Markets Fail Attempted Rally, Falling Across The Board And Closing At Or Near Their LOD; Are Any Of My Readers Surprised? No

March 14, 2007

It was another very ugly day for the stock market as the continuation of non-stop bad news keeps coming out. Today, before the opening bell, it was retail sales coming in at a less than .1% gain, when economist were expecting a .3% gain. That got the day started on the wrong foot but by noon time there was more pain to be delivered. The news that foreclosures rose to a .54% total of all mortgages outstanding, mortgage delinquencies rose to 4.95% of all loans, and that subprime delinquencies rose to 14.4% of all loans sent stock swooning into the close. These poor loan numbers were the worst since mid-2003.

At the close, the SP 600 led the way to the downside with a 2.3% loss, the Nasdaq followed with a 2.2% loss, and the DJIA, NYSE, and SP 500 all finished 2% lower. The SP 500 now has an Accumulation/Distribution rating of E. The worse news behind the numbers is the fact that all these indexes managed to close at or near their LOD. That tells me that the selling is not done and that funds couldn’t sell stocks fast enough. The IBD 100 lost 2.6%, leading the overall market. But the losses could have been much worse. Some of the reasons the losses were not worse was that after the selloff from two weeks ago many bad stocks have been replaced by more defensive issues. If the IBD 100 still would have had the same components as two weeks ago on Tuesday, it would have been much uglier.

Volume was much higher on the NYSE and the Nasdaq. Volume rose by 33% or slightly more on both exchanges. The selling today was well above the 50 day volume average and was higher than ANY day of the attempted rally from March 5. Breadth was negative on both exchanges by a near 4-to-1 or 9-to-2 margin. There were a 114 new highs to 206 new lows and the Nasdaq only produced seven of those new highs. The new high list is dominated by weak miscellaneous closed end funds. If you take out those stocks, the breadth of new highs to new lows is a much worse 92 to 206. The most telling tale of the market is in the IBD industry groups. Just like on the Tuesday that this all started, only 1 out of 197 groups were higher. It was a VERY UGLY day.

The biggest losers today were again the Building-Resident/Comm group and the Finance-Mortg & Rel group. Both lost a tad over 5% each, as every stock in both sector continue to get CRUSHED. If you read my post yesterday you saw my writing on the homebuilder group. As you saw today, they all continued their blowups. It didn’t take a crystal ball to tell they were going to fall further. All you needed was a book on TA. The most intriguing hunt on my part was trying to find the next AHM LEND and NEWC. I believe CCRT and ACF are the next two stocks to really get taken to the woodshed. If you are a gold member, you can see a list of ALL the ugly stocks ready to crash in the shorts section.

The other clear trend that emerged for me today, that solidifies my views that this market is finished, was the fact that I saw the old leaders that were the big winners from the March 2003 bull market get taken out for a beating. Whether it was the Gold group, Oil, Steel, Metals, Investment Banks, or Airlines, they all are getting hit and many of the top gainers (like TS GG GDP LEH ZNH) are clearly rolling over, topping, or straight up breaking down from long-term support. The old leaders are now dead. To me this clearly signals that the rally from 2003 is over.

And speaking of rallies being over, the sell-off today signals to me that the rall attempt from the March 5th lows is over. The rally is dead! I don’t care that we have not broken through the old lows yet. The fact that we failed right at the 50 dma on HUGE trade, compared to the rally, proves that the market is done. The leaders breaking down only confirms it.

Classic TA worked this time. The big sell-off, followed by a low volume rally to the 50 dma, that then led to another sell-off is TA 101 on how a bearish market should act. Everyone was looking for the sell-off which then led to everyone trying to outstmart the TA playbook by expecting it to fail. That led to the actual failure. You have to love the psychology of the stock market. I am not tooting my horn but this is yet another top that I have nailed by simply following TA 101.

And, btw, it wasn’t me that nailed it really; it was the market. The market quit giving me high quality CANSLIM stocks in January, then only gave me speculative longs until late February, that then led to the one big sell-off two weeks ago today. By following the actual market price and volume, and not the talking heads on CNBC or in the Wall Street Journal, it has now paid off. And paid off even more in the amount of money saved not staying long stocks that are in clear downtrends. I know many people that are becoming bagholders and are even buying this dip. That is pure gambling.

Like IBD said today, for the market to right itself, it will probably take many weeks to three months before we can repair this SEVERE damage. The blowups in the subprime, homebuilding, and soon investment banking stocks is so severe that the TA damage is so ugly that it will take months and not weeks to fix. My charts are now gone. In both my longs scans I found nothing and only found a handful that had pretty charts. I have not seen this kind of damage to individual stocks that have left such ugly chart patterns and so little pretty charts since March 2000. If you are still long, that little bit of personal experience and observation should have you a bit worried. This is not the time to try to make money. This is the time to keep it.

I simply see NOTHING positive out there. Nothing. I can not think of any great looking chart or any economic number that I see that makes me think the market can rally off of. Maybe that in itself is a contrarian positive but with the put/call falling to .66 yesterday it seemed the crowd got pretty bullish in a short time. However, the put/call spiked up to 1.46 today; so the fear is back. The VIX had a nice spike which is always good to see. I would love to see the market really tank and the VIX go to 30. That ensure that the next bull market will produce many 100-500% winners for us in a six to twelve month time frame.

I have been saying since the selloff two weeks ago on Tuesday that cash is king. Well CASH IS KING STILL!!!!!!!!!!! But if you are royalty and you know how to make money on the long side and your account balances shows YOU that YOU are a good investor on the long side, you might want to consider going short now. This is the time to start shorting. If we bottom and reverse, cut your losses. However, in a historical standpoint, the trend is now down on all time frames. The damage to the charts shows that more downside is probably in store. With so much damage and so few retail investors giving up yet, we are set up for more selling.

Folks, there is some serious damage out there. I mean damage like I have not seen since March 2000. Either we bottom here or the subprime loan debacle is going to open up a major bear market. I would lean on the bearish side. I am going short nine stocks (if I can get filled) in the morning. I am now shorting. Does that mean I quit going long stocks? No. There is always a bull market somewhere. But I don’t settle for second best. Unless my charts are all green and in a perfect smooth pattern, I will not go long. I have bought stocks the past two weeks and I still will if the proper pattern sets up. But right now, I can see the big money is to be made on the short side now. 3 out of 4 stocks follow the general market trend. That trend is down.

Aloha and I will see you in the chat room.