Deja Vu?

I decided to compare the current Nasdaq versus the DOW from 1929 - 1938. Looking at the two charts, it seems there is a very similar pattern developing on the NASDAQ. Take a look at the two charts below, they are almost identical.

NASDAQ 2000 - Current

DOW JONES 1929 - 1938

Holy Cow

Wow, what a difference a few days can make in the market. Over the weekend I was excited. There were plenty of quality stocks setup and ready to go. I thought, given one more week, the underlying strength of the market would match that not seen since 2005. But the last two days has brought heavy selling on heavier volume, not good. I have to move to a neutral position and become cautious on this market. This could turn out to be nothing more then a massive shakeout, which would make sense, but until we know, no need to initiate any new positions. Sell any laggards or stocks that have made very little progress. But make sure to do the research. If this turns out to be a shakeout during an options expiration week, then next week could bring good tidings. The only consolation I can find, it took quite a bit of bad news to get the market to finally have a massive down day. The kind of bad news that usually accompanies capitulation. In the meantime, no reason to be fully exposed.

Are you ready for the fireworks

I'm going to make this short as I am short on time myself these days. But I haven't seen a market that's dying to explode like this since 2005/2003. Breakouts are holding up well, and quality stock after quality stock is setting up at the gates to run. Outside of a catastrophic event, there is nothing to hold this market back. Add the fact that almost everybody is waiting for the big correction, and you have the perfect recipe for a rally. Personally I'd like to see a correction, because it will only serve to reinforce the notion that the market always bounces, similar to the late 1990's (not to the same extent), and will only serve to supercharge the rally. If the correction doesn't happen now, which I do not foresee, I believe we will see something of a correction somewhere during the year followed by what will possibly be the last leg of this bull market. Go China, Vista, private equity, lower oil and gas prices, and of course interest rates (the fed stays put, no reason to lower, the economy is regaining it's legs). I'd like to see the market stay flat this week, it will only serve to strengthen the underlying strength of the market. Don't get caught sleeping behind the wheel. If this is the big rally I believe it is, you won't get the same chance again for some years. So get your research done and don't fear the market.

The Coming Week

About the only interesting news item on Friday was the falling dollar. Initially it seemed the market would use the news to sell off, but in typical fashion it shook off the news and finished the day barely down.

Nothing really exciting is on the calendar for the week. So keep an eye on the dollar news and see if the reaction continues to be similar to Fridays. We will also get news out of retailers on how black Friday went.

If you're long, stay long, and let the market dictate your next move. For now, there's no real reason to run for the exits.

Market Update - Happy Thanksgiving

So, what's next for the market? They way it's going, the answers seems easy, up. And you'd be right. But there is one problem, too many doubters. So how do you turn the doubters into believers? Give them the correction they've been looking for, and then run the Nasdaq to 3,000. Can you think of a better way to get the retail money back in the game.

The market has the will and ability to pull this off. The news can't be better, oil down, rates down, inflation receding, Iran, Syria, & North Korea quieting down, and tech is starting to outperform. The stories just starting, and one word will fuel it, possibly to the end, VISTA.

Microsoft Vista may fuel an upgrade cycle like we haven't seen since the late 1990's. More drives, RAM, PC chips, video cards, you name it will be in high demand if the software truly spawns the next generation of software that consumers and corporations will want and wouldn't be able to run on their existing machines. In turn, the need for the latest chip manufacturing equipment will be required to expand and keep up with the demand.

Your job now is to look for and keep an eye on the current winners in the run from July. At this point most of these stocks are well into their moves and it would be risky to chase. Wait for the market to correct and look to be a buyer of these names out of new consolidations.

P.S.
For those curious why it's been so long, I will write about my big recent mistake and how I had to pull myself out of it, soon.

Blog Update

I am currently updating the blog with previous posts. Once this is complete, I will begin posting current commentary. Check back everyday. Or subscribe on the left side of the screen and have the blog update you via email everytime something new is posted. Thanks for your patience and enjoy the site.

Update: Full Bear

Just to give a quick update. I have changed my opinion back to fullybearish!! The market gave us a quick run to make some money on thelong side. Now is the time to go short and book profits. I will tryand eleborate in another letter on the reasons, but for now, we're busyflipping the longs and taking shorts. We may get another squeeze, butit should be short lived.

Rally Relief for Everyone

Are you ready for a rally? Probably not. The way the market isacting it doesn't seem the selling will ever end. But that doesn'tmean you should not be preparing. At this point the market is readyfor a bounce and way oversold to be initiating short positions. I'mchanging my opinion from outright bearish to neutral/bearish. Mylong view over the next few months is that we will follow the restof the world's markets into bear market territory, but in the nextfew weeks we're ripe for a sneak rally.

So why the change of opinion in the short run:

1. We're entering a period of relatively light news until the Fedmeeting on the 29th.
2. The Bull/Bear ratio is indicating that bears are about toovertake bulls.
3. The put to call ration has spiked over 1 on at least 4 occasionsrecently, indicating more puts then calls are being bought.
4. Between CNBC and Bloomberg you would think the world was comingto an end.

The rally will be a true stock pickers market (aren't they all?).There will be some opportunities both big and small. The main thingto remember is that you should not over stay your welcome. Stopsshould be tight and any sign of trouble in a stock you do have aprofit in should be taken.

Spend the next few days looking for fundamentally and technicallysound stocks. The earliest we could get a confirmation would beMonday assuming we don't undercut today's low. If you're stockbreaks out, make sure that it's on heavy volume and the relativestrength line makes a new high.

During the rally, if it materializes, make sure you don't forget tokeep an eye for potential short setups so you're ready to pounce theother way once the market starts to run into trouble. The next legor two will bring back memories of the 2000 - 2002 beat down. Idon't expect the bear to last that long or be as deep, but the lastleg or two just get ugly and if you're not short or in cash it willget painful.

On another note, the way large cap techs and telecoms have beenholding up indicates that they are finally ready to take back theirroles as leaders in the next bull market. Due to their heavyweighting in the indexes, I can say with some confidence that thenext bull market (not this mini rally) will take the NASDAQ over3,000 and DOW over 13,000 (by the end of 2007 at the latest).

Ready or not, the market will do what it has to do with or withoutyou. So do your homework regardless of market conditions so youdon't miss a beat when the market comes calling.

Stay the Course, Sell the Rally

If you're not out yet, make sure you're watching your longs. Eventhough on the surface it seems it's time to party like it's 1999 allover again, it is really just a matter of time before the marketrolls. All the indexes are being distributed on the way up. As crazyas that sounds, markets can and do top as they continue to movehigher. Earnings, I've argued all along, would be the catalyst to thestart of the selloff. The way the internals are acting, it seems themarket is saying the same thing. Then add rising oil/gas prices andinterest rates to the picture, and you have a recipe for a bearmarket. This is not a guess, these are all facts.

Sell Sell Sell into any Rally

Markets do not top overnight and neither will this one. Any bounce in the market should be used as a selling opportunity. If you absolutely need to trade on the long side, then make sure it's a trade and nothing more. Be very diligent with your risk management. The more research I do the more convinced I grow that my change to a bearish stance will prove to be correct. The headlines continue to ignore the deteriorating internals:

- Leading stocks and sectors continue to breakdown.
- Short setups look better then the long setups.
- Recent breakouts are breaking down one by one.
- Stocks that looked ready to setup and go, have slowly been shot to death.
- Uncertainty continues to build about Iraq, Iran, economy, interest rates, oil, etc... If the market hates anything that's uncertainty. At this point nothing is for sure, and with an election toward the end of the year, it doesn't seem to be getting any better.
- Earnings are going to be a disaster, but hopefully companies will wash their earnings out so comparisons get easier. This is where I see at least one of the major legs down, if not the "ONE".

The market is in for a minimum correction of at least a month plus. Is there any good news? Yes. Large caps will finally lead the next rally. Since they make up the bulk of the indexes, a sustained move by large caps will provide the type of support that long lasting rallies need.

My worst case scenario, and the one I prefer, is for the DOW to undercut 10K, and the NASDAQ to undercut 2K. At this point I would give this scenario a more then 50% chance of happening based on the technical damage being done. Earnings most likely will be the catalyst to get us really going to the downside.

Keep an eye on the short setups and be prepared to execute. The market is due for a bounce in the short term and looks like it will.

As always do your own research to either confirm or counter what I see. If things change, you will all be the first one's to know. For now, I would be in cash and ready to get short. If the short side is not for you, then take a vacation

CASH IS KING

That's right, no one will believe it, but I'm changing my opinion onthe market from bullish to neutral/bearish. You may be thinking toyourselves how can he change his opinion as the DOW is making newhighs, and the NASDAQ and S&P are close to doing the same? Becausethe headlines tend to lead you in the wrong direction, marketinternals on the other hand, give you a clearer picture. I lookedover 2,000 charts last weekend and more this weekend, and what I sawjust looked bad. Here are the reasons for my change in opinion:

1. Leading stocks are breaking down.
2. Most of the leaders that are making new highs are doing it onlower volume or are going into climactic looking runs.
3. The majority of new stocks trying to breakout are failing veryquickly, or lack volume, or their relative strength (RS) lines arelagging.
4. The DOW is rising, but on lower volume.
5. The DOW is just not a leader that holds the market up for long.It is made of up mostly mature fairly priced stocks.
6. IRAN - This is the biggest uncertainty of them all!!! The marketwill most likely wait until at least March to see Iran's reaction tobeing referred to the security council.
7. Interest rates, even though they will stop after no more thenanother two moves, the ambiguity of the Fed governors is creatinguncertainty about the number of rate hikes to go. Again, we mayhave to wait to see how this plays out in the first half of thisyear.
8. Earnings - Well they were good, but revenues just disappointed,including forward guidance. It's a matter of time before thesecompanies throw the baby out with the bath water and wash theirearnings out. Second quarter earning's reports look set up forthat. This way, going forward, comparisons will get easier.

Unlike in December, there is just not enough underlying pressure tomove this market much higher. There is more downward pressure fromformer leading sectors such as oil, commodities, homebuilders, andetc... With their big moves the last few years, they now make up amuch larger percentage of the indexes.

I still believe the market may have another small push higher, but Iwould not stick around to see if the next leg down is a constructiveone. The next leg will get ugly as they will take everyone elsebehind the barn and shoot them. This will finally create the fearrequired to give us the big move.

Here's how we're and you should be handling this market:

1. Sell all laggards.
2. If you need to be buying, buy only the quality names, and stickaround only if they manage to hold their gains.
3. Any stocks that are still moving higher in your portfolio shouldbe held only as long as they continue to act technically right.
4. If the market starts to undergo distribution, it would be wise tomove almost completely to cash, if not completely.
5. Good time to be looking for shorts.
6. Start making your list of potential buy candidates once themarket gets going again. Update this list frequently.

From the research I have done, it seems that we are looking at aminimum of 2 - 3 weeks more before the market can right itself. Ifthe leg down I am expecting is really bad, it may take at a minimumof 1 - 3 months. About the typical length of a correction or bearmarket.

Tread carefully. I may be wrong, but the research says otherwise.As always, be prepared, because the market will do what the marketwants to do. Our job is to be ready to take advantage of it, orprotect our capital from it.

READY TO RALLY!!!

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.

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.

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.

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.

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.

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.

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.

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.

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.