BSC Blowup Proves A Chronic Emailer Wrong And, Once Again, Proves The Power Of CANSLIM; Stock Market Indexes Selloff On Mixed Volume But Hold Recent Lows
March 14, 2008
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Today was another day in the stock market that has just gone to prove that cash is in fact king. When you try to play a stock market with a heavy hand or even on margin in an environment like this you either have a serious illness or you just have never taken the time to study history and to have learned that the smartest thing to do is NOTHING. A stock market that is this volatile that has THIS MANY BLOWUP is definitely not a stock market you want to be messing with.
I am simply STUNNED! by the number of emails I have received from RM readers that tell me I don’t know what I am doing because I am not buying the bargain of BSC the past five days in a row. First off, the fact that ANYONE in their right mind is buying ANY stock below the 50 and 200 day moving average is pure INSANITY! These foolish investors think they are buying something that is giving them “a once in a lifetime opportunity.” Folks, that once in a lifetime opportunity only comes along once for these guys because they are ignorant of history.
If they have would have taken just a few moments out of their life to have studied the greatest winners of all-time they would have seen that the same patterns show up over-and-over-and-over. I simply do not know how many times you can see a cup with handle breakout from a fundamentally sound company in a bull market in every year, no matter if it is 1880 or 2008, and see those gains that they produce AFTER they are above those lines and say “no, you know, I am going to get this bargain here.”
Well, one of those guys (Geoffrey Lenart), could have cost my butt 60% had I been a gullible idiot. This person sent me an email telling me that I was an idiot for not being able to see that BSC was a “buy of a liftetime” and by not loading up I was “stupid.” This particular (there was more than a few) email was sent on 3/11. Three days later the stock is now down 52%. Amazing.
This follows two others who recently called me out for “not knowing anything.” One was a jerk about it, the other was sincere because I just didn’t “understand” how good it was. The first one was by a poster in the comments section by SCO sometime in February. He said that DRYS had to be bought. Well sco did and so did WillPS. Both of these gentleman said I was basically “not smart” for not buying this stock. Since I was told to buy DRYS, DRYS has fallen 31%.
The last one isn’t that bad but it is just as stupid. A member of the platinum chat room insisted on Friday that I buy HNSN because “it is definitely going higher.” Well let’s pretend I loaded up with 4 to 1 margin on this “for sure” stock. Oops, that was a mistake! When the bell rang to a close on Monday the stock was down 13%. Who is the dumb one now? Let me guess, geniuses, me.
What makes all of this worse is that NONE!!!! of these characters have apologized. I do this for a living. I don’t have time to sit on my ass and wait for a stock to fall 55%, comeback, and then start producing gains. I have to make money now. And there are a lot of ways to do that but there is only one way that can give you the HUGE WINNERS in the best stocks in the best sectors in the bull and bear markets. ONLY ONE. That is CANSLIM. And knowing that, we know via the AAII inividual tracking of I believe 120 (I don’t remember) strategies that the CANSLIM methodology from 1998-2007 has produced a 1,530% return compared to the SP 500’s 54% return. Now I ask you this, unless you are beating that, why would you argue with it? It is just childish to see those returns, then see your lame returns, and then NOT look to change.
But still what if you would have given that advice to buy DRYS, BSC, or HNSN to a gullible old person or widowed woman. Do you feel good knowing that the stocks are down so much and yet even though you believe in it, they need the money and now they are missing 60% of it. What is EVEN WORSE about the BSC example is after I am told to load up I am told by him that he doesn’t have a lot; you know, it was a small position. Just like his purchase of TMA back in early August. He was letting me know about the great 20% dividend I can get from the stock and how I was stupid for not buying it on 3/10. Well, I guess, he is right. Too bad he didn’t buy it then either as a search of his name on google produced a posting on Herb Greenberg’s website about TMA has to be a great long back in August. From that post to the lows on 3/10, TMA lost 96%. Yet according to Geoffrey I am the one that is going to blow up. LOL. You know the guy that has found more 100% to 2000% winners than anyone else I have ever read or met. And the guy who cuts all of his losses making it impossible for a small loss to turn into a TMA. Luckily, I have learned how to use the email blocker and will never have to hear from our friend again. Good riddance to pure rubbish.
Thankfully, horrible human beings like that, don’t last long and if this does turn into the 1970s you can be sure he will remain broke and will never make money in the stock market. Even if he does the returns will be so lame that he wont be able to cover his inflation.
On the other hand, everyone else from RealMoney is extremely nice. However, those guys don’t send 5 emails a day. When you have a stalker you have a stalker. At least a valuable lesson can be learned by all of you who are looking to buy GS or C here. Don’t forget I am still short some GS. Fighting my trend is not a smart idea. You can ask another subscriber named David about that. But really it isn’t me. It is the moving averages. The bottom line is that if the stock is moving up and is above the 50 DMA, I look to get long the bounces off the 50 DMA or breakouts above resistance. When the stock is moving lower I look to either stay in cash, short the bounces off the 50 dma on stronger volume, or short a breakdown below the 50 and 200 day moving average.
Really, though, if you just think about it, it should make perfect sense. You obviously want to be long stocks going up. If you buy a stock and it goes down and you lose money, YOU ARE WRONG. PERIOD! No other f’ing way to spin that. The only good stock is a stock moving higher. If you buy stocks moving up, short stocks moving lower, stay in cash during wild markets, and cut your losses when the stock you buy or short does not do what it does immediately, how can you go wrong? You can not. This is history. This is what the greatest traders of all time did. Not the crappiest traders. The greatest traders.
So now that we understand that I think all of you bottom fishers are freaking crazy, we can almost move on. The last point I want to make is this. When these fools buy their bargains and lose 50% in one day or they actually get it right and get these great bargains that give them a 22% in one month that they sell, take the money and run, and then buy another POS old stock leader that goes up 20%, they forget that I AM SITTING WAITING FOR THE PERFECT LONG TO RIP THEM TO PIECES.
They go and take their 22% “easy money,” forget about the 50% they just lost, and then move into a stock that goes up another 20% and then brag to me. While that happens the bases of the BEST NEXT LEADERS will be setting up. This is when I wait for that breakout in a stock NO ONE has ever heard of to come on huge volume. If it comes with some great fundamentals or the chart is near perfect with max green BOP all over it, I will go long and as you can see in my ‘past big winners’ take what averages out to be 300% gains in five to six months. The stupid 50% loss, 22% BARGAIN!, and then 20% next gain in the next OLD laggard sure does end up looking very stupid when you consider 2000% gains are going to be out there in the next TASR SOHU NTES or heck even 540% gains in SSYS. All of these stocks did that in ten months. I wonder what Geoffrey, sco, and Frank’s returns were for 2003? I bet they were not 500%.
The stock market is a wonderful game and I love to play it. But to want to buy stocks at this point in the market “thinking” we are at extreme lows and can’t go lower is that same stupid cock-sure attitude that ends up RUINING tons of traders. These geniuses simply refuse to study history and it cost them a life of joy and freedom that a life of a self-employed active investor can provide.
Now, obviously, we have some bullish developments in our market. The first I will talk about is the put/call ratio. Recently we saw this average hit 1.41 on Monday. This was the highest it has been during the entire downtrend resumed in January. This was short term bullish. But there are two things here that stand out to me as problems. Which I know, none of the oversold loud-mouths, will pay attention to or care about. The put/call is LOWER than where it was in December when it hit 1.59. So we have sold off on lower volume that led into a slightly higher volume selloff and have gotten more volatile which has subsequently sent the market lower by 15-20%. But with the market almost 20% lower from those levels, the put/call is LOWER at 1.41 than at 1.59. So I believe all this is signaling is that the crowd is too bearish FOR RIGHT NOW. The put/call has been over 1 for a while now, including today’s close at 1.23. These high reading signal that we could see a bounce.
But I ask you, is it bullish that the market is 15% to 20% lower yet the put/call is lower also? The professionals know this answer. You out there who THINK you are a TRUE professional but do not know this answer. Well we know that you are not a TRUE professional. Something is wrong here and, besides oil and gold stocks, I would not want to even play with your money in this market.
Now that we understand where we are at at the put/call, let’s us then go to the VIX. The VIX has finally crossed the 30 level and has made a BULLISH CLOSE OVER the 30 level. The VIX has closed over 31 once already back in January. But right after it did that, it was immediately back down, on its way back to the 200 DMA. This time, though, the stock is closing above the 31 level and doing it with a very bullish intraday session. THIS IS THE FIRST REAL FEARFUL MOVE. Friday was the first day the market has had a fearful session since 1/17.
This is bullish, but it is not bullish RIGHT NOW. You need the stocks in the stock market to confirm WITH this number that we have a real low. With the lack of ANY new leaders out there (oil and gold led back in 2005-2006, don’t forget), you can not say “well the VIX hit 30, let’s load the boat.” That is what an idiot would say that thinks he knows everything. The smart trader will recognize that 30 is high but it is not historically where the VIX hits before launching the greatest bull markets. Normally the VIX will hit 40 for that to happen.
And you newbies that are new to the market that do not know how to look further back than 2003 you better start looking back to 1990. You will see that for the first time since 2004, the VIX has entered its upper range, where some very very nice gains can be produced. However, without a 40 to 60 touch, there will not be any 2000% winners. But now we could find some 1000% gainers NO PROBLEM when the market actually does turn.
Some traders are acting like the VIX is hitting extreme high numbers that MUST signal a move higher from here. Well if I was only looking back to 2003, I can see what you are saying. But even then you can see that in 2002 it hit 50 and in 2003 it hit 40. So 2002 was the bottom that gave us some great leaders. But it wasn’t until our new low was tested that the market took off producing huge winners left and right. Those that were not patient to wait for TASR to setup were caught waiting for DELL CSCO and MSFT to return to their glory days. Too bad it was too late and the stocks were too big.
Those super smart bottom fishers NAILED THE BOTTOM!!! Way to go guys. How much did you lose before you actually got it right? And how much did you make in those stocks by the end of the year? Did you see SSYS ERES JCOM ALVR FMDAY TASR SIGM ALVR SINA SOHU NTES FARO ECIL EVOL? What is funny is even though you NAILED the bottom and I was five months late in loading up in TASR, I still beat the living hell out of your returns.
How did I manage to find TASR? THE SAME WAY I HAVE FOUND ALL MY BEST STOCKS: A PERFECT CHART PATTERN, A PERFECT BOUNCE/BREAKOUT OFF THE 50 and 200 DAY MOVING AVERAGES, A TON OF HUGE ACCUMULATION, AND A CHART FILLED WITH MAX GREEN BOP. TASR passed then and our next huge winner with a perfect chart will come along and pass the test then also. Do you see the chart of GTU? If that stock would have had lower red volume bars in the months of January, February, and March, along with having max green BOP during that time, you would have had yourself our first perfect chart since APPY in September.
Before APPY there was the very last perfect CANSLIM setup that worked (a few failed after this HINTING THAT THE MARKET WAS ABOUT TO CHANGE FROM BULL TO BEAR) that was AFSI in April.
The last sentiment indicator I want to go over is the investors intelligence survey. For the first time since 2005, the bears came in higher than the bulls and for the first time in five years. the bulls landed below 30% coming in this week at 31.1%. This was the lowest in five years and an extreme that we have rarely seen. There is no doubt that the bears at 43% and the bulls at 31% are extremes. BUT REMEMBER THE LAST TIME THAT HAPPENED IN 2002.
It was a low but the market only drifted higher before rolling over making it look like it was about to swoon to new lows. This is when VIX jumped again, the put/call ratio spiked to an even higher level, and the investors intelligence widened again. But this time, there was something much different. The selloff leading to the March lows were on extremely low volume and the move off the lows came with some indexes rallying 3%, 4%, and 5% on HUGE volume. These follow-through days came with breakouts in technology, banks, steel, oil, internet, and housing stocks. It was a very broad rally on huge volume with huge price gains.
This time, we have the sentiment indicators, but the charts are copletely absent of a broad rallying market. Instead it is strictly commodity stocks. This is not broad enough to launch a 40% rally in the Nasdaq in six months. LOL. We will be lucky to get 10% with inflation at the pace it is at. In fact this market appears similar to 1937 via the chart pattern but is more like 1970s with the market, gold, oil, and inflation.
Until I get a real follow-through day on HUGE volume with a TON of charts with HOT HOT HOT chart patterns (you know, the ones in my ‘past big winners’ section–not the “falling knifes.”) breaking out in a wide variety of sectors, there is no way I am embracing the market with arms wide open and on full margin. Gold and Oil stocks are not going to cut it. And, remember, bottom fishers that are going to get your “once in a lifetime” opportunity, I don’t want to hear about it. I could stay in cash four months AFTER you buy and sell your bargains, and by the time the twelve month period is up (ESPECIALLY IN A BULL MARKET; I WILL CRUSH YOU!!!!) I will have returns that will prove your methodology a losing strategy. That is why the greatest traders of all time did not buy falling stocks or short stocks that are rallying. And in markets like this, THEY ALL WENT AND STAYED IN CASH. Only when the trend was clearly down (which it basically is but still we are holding above the very short term lows; not a trading range) did they short. Only when the trend was clearly up did they go long.
Gerald Loeb, William O’Neil, Jesse Livermore, Bernard Baruch, Jim Ropell, and Nicolas Darvas were the greatest traders of all-time. AAII has followed over 120 strategies and found the CANSLIM system to be one of the top three strategies out of the whole group from 1998 to 2008 (1,530% return vs. the 54% return of SP 500). Since 1880 to now all of the greatest stocks of each year in every decade have built the same similar chart patterns, they have had the same similar fundamental growth, and they have all had rising institutional sponsorship. History always repeats itself. There are simply way too many stocks out there and way too many people who are afraid to buy new highs. This ensures us, that when this selling is over we are going to make a lot of money.
We are on the right path, we have the VIX rising, the put/call rising, and the investors intelligence survey has finally crossed. The sentiment is there but the market is without a bid or without buyers. The major institutional investors are not buying stocks yet and that is why we only have gold/silver and oil/gas leading. When I get more charts that look like NEU, GTU, and LSR but are of the quality of NEU ONLY then I will get very excited on this market.
Right now, we are set up for a hard crash with the VIX, put/call, and II being at extremes, yet few stocks showing climatic breakdown selloffs like BSC. So we may have fear with market players. But we have not had the fear of stocks being completely washed out. So we could rally, we could easily fail and fail hard.
No matter what happens, just make sure you keep cash extremely high, your longs in commodities manageable, and your shorts in your favor (don’t carry losses). Be prepared for everything and anything, DO NOT bottom fish, be patient for the perfect setups that will come if we are going to bottom, keep riding those shorts lower pros, and remember CASH IS KING until a clear trend develops.
It definitely has not been easy investing in this market but if you have been listening to me you have been in cash and this market probably isn’t even phasing you. Which is a great thing some of my experienced guys know. The crew that has been with me over a year has been beyond impressive. I am not sure where you would be had you not come here to learn the CANSLIM system but you all have been very impressive. I know some of you went to cash early and missed some nice gains in shorts like AAPL GOOG TSRA SIGM SGMS and GRMN, but even by doing that doesn’t it feel much better than being the guy who lost 80% in January going long over and over on margin on GOOG AAPL? I am proud of you all. You have been great leaders for the new subscribers (minus the one guy who is “too smart” for the CANSLIM system :)).
I hope you all have a great weekend. Friday was extremely fun in the chat room. Over 36 people came and went on Friday (yes, I counted) making it one of the most active and fund expereiences I have had in months in there. I think the reason was because we are on the right side of the market: long commodities, short banks and the ex-leading big caps, and HEAVILY CASH. Aloha and I will see you in the chat room on Monday. I am going to enjoy some time in the sun at the most beautiful surf spot on Maui. Honolua Bay. ALOHA!!
Last 5 posts in Bronze Commentary
- Comments Are From Now On Closed Forever; They Will NEVER Be Open Again - October 24th, 2008
- FAQ - March 27th, 2008
- There Sure Is A Lot Bullishness Out There After Today's Huge Lame Bounce; Real Bottoms Come With Volume, Unlike What Cramer Tells You (How Often Is He Wrong?) - March 18th, 2008
- DJIA Leads The Way As BSC Rocks The Stock Market On Mixed Volume; How Can This Be A Bottom Without A HUGE Surge In Volume On the Nasdaq And NYSE? It Can't Be! - March 17th, 2008
- Time To Look For A Follow-Through Day, After Today's Bullish Reversal Off The Morning Lows; Metal Ore/Gold/Silver And Select Oil&Gas Stocks Are Our Leaders - March 13th, 2008
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I just recently joined your website. I can say that you’ve already saved me some money by keeping me in cash. It’s great to find a source like you. I’ve got a question. Wanted to know your thoughts on the possibility that we could be in a long term bear market for equities, similar to what we saw in the 60s - 70s. If so, was CANSLIM tested during that time frame?
Of course. As I have said. Every year, every decade the best winners are CANSLIM stocks.
I am not sure why people think it don’t work sometimes and works others. But for those that don’t know their history:
Control Data $1 in 1958 by 1962 the stock was $120
Universal Match 1960 100% in three months
Proctor and Gamble
Reynolds Tobacco
MGM
Great Western Financial 1961
Crown Cork and Seal
Kerr-McGee
Brunswick
Certain-Teed 482% in 12 months
IBM
Polaroid
Xerox
Mother’s Cookies up 63% in 5 weeks
Nytronics up 180% in less than 1 month
Bristol Dynamics 157% in 3 weeks
Packard instruments 118% in 10 days
Chrysler 1962
Bank of America
Boeing
Monogram Industries 1,000% gain in 12 months
Syntex 104% in 2 months 470% gain in 6 months
Fairchild Camera 1965
Polaroid 800% gain
Control Data Systems 1967 150% gain
Hilton Hotels
Lowes 819% 4/67-2/69
Holiday Inn 155%
General Cinema
Milton Bradley
MGM
Digital Equipment (last four stocks made 100% gains in under a year)
1968’s leading stocks were Mobile Homes
Redman Industries 1968 900% gain 9 months
shorts:
Certain Teed 1962
Alside
Korvette
Boeing 1966
Motorola
Simmonds precision
Xerox
Was CANSLIM tested during that time? How many times do I have to say from 1880 to 2008 every single greatest winner every year and every decade are CANSLIM quality stocks. This study is based on facts, not opinions. I have made it clear and so have the O’Neil books that the study started in 1950’s. Please read the book.
ALOHA!
After the BSC rescue, the odds of a 1% cut have jumped from 0 to 60%. Such a move would crush the dollar, send gold & commodities through the roof, and prolong the inevitable.
Please, Ben, let it burn!
$4 gas
$8 milk
$1.60 banana
Yeah, 1% is great!!!
Maui excellent point about the put/call being 1.59 back in December. It had slipped my mind until now. Its amazing that ppl are so quick to dismiss what the put/call was back in December…it is quite relevant to now. Look how much lower we than Aug 16th 2007 and look at the VIX!!
Don’t fight this feeling…I mean trend anymore!
BSC COLLAPSE!!!!!!!!!!!!!!!!!!!! ALL OF YOU EMAILING ME GET WHAT YOU DESERVE. I, AS A CANSLIM INVESTOR, LOVE THIS!!!!!!!!!!!!!!!!!!!!!!
I USE FACTS. YOU BOTTOM CALLERS ALL GET WHAT YOU DESERVE. ESPECIALLY, GEOFFREY LENART WHO BLEW UP MY EMAIL INBOX THE PAST WEEK WITH HIS NASTY EMAILS. IF ANY OF YOU LIVE IN SANTA BARBARA AND KNOW WHO THIS MAN IS, KISS HIM ON THE CHEEK FOR ME, MY GS SHORT THANKS HIM.
wow, BSC buyout for only $2/share…..wow
Foreign markets are sinking too. Could possibly see more financials fail on monday. I knew that guy from BSC was lying when he claimed no solvency problems.
Can’t believe the BSC news. I heard Brinker talking about it on AM radio sunday afternoon. He estimated they’d get 2 Billion in a buyout, and I thought that was bad. Hmmm…how’s 1/10th of that sound instead? Another AHM, more or less.
Gonna be an interesting week…S&P=1280 has held strong, but I don’t know anymore. Seems like there’s a lot of room to fall if we finally break through that level.
I wonder what, if anything, this will do to the oil services we nibbled at last week?
Wow, futures this morning suggesting that the lows will be well and truly cracked. So it could be a good day for a higher VIX. If we do get a 1% cut tomorrow, how would you guys be playing it? I guess sticking with commodities. LEH is being hammered on speculation.
Can you believe only a 35.6 vix at the highs?
close at 32. not bearish enough. where was the nassy volume?
LEH BSC MF NCC not good days
Gosh, I feel like I’m going to confessional! Forgive me Joshua, for I have sinned.
Earlier today I bought FCSX @ 30.03 because it shows great fundementals and was down 20% on the day, 30% over the last week. I tried to pick a bottom!
Well it continued lower, and your words sank through my head. What was I thinking, FCSX broke so many of the rules, but I had given in to the temptation of THINKING that I had found a bargain.
Needless to say, I learned a valuable lesson today, and my tuition cost was minimal compared to what I will save from NEVER repeating this lesson again. Stick to the rules, and also avoid anything below it’s 50DMA.
I’ve been fortunate to be in AEM and AUY for the last few months, so I’m doing OK overall, but I should have known better.
I’ve only been with you for about 2 weeks now, but I thoroughtly look forward to your commentaries, and learning more in the future.
excellent. that is just it. suck it up, take the loss, and then ask yourself this…
…..if Joshua has only gone long stocks over the 50 dma and they were all loaded w/ max green BOP like all the examples on his ‘past big winners’ then why do i want to go long FCSX???????
LOL - Good for you Josh! Those BSC idiots get what they deserve!
Yes they do
EugJ said two years ago I would fail..he said to load up FRPT.
WillPS and SCO told me I didn’t know what i was doing by not loading up on DRYS in February
Frank told me to load up on HNSN on 3/7…next day down 15%
Geoffrey from Santa Barbara told me to load up on TMA in August and BSC 8 days ago….both stocks fell 90%
BHCO said I didn’t know how to really trade and that I wouldn’t make it. That was a year ago.
To this day do you think anyone has apologized to me?????
Joshua:
Pay no attention to individuals who fall in love with a stock and decide that anyone who disagrees with them is an idiot. As you have said repeatedly, CANSLIM is the key to investing. For me, all purchases or short sales must meet certain criteria. Fundamentally, the stock is either a winner or loser. But, it is the technicals which tell me when to buy or sell, or sell short. At the present time I am long only three stocks - and none of these are big positions: BRKR, XIDE, and BZP. Today I closed some shorts, WG, LMT, RIMM, and FCX all at a nice profit. All of my longs are ALWAYS above the 50 DMA and all of my shorts are always below. Why take a chance with a loser of a stock in the hope that it might recover? A while ago I had a discussion with an individual who said WM should be bought back in January since it fell from the mid 30s in September. His broker had told him to buy it it January, February, and now in March. The price has gone from 36 to 9+.
I have found your analysis of the market and stocks to be 100% in accord with my approach. You don’t recommend so many stocks such as Gorilla Trades which are difficult to follow. Further, your analysis both on the markets and stocks are clear, concise, and on target.