will follow their advice, it is insane absolutely insane.
I thinking alot of ppl are starting to have the fear vs hope argument in their head…the longer hope wins the longer this bear market will last. The epic struggle between these two fears is what keeps bear markets a live. Once fear finally wins this battle, VIX will soar and we’ll see our market finally carve out a bottom.
Cash is King
You can’t bottom when EVERYONE!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! is looking for a bottom.
Don’t you guys remember 2000? Or don’t you remember what it was like in 2002? IT WASN’T THAT LONG AGO! LOL.
where is the bottom? I am trying to find it….
LOL