Monday, November 03, 2008

Gloomy Market Continues

We went through 900+ stocks yesterday in hopes of finding something, and we found worse then nothing. The market continues to look like one big short setup in development.

The sideways to up consolidation that has been ongoing for about the last 3 weeks should last another few weeks (1 - 5). From there I believe we will take another leg down to, at a minimum, test the lows for a few weeks (5 - 8). Then we get a tradeable rally. The play won't be your traditional bases in most cases, but deep bounces off of MA's or just under MA's. Too far away to try and figure out how long the rally could last. After that rally, the accumulation phase will begin, assuming economically we start to stabilize (meaning that at a minimum the stats stop getting worse). The accumulation phase may last through 2009. So as of now, it's hard to see a real bull market starting to form earlier then the middle of next year if not in 2010.

I looked at some stocks from 1987, after the crash. And even though we never tested the lows, and it seemed like the market sloped up from that point on, it took until 1989 before we got real bases and breakouts and the market managed was able to put together a real rally.

Watching CNBC this morning, Steve Liesman was pointing out statistics and comparing them to the last two recession (90, 01). He was trying to put as much of a positive spin on it as possible, by pointing out that in most, the numbers are near or just better then they were in both those recessions. The intent was to show that the recession is mild and maybe no worse, which would imply we're near a bottom. Now assuming the market has priced in this scenario, I would ask, what happens to the market, if those stats start to make multi decade lows???? Right now, I would also reason, that the market has paused and rallied because historically the market tends to start rallying about midway into a recession. So if we assume that this recession is going to resemble the last two, then this would be the mid point of it. 3 months in the 3Q and now NOV would be the 4th month, and the last two lasted about 6 months (2Q's).

Now anything is possible, but I think that the optimism out there is based on a potentially false hope that everything will fall into place as expected historically. As we've seen and experienced so far, it has been anything but.

Hope everyone had a nice weekend.

Monday, October 06, 2008

Vacation Time

Based on the charts I saw yesterday, I can honestly say you can take minimum 4 week vacation and not miss anything on the long side.  I would go as far as to say maybe even as long as 8 (of course spend sometime looking, just in case).  There was not a single stock that I would put on my buy or early entry list this week.  This is the first time this has happened, EVER.  Which also leads me to believe that we are close to at least some kind of bottom, most likely one that will need some back and forth work to calm everything down.  With earnings a week away and elections a month, no one is going to committ.  The last few days are probably selling in anticipation of the short sell rule being lifted, and they'll prob buy the news.  But go back and look at that 1987 crash chart I sent, see that gap down bar just before the big day down...kind of looks like the NAS today.  Fun times folks.

Tuesday, August 19, 2008

Ugly Market Update

Here's what I'm thinking:


There's another run at recent highs going into labor day.  If that produces bases, in quality stocks, then there is a chance this market can be saved.  Otherwise, watch out below in September, if they even can wait that long.  But markets have a tendency to be patient before rolling, and who wants to ruin Labor Day!!! 




Monday, August 18, 2008

Ugly Market

I have not seen so many short setups in the time I've attempted to trade that side of the market.  Old leaders all look like they are ready to rollover, the beaten down sectors all look like pullback to 50 shorts (the reverse of the long side), and the rest just don't look buyable in any sense of the word.  Bottom line, go fishing with Livermore if you're a long only trader.  If you short, we probably need a little more time before starting those positions.


Sunday, April 13, 2008

More of Nothing

I spent the entire trying day trying to sway myself to the bullish side.  But the harder I tried the more I realized it just wasn't going to happen, at least not this week.  The technical's just look horrible whether you're looking at the market, leading stocks, or potential leaders.  Add possible economic data confirming a recession  and the market could have another breakdown.


The market for one has done what was expected, rally from an oversold condition after confirming the bear market.  It has done so on summer like volume, very low (it is April!!!!).  The two above average volume up days, including the follow through day, were only above average because of takeovers and options expiration.


Leading stocks, there really aren't too many.  It's the same names, fertilizers.  Oil has a few, but the rest of the group looks like it's getting ready to rollover.  Breakouts in the rest of the market have come on weak volume (typically you should see many breakouts on explosive volume).  Then for every breakout there seems to be two that fail immediately.  The one's that do manage to hold above the pivot have either made no progress (this includes the fertilizers) or have had volume wane significantly as they've moved higher.


Now I tried to give the market the benefit of the doubt with the first two factors since it could take as much as a month before stocks really start moving.  But that's where I ran into the next problem, potential leaders setting up.  I had a hard time finding some.  Most bases were sloppy, lacked volume as they moved closer to their 52 week highs, and the one's that had a chance of making the cut, had declining fundamentals.


This week the market went right back to reacting negatively to bad news after reacting positively two weeks ago.  This is important.  If we have been in a recession, we still haven't seen the economic data to confirm it.  The initial reaction could lead to a severe break in the market.  And of course there is always more subprime news risk (overplayed, but still getting reactions)


This all points to this being nothing more then a bull trap in bear market.  I believe that within the next two weeks the market will make a decision.  I have a strong belief that it will be as soon as this week.  After running this analysis I found that a bad week with distribution or a weak rally on low volume would skew this market even more to the bearish side.  This market desperately needs volume to the upside or it risks falling apart.  If it does, I would not be surprised if the next stop is NASDAQ 2000 or below.  Cash is still the best place for now.



I hate being bearish since most of my money is made on the long side, but I just can't argue with the facts right now.




Sunday, March 30, 2008

Get Out Of The Markets Way

I'll keep this short as I am on vacation, but have kept an eye on this market.  I would stay out of this markets way on the long side.  The market has been struggling to make progress since the follow through day and looks poised to continue the bear trend.  It seems that any bear market rally is a ways off.  We need more downside work to do in both price and volume.  The other missing piece are the setups to the long side.  Typically you would see more and more instead all you see are failed breakouts and base breakdowns.  I would definitely be looking to short this market.  My preference is to see a bit more weakness to the upside, but nothing wrong with initiating small positions.  If you're not a shorter, go on vacation, you'll have nothing to do.


Friday, March 21, 2008

Is this Rally Follow Through Real?

We finally got a follow through to the rally yesterday.  Keep in mind that since 8/2006, it has taken about a month before the true leaders broke out (currently KEX and LNN are the big mooses, but unfortunately too extended right now).  So it will be interesting to see how this plays out.  There are definately more setups this weekend then last, and given another week or two I could foresee more.  So after all the brutal frustration, we could be in for a possible rally.  Whether it's a countertrend or real doesn't matter.  If there is an opportunity to make money, no need to hesitate.  In fact, there's never a reason to hesitate.  If it's not going to work, we'll know soon enough and your risk management will keep you safe. 


Wednesday, March 19, 2008

So Much For A Relief Rally

It looked promising a week ago as the commodity names were setup to potentially lead a short counter trend rally within this bear market.  But that all ended today as the bear finally broke those stocks hard on heavy volume.  These moves don't tend to last just a day.  And considering that the Fed has thrown the kitchen sink at the market the last two weeks and it hasn't worked, I can't see any positives over the next week or two that will keep this market from continuing to the downside.  In fact, it seem that there are problems developing over the pond in their banking system.


If you attempted to get long yesterday on what seemed to be a possible follow through day, you probably got stopped out today.  The problem was that yesterday's volume was below the previous day's volume which is not a good sign for such a strong price day.  If you happen to get into the few stocks that are still working and have a profit, you can hang on, but don't let the gain turn into a large loss.


If you're looking to short, I would wait for a day, preferably tomorrow or Friday where the market tries to bring in the shorts and fails.


If you're a long only trader, be patient and don't get frustrated.  The market will rally one day.  Keep building those lists.  Even though the commodity names did not work out, a good portion of my list has not fallen apart yet.  I have a good number of stocks that given a few more weeks would be ready to rally with a strong market.  So keep your chin up and powder dry.


Tuesday, March 11, 2008

The Developing Rally

The short side was a fun and wild ride.  But it's time to look past it and focus on the next step.  Oil, gas, and other commodities keep running.  The Fed is standing ready at every chance to keep the market from dropping any further with either liquidity injections or rate cuts.  This makes it very difficult to stay short the market for more then a few days.  So now that we did get some nice action to the downside, the focus has to shift to looking for setups on the long side.  Bearish sentiment continues to rise, whether it's the bull/bear ratio's, put/call ratio's, short interest, or anywhere else you look.


We may be in recession but the market may not care.  If this is as bad is it's going to get, the market will look past it and start to price in an ultimate recovery down the road when the past rate cuts will finally start to make a difference.


Looking at the charts it's not pretty outside of the sectors I talked about earlier.  But it doesn't have to be at this point.  Those sectors have stellar fundamentals with a rising tide behind them.  They are to this market what tech was to the 90's, and there are plenty of stocks to pick from.


What I foresee is a rally of a few months to clean up the technicals of the other sectors, followed by another major correction/mini bear to setup a possible longer term bull.  This would not be out of the ordinary for a market coming out of a bear market.


So stop listening to the headlines and do some work.  If we get a follow through, the market may present a nice opportunity on the long side in the above sectors.  Worst case, it doesn't develop, but you get practice preparing a list.  But for now, it's best to watch from the sidelines, and wait for the Fed to do it's thing next Tuesday.




Don't forget about the short side.  Keep a ready list there too just in case the Fed or the government manges to bungle it.



Thursday, January 17, 2008

Small Caps in Official Bear Market

The small caps have officially crossed into bear market territory.  The NASDAQ is 2% away, but along with the S&P500, NYSE, and Mid Cap 400, is now in mini bear market territory.  The DOW is now the lone holdout, but probably for not too long. 
I fully expect a counter trend rally to develop at some point soon, most likely within a week.  I would advise only the most aggressive investors participate.  The best course of action is to wait for a new round of short setups (experienced investors only), study your past trades for rights and wrongs, and start preparing for the next bull market.  The latter two are a MUST!!!!
There are almost no setups right now.  But keep an eye on stocks with excellent fundamentals that have corrected in line with the market or less.  Those will most likely be the stocks that will setup for the next bull. 
Don't get frustrated if the list you build suddenly gets taken out behind the barn and shot.  It's all part of the process of becoming a successful investor.  During bears I am forced to rebuild my list several times, as the selling rotates from sector to sector, stock to stock.  But you will find a few stock that survive list to list, and those tend to be the strongest out of the gate. 
We all work hard for that promotion and raise, the road to investment success is no different.
Good Luck
1/17/2008  Correction   Correction Levels 
Index  52 WKH   Start   Length   Low  % 10% 15% 20% 25%
Dow Jones Industrial Average  14,198.10 10/11/07        14.20  12,125.56 -14.60%  12,778.29  12,068.39  11,358.48  10,648.58
Nasdaq Composite Index    2,861.51 10/31/07        11.40    2,343.65 -18.10%    2,575.36    2,432.28    2,289.21    2,146.13
NYSE Composite Index  10,387.17 10/11/07        14.20    8,805.67 -15.23%    9,348.45    8,829.09    8,309.74    7,790.38
Russell 2000 Stock Index       856.48 10/11/07        14.20       680.13 -20.59%       770.83       728.01       685.18       642.36
S&P 400 Midcap Index       926.67 10/11/07        14.20       758.93 -18.10%       834.00       787.67       741.34       695.00
S&P 500 Index    1,576.09 10/11/07        14.20    1,330.67 -15.57%    1,418.48    1,339.68    1,260.87    1,182.07
S&P SmallCap 600 Index       445.82 10/11/07        14.20       353.06 -20.81%       401.24       378.95       356.66       334.37



Tuesday, January 08, 2008

More Downside To Go

This market is a day away from taking out the August lows on the major indexes.  DO NOT take shorts at this point, use the selling as an opportunity to cover shorts.  The market will most likely find it's footing after one or two more big down moves.  I'm looking for a oversold/short squeeze rally to develop for the rest of the month starting this week or next.  We could even get a follow through day. 
There are a few catalysts that could put a bid under this market.  Macworld should get everyone excited about AAPL and tech.  PPI/CPI next week could come in better then expected which would excite everyone about how aggressive the Feds next move will be.  Just the speculation about the the Fed's action pre-meeting or at the the meeting should keep the sellers at bay. 
The rally that does materialize will be very very narrow.  I would only attempt to play it if you are extremely disciplined and aggressive.  Look for bounces off moving averages and breakouts on some of the sectors that still haven't been sold off.  But keep in mind, this rally could end as soon as it starts.  Keep your stops tight, the rally will not turn into anything big.  It will be one big bull trap.  I fully expect the market to resume it's downtrend sometime after the Fed.  When all is said and done, this will be a bear market.  There is one positive.  If you were looking to short, the rally will setup lower risk short trades, and the third leg down in the market is typically the most severe.
If you're not a short seller, use this time to review what you did right and wrong in the last rally.  Then post your mistakes in big letters above your monitor to remind yourself not to repeat them.
Good Luck


Friday, January 04, 2008

Crash Coming?

This intra-day pattern is as ugly as I've seen it in sometime.  These typically lead to afternoon meltdowns.  With the indexes down so much, and possibly getting killed further, could create a panic going into next week.  The rally is definately over.