Thursday, May 27, 2010

Bullish Conviction Grows Stronger

We're only 3 days off the bottom, but my bullish conviction is getting stronger. Yesterday served as another good shakeout. On the surface it seemed extremely bearish as the market reversed big early gains into losses on heavy volume. But there was one important detail that most missed. Even though the market had reversed, many of the leaders held strongly and closed positive. They did close well off their highs, but as the market started to sell off, the leaders refused to budge lower for quite sometime. In the past few weeks, my entire leadership list would have turned entirely red in that type of action.  Which made me believe that the sell off was more headline driven then real selling which I warned about in my last market update.

Obviously today confirmed my thought process. Between today and yesterday we have seen a number of fundamentally strong stocks breakout to news highs and bounce off their 50/200 day moving average on strong above average volume (APKT, VMW, SNDK, IPXL, SXCI, etc...). Pullback bases are plentiful and most are in a position for early entries and breakouts(AAPL, CREE, LULU, CRM, etc...).

There is no need to rush and get overleveraged (determine your own risk appetite). If this market continues its current action, you will have plenty of time to take advantage. What's most important is that you DO NOT CHASE or you'll risk getting shaken out by a normal pullback. Shakeouts in stocks and markets have become more common place then in the past.

As I stated in my last market update, Market Action Very Similar To 8-16-2007 - Bullish - Updated - NFLX, APKT, SNDK , I believe that this will be the most profitable part of this rally.  It is important to keep in mind that you DO NOT want to get into a buy and hold mentality when things get real good.  Buy only stocks with the strongest fundamentals that have already proven they can move and held up strongly in the face of the NASDAQ's 15% swoon.  This is what I call the "DUH" part of a rally.

Once we get a follow through day, my market tops analysis will be back in play.  Its had an almost perfect record of getting us out on the way up before any real damage could be done to our capital.  Sure it misses some of the final gains, but how would we know to sell at the peak anyway?

Stay patient and get your research done so you are prepared.

It is amazing how everyone views the market differently.  This afternoon, a CNBC guest stated that if we were to top now, this entire rally from March 2009 would have been one of the weakest in history.  How a 100% move by the NASDAQ and multi 100% moves by leading stocks is the weakest in history is beyond me.


Wednesday, May 26, 2010

Capitalist Bull Quoted in Investor's Business Daily - Potential ETF Leaders In A New Rally

I am quoted in this Investor's Business Daily newspaper article...

Potential ETF Leaders In A New Rally

Market Action Very Similar To 8-16-2007 - Bullish - Updated - NFLX, APKT, SNDK

Below is a snapshot comparing the 8-2007 NASDAQ to the current NASDAQ (green arrows represent the the two positive reversal days). As you can see the market managed to rally quite significantly off that turn around to new highs. That was the most profitable part of the rally for swing traders.

Do not look for new leadsership to emerge, even though some are bound to show up. Look for stocks that are already proven winners, have exhibited high relative strength during the correction, and are must owns for institutions that must be 100% invested (click on charts below).

Don't allow your mind to convince you that we've entered a new buy and hold period. At best, if this rally attempt holds and we follow through, we're looking at a 1 to 3 month rally. It'll get easier to tighten up that time frame once we really get moving.

Don't panic and buy blindly.  If August of 2007 is any precendent, we should get more setups over the next few days and weeks.  Definately dip your toes in and add as new opportunities present themselves on pullbacks or base completion.

Headline risk out of Europe and Asia will keep the volatility high, so be vigilant with your stops.  You're going to have to endure it to some degree if you're going to maximize your returns. 

Ultimately we're still waiting for a follow through day to confirm this rally.  So any buys before that are high risk, but also carry a high reward.

Good Luck

I alerted readers of this blog early yesterday to the possible turn around.  If you want real time alerts and updates, sign up at Twitter and follow Gennady17.  Sign up for the FREE newsletter at Capitalist Bull for a daily digest of the blog's activites (don't forget to look for a confirmation email).

FD - Long APKT and NFLX

Stocks End Mixed After Big Turnaround -

The S&P 500, NYSE composite and Dow undercut the lows of last winter's correction. But indexes rebounded and the S&P closed with a fractional gain. The Dow dipped 0.2% and the Nasdaq 0.1%. The NYSE closed practically unchanged.


Tuesday, May 25, 2010

Market Action Very Similar To 8-16-2007 - Bullish

If you compare the charts, this day was very similar to that day and period.  A gap up tomorrow would confirm it.  We did get setups over the next 4 weeks back then before the market really launched into its final run.

Market Presenting Some Excellent Intra-day Entries

Stocks Stumble As European Concerns Still Linger -

The stock market resumed its losing ways Monday as the European financial crisis continued to weigh.

The NYSE composite tumbled 1.6%, the S&P 500 1.3% and the Dow 1.2%. The Nasdaq fell 0.7% as late selling sealed the index's loss. All major indexes closed near session lows. Volume was down sharply from Friday's options-expirations pace.


Tuesday, May 04, 2010

Patience...No Need To Panic Buy...Yet

In my April 14th blog entry, Don't Chase The Market, I wrote, "Based on model studies most of the stocks will pullback at some point and most will be buyable right around this range".  In my April 12th blog entry, The Market That Won't Pullback, I wrote, "Unless we're going climactic, I can almost promise that you will get a chance to buy most of the leaders that have been moving higher at or near current prices after the next pullback".  The reason for both entries, "I found overtime that it is easier to deal with missed profits then with lost profits.  If you're sitting in cash and waiting for the pullback and are ready to pull the trigger, it will be easier to do so.  If you're invested and have to sit through a pullback, even though you may understand it is normal, your EMOTIONS DO NOT.  They will force you to run for the exits just as you should be ready to add more."  So here we are almost a month later and most stocks are right around the range they were about a month ago.

Just like death and taxes, pullbacks in the stock market are inevitable.  Patience to wait for and during them is another story.  If you did manage to wait, you are most likely extremely antsy to buy right now.  After all, you either missed or did not profit as much as you would have like too in the previous rally.  So you don't want to make the same mistake again and are ready to pounce on the first pullback.  But I say wait.

The market and it's leading stocks are only in their first two weeks of the correction.  The volatility day to day is a bit too day up big followed by one day down big.  Headline risk from Europe and Goldman Sachs add to the uncertainty.  It's a rollercoaster ride you do not want to be on.

The game plan right now is to build a watchlist of stocks you are interested in buying.  Try to identify the type of pattern the stock is forming and how much more time it needs to complete the pattern.  Then determine what you would want to see, preferably based on previous model studies, in order to begin entering the stock.  This takes away the risk of randomly buying and selling, which often leads to churning.

Based on the current action of the leading stocks, we have at least another 2 - 3 weeks of sideways to downward action before the rally can resume.  Some stocks are further into their consolidations and could be buyable earlier.  For now I would stay away from buying anything and focus all my efforts on research.

Side Note

If you have been holding a big winner for sometime and the stock is acting fine, there is no reason to sell.   Swing traders on the other hand need to be flat on the long side.