Where Did All The Volume Go?; Huge Rally With Weak Close And Low Volume Is Not Bullish For The Market Long-Term

March 24, 2008

It was beyond a great day for the stock market, once again, for the second day in-a-row, as the Nasdaq led the way higher with a 3% gain that had many market participants jumping for joy. Too bad all that jumping for joy was not celebrated alongside large institutional investors who decided to stay away from the market today as I guess they did not want to be part of the short-covering rally. And with volume coming in well below the 50 day volume average you can be sure that that is exactly what we saw today. It was just your usual bull bounce in an overall bearish market environment.

That bounce was given credit due to JPM buying BSC for $10 a share instead of $2. This whole thing sounds crooked to me and I will just leave the action in BSC to that. But, this news was given credit, on top of some good existing-home sales data, for today’s gains. Well, you know what news would have been better with today’s 3% gain? NO NEWS. It is a huge rally on large volume that comes with no news and a lot of stocks breaking out that gets me more exciting than any other news headline I could possibly see. It almost gets me as excited as the bottom callers who call a constant bottom in this market, are wrong 5 times before they are right once, and then when they get a tiny bounce dance in the streets that all is well.

I forgot what it was like to be involved in a stock market where price action is so rough yet so many “traders” can’t stand still and keep trading their pants off like it was a rip-roaring bull market. But here I am in one again for the first time since 2000-2002. It is incredible how not even ten years can go by and yet we have still forgotten all the lessons we should have learned there. The bottoms callers today sound just like the bottom callers then. They are so sure this is a bottom that the put/call has fallen to .80.

I don’t know how many times I have to tell everyone this but I think I am going to do it till my face turns blue. The best bottoms historically have ALWAYS come when there is a light volume selloff that precedes the low and the low is formed with a ton of accumulation which confirms that the big boys are moving their money back in the market. This is yet to be seen. And don’t think counting Thursday as a day of accumulation is as black-and-white is as it appears. It isn’t; don’t forget that it was triple witching and on triple witching days volume explodes to levels that we would normally never see if it wasn’t an options expiration day.

So, to everyone that thinks Thursday and today was a great day: it wasn’t. In fact it is probably now more bearish than it is bullish, after today’s trading action. However, are we still good for a bounce? Duh. Obviously, that is the case. This is why you do not see me going short stocks recently and have seen my long positions increase as some very pretty patterns have shown up.

This continues after today but if these nice starter patterns are to get any better they are going to have to round out and have more accumulation and green BOP enter the stock. Because right now, most candidates are just too sloppy to have me interested in them. The few that are not are iffy at best when it comes to the sector and industry group they are a part of.

The sectors that are taking the lead in this current turn upwards are not what I am used to seeing when a market is ready to go on to make some big price gains. However, the current leadership is very strong right now and could very easily go on to produce some huge gains. With that kind of good/bad mix it is what it is. Active-investors know that for now things are OK but tomorrow they could turn on a dime. As long as you are in that mindset you can play some of these sectors that include household-housewares, building-wood products, transportation-railroads, transportation-trucks, machinery-farm, food-meat products, auto/trucks-replaceable parts, finance-small regional banks, and savings&loan.

I don’t know about you but when I see that list and compare it to the normal technology, innovative medical/biotech, internet, and other exciting new industries that launch exciting powerful stocks, I definitely put my guard up. Now if this is just the start and all of these sectors that are climbing their way and making it into the top 20 of IBD 197 industry groups then rotate into new exciting leaders in stocks and sectors that are starting to setup then that would be perfect. But until this rotation happens and I start getting 5-10 HOT HOT HOT green BOP, heavy accumulation filled charts showing up that could be new longs showing up daily in my scans, right after a follow-through day, there is no way I am going to get nuts and go all-in here.

Heck, there are so few nice charts that I mention just one really HOT one in my column on Wednesday at Realmoney.com and the next thing I know two other key technicians on the site are long. Not how I wanted that one to exist. I was hoping everyone but us would miss it. Too bad they found it too. And that is the point. When there are only 2-5 HOT HOT HOT stock chart patterns out there, it isn’t hard to see why everyone notices it and flocks to it.

But when we go back to 2003, you can see that so many stocks were moving that if you decided to load up on something, the chances of someone piggy-backing you with their huge position was slim. In this market, with the best active-investors all looking for the same thing (I remember this happening with GROW back in 2005 after a bearish period), many traders are going to be going after the same stock. With everyone seeing the same thing as everyone else, obviously, we are all going to get long the same thing.

So with that in mind, let’s remember that in real bottoms that turn into great bull markets (instead of a bear fakeout that usually breaks investors who don’t cut their losses) you get a lot of great longs. That is why it is taking me FOREVER to go over all of my past big winners in 2003. I had a TON of them. But as you saw leading up in 2001 and 2002, there was nothing. After 2004, the same thing happened, they started to diminish and they became harder and harder to find. But I still found them then and I will find them again when this market changes. I already have my eye and my money on the best patterns right now. Therefore, nobody and I mean nobody should be worried that I am going to pass-up my next AFSI (my last big winner that I loaded up on from April to July 2007). I’ll find it and jump in margined out to the hilt when it is the right time.

Remember, the greatest stocks of all-time have all come after the stock market had bottomed from a nasty downtrend. The bottom’s FTD then leads to hot stocks breaking out of hot bases for up to THIRTEEN WEEKS LATER. That is right folks, the greatest stocks of the 1900’s…1940’s….1980’s…and 2008 when they are ready to go will keep showing up and up and up and up for weeks and months at a time. And don’t forget just by going over some of my personal past big winners it should be apparent to EVERYONE that it doesn’t matter when you go long stocks in an uptrend as long as the trend is strong and the chart pattern is as close to perfect as possible. EGHT and FMDAY both showed up in October-November 2003 which was A FULLY YEAR AFTER THE BOTTOM. They both still produced a 300% gain in one month and 500% gain in four months respectively. Then there was my best long, WHICH I POSTED TODAY SO EVERYONE COULD FINALLY SEE WHAT I SAW. TASR came four months after the perfect FTD in March and came NINE MONTHS AFTER THE MARKET BOTTOM. So why are so many amateur and professional donkeys STILL TELLING ME that I have to get long here.

First off, fools, I am already long 37 stocks that make up 23% of my portfolios. Second, while your cash will be fully invested in shit that goes nowhere (btw, I am speaking months not DAYS, here–you daytraders may like 5% gains but i want 500%) over a long period of time. Like I reminded you last month, when people were buying MSFT, DELL, CSCO, and ORCL back in 2003 because “they had to come back,” I was buying TASR SINA SOHU NTES SSYS GRMN EVOL EPIC and other’s that I knew were buying leaders like GPRO ERES OVTI YHOO and EBAY. Guess who got rich and who churned their account?

We are seeing the EXACT same thing right now. Let’s say that we start getting a bunch of accumulation days in the market and stocks start setting up and breaking out everywhere. How many people do you think are going to be buying BIDU GOOG FSLR LVS MA RIMM WYNN AAPL GES and AMZN? I say 99%. They don’t know how to find the next leaders. They only know how to find the old leaders turned laggards. Stocks like MCRS, PCLN, NKE, LNN, WDC, TNS, GEF-B, ISYS, MATK, PRGO, MANT, XIDE, and VLNC will always elude the “smart” money and the retail crowd. Less than 1% know how to make money year in and year out. I am one. Are you? Do you want to be? If you are and you are serious about learning how to do this the correct way from someone who is as far away from wall street as possible YET DESTROYS the returns produced from these crooks, you have come to the right place.

I keep it real! Real honest!!!!! No candy-coating here. I am here to make you the best. The only real question is if you are ready to SHUT-UP, forget about EVERYTHING you have ever learned NOT CANSLIM related, and get down to doing some very hard work for a short amount of time (two to three years) to then be able to do a little bit of NOW-easy work, consistently, for a lot of money later on. I can not hold your hand but if you watch me closely and study my past big winners and learn to keep your powder dry in markets like this, you will end up kicking my ass one day. And trust me there are those who can do it. A few subscribe to my site! I am a very lucky individual to be surrounded by such professionals….they help balance the very hard to answer newbie questions that have already been answered numerous times on my two sites. It is called a search engine, newbies!!!!!!

One more time: Just as James “RevShark” DePorre (the man who asked me to partner with him that SEALED the decision to create this/my own website) said on his website:

I don’t want to be too quick to dismiss the strength of the last couple of days. We have had a good move, and we have some technical support, and that bodes well for more upside. But we are a bit overbought in the short term and may need a rest, though I suspect that too many folks are unprepared for strength, and that may support further upside in the near term. Enjoy it while you can, because this is classic bear market rally action.

I KNOW I could NOT have said it any better. Aloha from the island of Maui. Pray for surf!

Posted by Joshua Hayes | Filed Under Market Commentary