Powerful Rally Proves Once Again That Following The Trend Of The General Market Is The Best Way To Make Big Money In The Stock Market

September 19, 2007

Today was, by far, one of the best day I have personally seen in the stock market in around four years. The best thing about it, once again, was that I and many who follow the CANSLIM style were well positioned for this rally. Therefore, today was one of the best days I have had, despite my account not being fully invested. I am still holding some cash waiting for the new leaders to show up, if this market continues to rally.

Everyone knows now that the Fed cut the Fed Fund rate to 4.75 and cut the discount to 5.25. This cut was to help out the economy to make sure that it does not feel the negative pressures from the housing market. The cut also sent the yield curve into a very positive slope. However, going into the meeting everyone and their brother’s mothers were trying to guess how much he was going to cut and how to play it. The great thing about this is that this foolish game of predictions and wild-guesses has proven once again that by following the general trend of the market–which has been up since August 16 and confirmed by an August 29 follow through–and taking your signal in leading stocks, you don’t have to know what he was going to do.

The charts were signaling that we were going higher, so the chances were probably pretty high that no matter what the Fed said, we were going to rally. Many charts are setting up or have broken out of very sound and quiet bases. The low volume rally in the indexes has created some nice bases in some strong stocks. Nothing is for sure to the degree of how long a rally will last. But the fact that so many charts look so strong indicate that more gains should come from today’s market.

When indexes rally from the Nasdaq’s 2.7% to the SP 600’s 3.7% on much stronger volume than the day before and close at their HOD, a lot of charts breakout from nice patterns, the put/call ratio falls only to .90, and the short interest ratio on the NYSE nears another all-time high, you can be sure that the market’s chances for more gains is higher.

And even though some say the volume was below the 50 day volume average, it doesn’t really matter. Volume picked up 38% on the Nassy and 48% on the NYSE. That is clear accumulation by some big money combined with short covering. It isn’t hardcore accumulation. But volume has been so low for so long that a jump of this size has to be considered significant.

now, granted, ANYTHING CAN HAPPEN. This market could crash in the other direction tomorrow; it could happen. However, if this rally was doomed to failure, TRUST ME, we would not be finding so many potential nice chart patterns with this decent amount of green in them and we would not, in no way shape or form, still be seeing stocks like RIMM AAPL BIDU GRMN FWLT DRYS GOOG etc. hitting all-time highs. These stocks are the leaders. When they break down the market is going to be in serious trouble. But when all of them are moving higher, like they are now, it is far riskier to be short than long these leaders.

If for some reason you did not heed all my advice and instead are still completely in cash or God forbid short, you still have plenty of time to reverse those positions and put some money to work in top stocks. If this rally is for real, the market will offer plenty of new longs from nice charts in the next two weeks and if this bull is really powerful it will give us charts for at least the first three to four months. However, even if this rally fails, the way the charts look now it appears that there are plenty of gains to be taken away before this short squeezing rally is over.

That is another thing. There are a ton of people already calling this rally a joke and expecting the shorts to continue to hit hard. I find this hard to swallow because all of my really nice short patterns in my short portfolio made significant reversals. Only about two or three acted normal today. The rest blew past resistance or key moving averages. If this rally was bunk, these shorts would have held their averages and/or their resistance levels.

It also hard to be bearish because I see Gold and Oil hitting new highs and those commodities have been the main key drivers of the rally the past four plus years. Oil stocks and Gold stocks have some very nice patterns out there and, once again, they look positioned for higher gains. The futures chart of Gold looks fantastic. That is a great weekly! Don’t chase performance, however. Most of the short term gains are probably cooked in the books by this point. j

The only trouble spot I see is the US Dollar breaking below important support and continuing to selloff after today’s announcement. The US Dollar hit $79.05 and there is no way I can back the US Dollar here with a chart that bad. It will find a bottom, trust me. I have a wacko friend who thinks the Dollar is screwed. Every time he says something like this, the opposite happens. So we will see how much further the Dollar has to go, even though it looks like there is more downside to come.

To sum it up, nothing surprised me today. The only thing that surprised me was truly how foolish the majority of the chit-chatters in the “free” chat rooms on the MB/Cybertrader rooms are. It is truly shocking to see the ignorance of TA. Many people have no clue how to even follow a trend. They aren’t sure what defines an uptrend or downtrend and instead try to “outsmart” the market by trading in the opposite of the market–to show the market how smart the individual is. What is scary is that these are the ones blabbing about their trades and are the ones that lose the most money.

Please, don’t be like that. Don’t predict the future. Don’t get into the trap of Fed watching. Don’t play tips. And I know this sounds bad but in trading it will make you more money and overall you will actually be more fulfilled and happy as a trader: don’t get excited on days like today even when you make a TON of money. The greatest traders are just like the greatest athletes: they remain in control during the game. Afterwards, be happy and celebrate. But don’t get crazy and cocky. THAT WILL ALWAYS CATCH UP TO YOU. And not having control of your emotions can be very damaging physically and mentally, if you ever do have a bad trade that knocks a huge chunk out of your account. That could possibly be very unhealthy.

On that happy note, I hope everyone made a lot of money today from of all my recent long recommendations and in the current holdings that we are still holding from before the July to August selloff. Aloha and I will see you in the chat room!

PS: THE TREND IS YOUR FRIEND; NEVER FIGHT THE TREND