Friday, December 23, 2005


This market is a volcano ready to explode. There is unbelievable underlying bullish pressure. The number of top notch, both fundamentally and technically solid, setups is not only numerous but the broadest I've seen in quite sometime. This is going to be the broadest rally we've seen in sometime. Every sector, yes, including airlines will participate. Oil is just high enough to keep the oil business humming, and just low enough not to effect the consumer or business. Economic growth is right around the Feds comfort zone, and high enough to keep earnings growing. Interest rates are still near historic lows and should hover in this area, without taking too much of a bite out the consumer and business. Other reasons for the bullishness:

1. Online sales will account for alot more of this seasons sales then expected providing a surprise to earnings.
2. CNBC has been discounting the value of DOW 11K. Not there is any, but psychologically there is.
3. CNBC has put the fear of January into the public. Every chance they get to remind us about how disastrous the first 3 days of January of 2005 were, they gladly do. Remember the January effect, CNBC doesn't even mention it. No importance in it, but last year it was the talk of the town. Also, the difference between last December and this December, last December the market wedged (rising market on decreasing volume) higher and this year we've drifted lower on decreasing volume. This is much healthier action for a bull market.
4. The public hates stocks. Here anyone outside the business talking about it? Of course not, between the choppy action and mostly sideways movement it was extremely difficult, some would say almost impossible, to make any money in the last two years. But they do love Japan.
5. THE WORLD's MAJOR ECONOMIES OUTSIDE THE US, NEW and OLD(i.e. JAPAN, INDIA, CHINA,etc...), are firing on all cylinders and recovering from long slumps. This will provide the additional boost to earnings estimates.
6. It's an election year. Congressmen aren't stupid enough not to encourage a rally through legislation? They do want to get re-elected?
7. Inflation? Forget about it, competition and potential for further productivity gains is too great.
8. 2006 will be a more peaceful year in the world, even in Iraq, hopefully.

About the only negative is Washington. The partisan bickering threatens the passage of key legislature to keep the country and economy safe from threat. The constant filibustering and lack of ideas is very worrisome. With an election year around the corner, I fear some congressman will prevent bills from passing or force other bills through with the intent of making the other party look bad. I know this is contrary to point six, but I did phrase it as a question.

Don't sit around and wait to see if the market can break and hold 11,000, by then you'll be late to the party. Take the trades as they come. If the market continues to act well and the breakouts hold their ground and advance, use that as the confirmation of the rally. This is the most bullish I've been since the April 29th bottom, but you have to listen to the market's signals. But of course, in case this is just one big setup, my risk management rules will save me from too much carnage. Do your research and trust the rules. Have a happy holiday and a happy new year.

Tuesday, July 12, 2005

Market Letter

It is important to analyze the market on a daily basis. In order tobe a successful trader, you have to be able to decipher real movesfrom head fakes, and adjust your trading accordingly.

I've been quite bullish on this market since 4/29, and got even morebullish last week when the terrorist attacks and $60/barrell oilfailed to hold the market down for long. But something fishy isgoing on. The rally seems more of a short covering rally the lastfew days, then real accumulation. Stocks that should be movingstrong with the market, just don't seem to be making any headway.

Now I always disclaim my statements with, "I could be wrong", that'swhy it's also important to backup that statement with a plan ofaction. So here is ours:

1. Continue to unload the laggards.
2. Keep a close eye on the strong performers for any sign ofweakness or sell signals.
3. Never let a good profit turn into a loss even if you can onlyretain $1.
4. Make sure the love of your life (your favorite stock or the oneyou truly believe is the one that will make you rich) can be partedwith on a moments notice. BOOM was a good example of that for ustoday. We had an awesome gain, added as he bounced off his movingaverage on volume, added some more as he broke to 52 weeks highs onvolume today, but out of no where the stock reversed hard on massivevolume today almost wiping all the gains we had. We didn'thesitate, sold the whole position to at least lock what was left ofthe profit. If we had held on, we would be underwater by severalthousand dollars. But we swore, he was the one. Today could'vebeen just one massive shakeout on him, but rules are rules, and ourrelationship with BOOM is over for now.
5. Tighten up the criteria for stocks that will be purchased if themarket continues to head higher.
6. Any sign of weakness on new buys quick profits or losses shouldbe taken. The 7 - 8% rule applies only to strong bull markets. Inflaky markets gains and losses need to be taken/cut quicker, andless trading needs to be done.
7. Start looking for potential short candidates in former leadingstocks that topped several months ago if we do go into a correction.

Now I'm not calling for a panic out the door. Just a reduction inexposure and tighter rules for increasing exposure. My belief atthis point is that the market has one more massive shakeout in store(another attack, a sudden climactic run of oil to $70+, you get mypoint) for us before any rally can materialize and have some stayingpower longer then a few months. This rally, if you've been playingit smart has yielded some nice returns, I just don't want to seethem evaporate and turn into losses. If the rally continues, great,we still have a large exposure to leading stocks, but I'd rather besafe then sorry.

Thursday, July 07, 2005

Market Letter

Could fear run anymore rampant this morning? We got the perfectshakeout today to force the weak shareholders to sell. Deamnd isabout to outstrip supply in the market, causing prices to rise. Nowthe employment report could change all that but how much worse canthenews get? Oil over $60, rates still rising, London Terrorist Attack,and anything else you read about. The market signaled today that thejobs report tomorrow will come in to their liking no matter what thatis. The market likes to climb a wall of worry. Uncertainty it hates.

If I'm correct in my assumptions, I suggest you're ready with yourbuylist if the job data is to the markets liking.

Friday, June 24, 2005

Market Letter

Market has been moving sideways to higher in the last few weeks andsold off hard today on higher volume as oil crossed $60/barrel. Italmost seems like December where the market churned higher, and thenjust got crushed in January.

Hold onto the stronger stocks as one distribution day won't kill themarket, but definitely getting rid of the laggards. This is a goodtime to start looking for new setups. It seems we will need onemore down to sideways week to allow for proper bases to setup in thestronger stocks. Some are already setup just waiting for a signalfrom the market.

Oil reached $60 a barrel, but it almost seems that a double top hasnow formed. If these levels are sustained the market will needsometime to digest which would mean that a summer correction in themarkets is 90% likely, unless oil retreats away from $60/barrel.What will the market be looking for? How will oil in the $60'seffect the economy. $50's didn't hurt. But will the $60's?

Even if we do start a correction here, we'll probably see anotherweek or two rally somewhere during earnings season. If this is thecase and the rally is weak, then even the strongest of stocks needto be examined even closer, and possibly sold. For now, just getrid of the laggards.

Only time will tell, for now better get safe then sorry.

Wednesday, May 18, 2005

Market Letter

Officially all the major market indexes are now in confirmed rallies.Today we finally got another powerful day in the market confirmed byvolume. I know I was cautious the other day, but the first rule inthe market is to always protect your capital. At this point I'm evenmore convinced that my original call was correct that we have seen abottom and the market will continue to move higher. If you haven'tparticipated in this rally to this point, I would recommend you begin.By the time things become obvious that is usually the end of the move.

I found something very interesting while doing my research the lasttwo days. Retail and hotel/motel REITs, retailers, and other consumercompanies are either at or near 52 weeks highs. If the economy isdoing so poorly why are these stocks moving higher. Is it possiblethat the market is signaling better times ahead as it usually does?I'd say yes. As long as there is a Republican President the mediawill continue to try and convince you that the economy is heading intorecession. But the market knows better.

Don't let your opinions keep you on the sidelines. If this marketweakens for some reason, I'll let you know. For now, do your researchand get involved. But don't take my word for it, just look at theprice volume action of the market, especially the NASDAQ, which isleading index at this point.

Remember, always protect your capital first.

Tuesday, May 17, 2005

Market Letter

On the surface, today looked like a strong day, but digging deeperthe market continued its pattern of sell offs on high volume andrallies on low volume. Today was no different. The major averageshad huge gains but volume was no where to be found. At this point Iwould be reducing your exposure to the long side especially ifyou're on margin. It looks like the market may need another downleg before moving higher, particularly the DOW and S&P. If youremember I got extremely bullish when the NASDAQ undercut 1900 andrallied strongly, but I was cautious about the fact that I would'veliked to see the DOW undercut 10,000. It now looks like it mayhappen. If not, then I will resume increasing my exposure on thelong side. For now though, no need to take any chances with thecurrent price volume action of the major indexes. Tomorrow is thePPI report; let's see how the market acts.

I've heard a lot about buying homebuilders for the long term orinvesting in real estate in hot markets. If you're one those peopleI would strongly reconsider. The homebuilders are looking extremelyweak on their charts and look like they are topping. Talk to anyreal estate professional who's willing to give you a true assessmentof the market, and they will tell you that things aren't looking asgreat as things seem. Prices are getting away from most people'scomfort and affordability range. Most of the buying is being doneby investors and by homeowners who already own 2+ properties. Takeinto account that on every market news channel you have oneanalyst/real estate professional after another telling you this timeit's different and we are in a paradigm shift, and shivers shouldstart to creep down your neck. Think back to the stock market in1999 and 2000, they were saying the same thing about stocks. Therest eventually was history as we all know.

Learn from history, it repeats itself, more then you think.

Wednesday, May 04, 2005

Market Outlook

The market gave us a powerful confirmation day on all the indexes. Ifyou're not long yet or haven't looked for setups I suggest you start.If anything changes I will let you know.

Sunday, May 01, 2005

Market Letter

My belief is that the market marked a bottom on Friday. Barring anyunforeseen events, we should move higher from here. Here are someof the reasons:

1. Sentiment has been highly bearish over the last several weeks.
2. The NASDAQ under cut 1900 and traders began to panic.
3. Oil is under $50 a barrel and prob has topped, again barring anyunforeseen turmoil in the Middle East.
4. Top rated stocks with high growth have begun to breakout out ofbases and hold their breakout points. Other stocks are close tofinishing up their bases.
5.The reversal on Friday came on heavy volume.
6. Earnings are coming in well above expectations and guidance hasbeen good.
7. Softer economic data recently may be signaling that the Fed hasdone their job and interest rates maybe close to topping in the nextmonth or two.

The market may be seeing better times on the horizon. Remember,recent bad news is already built in and the market moves on futureexpectations ( 6 - 8 months outward). Typically, things look theworst at the bottom and the best at the top.

We may still go lower but not by much. I would have preferred theDOW to undercut 10K on Friday to really set off even more panic.

To get a firm confirmation that this rally will hold, we will need astrong up day sometime after Tuesday of next week on heavier volumethen the previous day and no more high volume sell off days.

This leg up won't be the best one, but it is a start. Once morestocks setup and breakout, the market will then have the ammo toreally make a move.

Nothing is 100%. Cut your losses short, and if the market starts toget distributed next week, get off margin as we may actually need tosee the DOW under 10K before we could go higher.

Wednesday, March 16, 2005

Market Letter

It's been a while since I wrote this letter but things have been alittle busy.

Anyone who has been around me since beginning ofJanuary knows that I turned bearish and have been since then. Therally that went on in February was led by energy and basic materialstocks. These sectors do not lead market rallies for too long, theyjust don't have the long term growth rates necessary. If you paidattention to the price volume action of theindexes you would've noticed that the down days kept coming in inhigher volume then the up days. The NASDAQ which was the lastindex to show a follow through, followed through too late, andcouldn't mke any headway passed it's 50DMA. Leading stocks, whatleading stocks. That's right, right now there are none. Energy andbasic material stocks cannot lead a rally for too long, they justdon't have the long term growth rates necessary.

If you're not out of your long positions by now, make sure you keep areal close eye on them. If they are down significantly don't beafraid to take profit or the loss. Once the market gets some legsagain, there will be plenty of opportunities.