Stocks gapped higher in the morning but soon lost those gains, off the back of three weak economic numbers. First Q4 GDP came in with a final revision of a 2.2% gain. That was much lower than the initial 3.5% reported and below 2.3% estimates. Then new home sales came in with a Y over Y fall of 16.6%. That was the worst fall in 13 years. Finally, the Chicago PMI fell to 47.9, below the neutral 50 mark, signaling that the factory sector is slowing down. However, Ben came to the rescue, with comments that the economy was “fine” and that the economy is showing “moderate growth.” This helped lift stocks off the lows, leading them to green closes. The tame gains, compared to Tuesday’s losses, however, shows that yesterday’s losses were more than just a one day “mistake.” This had to be disappointing to market bulls, even though they will not tell you it was.
At the close, stocks barely recovered any of their losses, with the SP 500 leading the way with a .6% gain, the DJIA followed with a .4% gain, the Nasdaq gained .3%, and the SP 400 and 600 gained .1%. This was not the kind of buying that inspires confidence that the selling from yesterday was a one day phenomenon. The IBD 100 gained 1.3% and the IBD 85-85 gained 1.2%. Both well below their 5.3% losses yesterday. Today was not bullish.
Volume was lower on the NYSE and the Nasdaq. The lower volume, along with the extremely weak gains off such big losses yesterday was clearly not what the bulls were looking for. Even though they are crowing about stocks not selling off further, they should instead be asking themselves why there was not more of a bounce. The little gains with the lower volume is a clear sign that the big boys (institutional investors) have no interest in buying stocks in bulk after such a selloff.
Breadth was positive on both indexes. Advancers beat decliners by a 5-to-3 margin on the NYSE and by a 8-to-7 margin on the Nasdaq. At least breadth was not negative with the gains. That can be taken as a positive. However, what can not be taken as a positive is the breadth in new highs to new lows. Today there were 114 new lows compared to 94 new highs. If this selloff yesterday was in fact a one-day wonder, I really don’t think there would have been more new lows over highs on a day where all the indexes close in the green.
Two other items that caught my attention. One was the Investors Intelligent survey. That survey had bulls increase to a 50.5% level (that is a ton of bulls) but it also had bears increase to 26.6%. So even though the high bullishness is bearish, we can’t say that anything dramatic happened here. The other item of interest is the fact that I am getting a lot of Financial Services-Other (closed end fund) stocks showing up on my scan. These stocks show up in bear markets. These stocks do not exist or come up in my scans during bull markets. Only impending bear markets or actual bear markets produce these stocks as leaders. These stocks never lead during bull markets. According to IBD the Financial Services-Other has moved up from 93 to 14 on the list of 197 industry groups over the last six months. This has NEVER been bullish for the market, before. And I doubt it is this time around either. I have been through a lot of pullbacks and these stocks always show up in downtrending markets or markets about ready to enter a downtrend. This is history, not my opinion.
The only other item of interest, that I can think of, is the put/call. It came back down to 1.09 today, even though the market was barely up. This kind of semi-complacency after such a harsh selloff has something odd written all over it. I truly think the public is way to comfortable with yesterday’s losses.
History is against us right now. Big crashes after stocks have been rising for a long period of time (like four years!!!) are bearish–not bullish. The last time, according to IBD, the Asian market crashed in 1997, we entered a three month correction. Unless we get a follow-through any time soon, I have little reason to think that we will not have a three month or longer correction. Is it really unreasonable to think that could happen? Of course it is not. After four years of solid gains, you better believe a bear market is going to hit soon. Yesterday’s selloff, along with a look at other historical crashes after a long uptrend indicate a bear is probably where we will be going. I would err on the side of history.
Like I said yesterday, it is all about protecting gains and your cash right now, no matter what anyone says on CNBC. Raising cash, not buying the dips, keeping new buys small and only in leading sectors, getting off margin, cutting losses fast and getting rid of losers now, and not trying to short the market now is the correct play. It is still way too early to start shorting the market, as the market will need to be in a clear downtrend with failures at the 50 dma before that play is the right play to do; and if the market is to rally I will need to, LIKE ALWAYS, see stocks breaking out of green well-formed bases. Until either of these scenarios happen, I will be managing my portfolio and waiting for the next right time to plunge into the market and make a living/killing. There is one thing the greatest traders NEVER did and there is one thing I NEVER do. That is to force trades. If the market is not in a clear trend and there are not any pretty stocks to go long or any ugly charts breaking down near their 50/200 dmas, then there is nothing to do. I will repeat: THE BEST TRADERS NEVER FORCED TRADES THAT WERE NOT THERE. I DO NOT FORCE TRADES THAT ARE NOT THERE. Today there were no trades that were there.
I am still long 228 stocks and they are all still in uptrends. Until these uptrends get taken out on volume, I will remain long these stocks. So even though there will not be any new mass buys or shorts, there is still plenty of work to do to make sure I protect gains and can squeeze out as much profit on my holdings as possible. Today was the first day in over two months where I will not initiate any trades the next morning.
The bulls are happy that there was no further selling. All the talking heads on CNBC say the selloff is a buying opportunity. Everyone I know “hopes” stocks bounce back. If you look at mutual fund inflows, January was HUGE. There was a ton of money that came into the market in January as everyone finally believes in this rally. They are now in the red. Once again, the public, like always, is late to the party.
I, on the other hand, am very happy. I realize a pullback is good. A pullback allows us to get rid of laggards and free up cash to invest in the next new crop of big winners. You simply can not get charts that produce 100% plus gains in a year or less, unless you get a whole market pullback to help setup big long bases for these stocks to blast out of. You need a high VIX to get big gains. A market with little VIX, like we have had, will never give you the gains to make a killing/living. We simply need big pullbacks to give us a higher VIX and more bases. It is as simple as that. One more time: without a high VIX (preferably over 25) and long market pullbacks, you simply will not get a lot of stocks that make 100-500% moves in twelve months or less.
Even if we rally the next five to ten days, I would not get too excited. That is unless it comes on huge jumps in volume, big price gains, and with stocks breaking out everyone from sound fresh bases….uh how can that happen? It can’t. There is too much damage to charts out there. It is going to take some time for more beauties to setup. Get over it and get ready for a rough market. That is what you are about to get.
If you are a sliver or bronze subscriber, I really do recommend stepping up to the gold. The total information available in that service is HUGE if you are inexperienced. I list my partial sales, whole sales, stocks on radar, and public portfolio holdings everyday. If you want to stay on top of the market and have the confidence of knowing you are in complete control I welcome you to join us. Aloha and I will see you in the chat room.
