Stocks Close Near Their LOD But Lack Of Volume Indicates There Is Still No Distribution Since The 11/28 Follow-Through; IBD 100 And 85-85 Finish In The Green

December 3, 2007

Stock indexes started the day off in a nice steady slow trend higher. But around 1PM on the east coast, stocks decided to put in their highs and subsequently sold off the rest of the trading session closing near their lows. I saw some talking heads indicate that we have seen the top and saw others say that they were more bearish than at any other time since 2000. However, RIGHT NOW, I don’t see it, because I follow the general trend of the market and right now the trend is up.

As long as the 11/21 lows in the IBD 100 and IBD 85-85 hold, I have to remain with this bullish bias. Even though this might sound funny to some of the perma-bears who are for sure this market is going to rollover–which I believe it will too (just not as much as people like Doug Kass)–the market is currently in the middle of a confirmed rally and during confirmed rallies HISTORY has proven that it is smarter to be long than trying to short.

The time to short is when these low volume rallies hit resistance and then start to selloff on higher volume. When they selloff and fail at a key resistance point or moving average, that is when it is safe to short. Shorting stocks that are just breaking down below support is ALWAYS a sure lead to the poor house.

Now, I must reiterate one more time, not every follow-through day guarantees a bull market but no bull market has EVER started without one. Every big bull market has started off with a “follow-through” day. The best way to tell if we have a great follow-through or not is to look at our charts. What kind of charts are breaking out? Are they liquid, high priced? Do they have strong fundamentals or are just weak? Are they in high tech growth leading industries or dull areas of the economy that lead during a bear? By looking at the quality of longs that are moving higher after a follow-through we can usually guess how the market will turn out–though you will NEVER know when it will top. EVER.

Right now, there is not a lot of amazing growth stocks that have great stocks, lots of volume, and high stock prices. Most nice charts are either in closed-end funds, defensive stocks, or illiquid cheap stocks. This is not the making of a high quality rally. So my guess is is that this rally will not hold. So some ask then why even go long. Well if you look at some stocks like ISRG, QSC, and APPY, you should be able to tell that they all have very beautiful patterns on daily and weekly charts. Not only that, you should notice that they are all drug/medical/health stocks which normally do very well in choppy to down markets.

With the market acting funny and many defensive stocks leading this rally, it is safe to say that this rally will probably fail. But if you are long ISRG, QSC, XNPT, VMSI, or APPY, it doesn’t matter that the market is falling because your sector is the safe haven for money for the mutual funds that must always find an area of the market to work the money since they can not short.

Since they can not short and they must be invested there is always go to be a pocket of the money that rises as enough funds accumulate shares. Since a lot of cash will move to the sidelines (more than will be put to work) most stocks will fall leaving an easy amount for us to scan for each night. So there is always some place to put money.

However, should you even be investing here? That is COMPLETELY a personal question and I will say once again that most professionals are keeping their trades very small and/or they are keeping their powder dry. Really good traders will short this market when the downtrend starts again but remember unless you are proficient in making money going long I really don’t advise shorting the market. It is much more complicated and it is much harder to find the proper entry point. Even I am having a rough go of it, which is an indication the right time to short still hasn’t come yet.

There isn’t much else to add to today’s market action that I did not talk about over the weekend. Some of the clear signs that I see beside defensive stocks leading is that there continue to be more new lows than new highs which in the future could turn out to be a bearish internal situation. The other bearish situation developing is that complacency is reentering the market.

This weekend the realmoney.com poll came in with the bulls got 939, or 53% of the 1,773 votes cast and the bears got 389 votes, or 22%, while neutral came in with 445 votes, or 25%. This also goes with the put/call ratio which was rising while the market was creating a uniquely bullish situation. However (which is absolutely making no sense at all), the equity put/call ratio fell with the market to .83. That shows that as the market fell more people decided to buy calls which means that they think they are getting a bargain. When option buyers think selloffs are bargains, instead of thinking that the selling will lead to more selling, you usually do NOT have a real good chance of seeing a powerful rally.

To see a powerful rally continue without running into resistance, you want the put/call to rise as the market pounds out a bottom. As for calling tops, this is the worst indicators to use. The better indicator to use is the investors intelligence. When there are more bears than bulls, that is when you should turn bullish. We are no where close to that. However, the realmoney.com and AAII poll shows that the public is definitely bullish–in fact, over 50% of the public according to both polls.

So with all the defensive industries leading, I doubt this rally will last. However, a lot of these stocks will continue to make gains against the market and when the market does go up these stocks like EGN will continue to outperform the market. This is not an easy market and making a lot of money here is not where it is it. Where is it at? In bull markets.

And that is why soon, during this rough market, I will be posting some of my biggest winners ever that I held. Starting in 1999 and making my way to 2007, I will post all the best charts, what they looked like before and after. Later I will revisit them and go into some detail about why they were purchased and what interested me about them. If you can’t tell after looking at stocks like LPTH which has already been posted why I went long that stock…..God have mercy on your soul.

Aloha and I will see you in the chat room where I continue to lose my mind at every little technology blip that comes my way. You would think that one day I would learn to relax. However, tech is always there to destroy my hard work. And if it doesn’t destroy it, it jacks it up so much that it is useless. Technology is a blessing but for my heart it has not been. ALOHA WITH LOTS OF ALOHA SPIRIT (FOR MARKET)!!!!!

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Posted by Joshua Hayes | Filed Under Free Commentary

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4 Comments »

Comment by MauiTrader

2007-12-04 13:27:21

Lesson on shorting:

[2007.12.04 10:19:46] wutan234: how about mbi
[2007.12.04 10:19:51] wutan234: as a short
[2007.12.04 10:20:03] MauiTrader: FUCK NO!!!!!
[2007.12.04 10:20:05] MauiTrader: bro
[2007.12.04 10:20:07] MauiTrader: how many times
[2007.12.04 10:20:11] MauiTrader: do i have to tell you!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
[2007.12.04 10:20:14] MauiTrader: history shows the best time
[2007.12.04 10:20:18] MauiTrader: is at the fucking 50/200 dma
[2007.12.04 10:20:23] MauiTrader: breaking down on huge volume
[2007.12.04 10:20:31] MauiTrader: that is the safest, best, fastest time to short
[2007.12.04 10:20:32] MauiTrader: HISTORY
[2007.12.04 10:20:34] MauiTrader: !!!!!!
[2007.12.04 10:20:39] wutan234: ok
[2007.12.04 10:20:43] MauiTrader: once again
[2007.12.04 10:20:46] MauiTrader: you want to short a stock
[2007.12.04 10:20:49] MauiTrader: that has ALREAADY
[2007.12.04 10:20:51] MauiTrader: made a huge move down
[2007.12.04 10:20:56] MauiTrader: shows support
[2007.12.04 10:21:01] MauiTrader: look at all the fucking volume
[2007.12.04 10:21:05] MauiTrader: on the November lows
[2007.12.04 10:21:10] MauiTrader: until it hits the 50 dma
[2007.12.04 10:21:12] MauiTrader: you dont short
[2007.12.04 10:21:14] MauiTrader: and even then
[2007.12.04 10:21:17] MauiTrader: it is too late
[2007.12.04 10:21:19] MauiTrader: HPC and THOR
[2007.12.04 10:21:21] MauiTrader: relook at those
[2007.12.04 10:21:26] MauiTrader: fuck that they are not mvoing lower immediately
[2007.12.04 10:21:32] MauiTrader: STUDY MY FUCKING CHARTS!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
[2007.12.04 10:21:36] MauiTrader: all of you!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
[2007.12.04 10:21:39] MauiTrader: fucking acutally look at them
[2007.12.04 10:21:42] MauiTrader: and memorize them
[2007.12.04 10:21:44] MauiTrader: fuck
[2007.12.04 10:21:47] MauiTrader: if you dont see that
[2007.12.04 10:21:54] MauiTrader: YOU DONT SHORT!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
[2007.12.04 10:22:05] MauiTrader: MBI has more risk
[2007.12.04 10:22:07] MauiTrader: to the upside
[2007.12.04 10:22:12] MauiTrader: than the reward to the downside
[2007.12.04 10:22:14] MauiTrader: where support is
[2007.12.04 10:22:16] MauiTrader: horrible
[2007.12.04 10:22:26] wutan234: i see
[2007.12.04 10:22:28] MauiTrader: you guys alwasys!!!!!!
[2007.12.04 10:22:30] MauiTrader: notice shorts
[2007.12.04 10:22:32] MauiTrader: AFTER the fact
[2007.12.04 10:22:41] MauiTrader: only AFTER the big gains are made to down side
[2007.12.04 10:22:45] MauiTrader: do you ALL finally see the short
[2007.12.04 10:22:52] MauiTrader: by then it is too late we have taken our money and gone home
[2007.12.04 10:23:00] MauiTrader: i see ppl shorting CLP here
[2007.12.04 10:23:11] MauiTrader: where the fuck were they in in June or October?
[2007.12.04 10:23:20] MauiTrader: when the stock was breaking down at key moving averaes
[2007.12.04 10:23:26] MauiTrader: after failing a LONG base
[2007.12.04 10:23:31] MauiTrader: not this short bounce shit like MBI
[2007.12.04 10:23:54] MauiTrader: look at the chart of HPC for 2007 from 2006 lows
[2007.12.04 10:23:58] MauiTrader: notice there is along way to the lows
[2007.12.04 10:24:01] MauiTrader: compared to the hghs
[2007.12.04 10:24:06] MauiTrader: that is why yuou are supposed to look for
[2007.12.04 10:24:20] MauiTrader: reward $8 risk $2
[2007.12.04 10:24:22] MauiTrader: 4 to 1
[2007.12.04 10:24:30] MauiTrader: which is what i require from EVERY long/short
[2007.12.04 10:24:35] MauiTrader: $2 to new highs
[2007.12.04 10:24:39] MauiTrader: $8 to new lows
[2007.12.04 10:24:42] MauiTrader: 05 lows
[2007.12.04 10:24:58] MauiTrader: MBI risk $30
[2007.12.04 10:25:02] MauiTrader: to reward $2
[2007.12.04 10:25:07] MauiTrader: that is your trade you wanted to take
[2007.12.04 10:25:12] MauiTrader: 1 to 15
[2007.12.04 10:25:16] MauiTrader: compared to my 4 to 1
[2007.12.04 10:25:20] MauiTrader: do you see the odds?
[2007.12.04 10:25:26] MauiTrader: do you see why i made money playing poker?
[2007.12.04 10:25:31] MauiTrader: when most just give it away
[2007.12.04 10:25:38] MauiTrader: if you can’t FIRST put the odds in your favor
[2007.12.04 10:25:42] wutan234: 4 to 1
[2007.12.04 10:25:43] MauiTrader: I DONT GIVE AFUCK who you are
[2007.12.04 10:25:46] MauiTrader: you will NEVER
[2007.12.04 10:25:49] MauiTrader: trade successfully
[2007.12.04 10:25:51] MauiTrader: EVEN IF!!!
[2007.12.04 10:25:56] MauiTrader: you are right 80% of the time
[2007.12.04 10:26:00] MauiTrader: BUT
i can be right
[2007.12.04 10:26:07] MauiTrader: 25% of the time and make money or break even
[2007.12.04 10:26:11] MauiTrader: you have to be right 15 times
[2007.12.04 10:26:18] MauiTrader: to every 1 time you are wrong
[2007.12.04 10:26:25] MauiTrader: to make money trading the stocks you want to trade
[2007.12.04 10:26:33] MauiTrader: i use the !!!!
[2007.12.04 10:26:36] MauiTrader: to hammer the point in
[2007.12.04 10:26:38] Troy has entered the room “MauiTrader’s Lounge”
[2007.12.04 10:26:41] MauiTrader: i am posting this on the site
[2007.12.04 10:26:43] MauiTrader:
[2007.12.04 10:26:44] MauiTrader: in comments
[2007.12.04 10:26:50] wutan234: i see
[2007.12.04 10:26:51] wutan234: thx

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Comment by MauiTrader

2007-12-04 13:28:18

I may curse a lot (thank all the thugs I grew up with) but it is to get the point across to all of you that if you would just pay attention to my analysis and charts you wouldn’t even have to ask me if MBI is a short.

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