Day three of a rally attempt is under the belt and now we are on the look out for a Follow-Through Day. Friday was not a FTD based on two conditions: lower volume than the session before and a weak overall intraday session following the gap higher. True FTD are strong and leave no questions in the mind about the quality of the rally attempt. Friday was not the case. Make sure you raise your Sell Stops as your stock/ETF rises in this tape as we are still under an operational SELL signal on our overall market model. We are not even operating under a NEUTRAL condition yet. Keep this in mind going forward.

Another thing to keep in mind is that historically/seasonally going back to 1950 next week is the 2nd worst week of the year for stocks. On top of that, Monday also coincides with the date 10/20 which is the 2nd worst 5-day period to buy-and-hold stocks. I’ve said it before and I will say it again, it does not pay to fight history. This is probably why during this latest rally attempt we only received one new long signal and it came after the first day of the rally attempt. If we were ready to fly, I am 100% sure we would have received more signals.

As it is, we have plenty of stocks that appear to have put in bottoming patterns but based on my analysis of leading stocks that have bottomed going back to 1880 it is going to take months to work off the overhead resistance if this in fact the case. This potentially means months of grinding choppy action, if we do have a bottom. Now while we could explode higher and make new highs in a V-shaped formation again, the chances of that happening without additional QE is basically 0%. You don’t see it almost ever and if you do the new highs do not hold for very long. So if you think it is time to just buy-them-all, think again, based on historical factual data.

While we did have quite a few trading vehicles and sentiment gauges throw up some fearful readings last week there are still some things we do not have that we would have liked to have seen before screaming from the top of our lungs that we have seen the lows. First off, the VIX while did hit 30 which is a level of fear its not like it hit 80 in 2008. That is real fear. 30 is fear but it is not real fear. Also the AAII bulls continue to hold up relatively well. There is no capitulation there. And while the Investors Intelligence bulls did come in quite a bit and the amount of investors calling for a correction hit 1983 levels there still was no real move up in bears and history has shown that real bottoms come with bears crossing bulls in this survey. Until you see more bears than bulls, it usually means you have not seen a real low.

Still, we did get the put/call to register above 1 and hit 1.5 last week and we did see NAIIM equity exposure come down to 10% which is the lowest reading since those 2011 lows. So there is a good start that could very easily help us put in a bottom here. But based on the other sentiment gauges above and the gap downs I still see in stocks following earnings or pre-earnings announcements gives the feeling true fear has not swept this market. While GOOG and NFLX came back nicely in their intraday and after hours sessions following their earnings, the mere fact that they gapped down tells me that sellers are not washed out. A great bottom comes when sellers are washed out. It doesn’t appear that is the case.

My advice continues to be to focus on daytrading advantages with the VIX high here. We continue to play earnings, contracts, pump/dumps intraday in our chat room focusing on the ebola plays recently. [Subscribers only commentary].

The EOD TF patterns still don’t work but the more we can clean out the excess in this market the quicker they will return. Until then, all EOD TF signals must be kept with trailing Sell Stops. You can not risk an overnight crash in any position as this is the tape for stuff like that to happen. My recent example of SIMO following our long signal shows why when we are under a SELL or NEUTRAL condition trailing Sell Stops are a wise investments. Did it take me out of a couple of longs I still kind of wish I was in? [Subscribers only commentary]. Sure. I will continue to track them and while they don’t look great they are still holding up. But overall I am not too upset. They were small remaining positions and my rules go to full sells when positions get too small when I receive a partial sell signal.

OK everyone. Let’s see what this 2nd worst week of the year for stocks brings us. Remember, we are still operating under a SELL condition on our model. Invest accordingly. Like I said before the sell off even started to new investors, cash is king. Cash is still king and it is king to new and old investors a like. Don’t fall into the bull and bear trap here. Based on how quickly I am seeing people switch from the bull to bear and back to bull then bear camp, there is too much emotion in this market. That can make for some dangerous wild trading days. That also allows for some mispricing to be taken advantage of by well studied intraday market professionals. Have a great upcoming profitable and cash heavy week. Thank you. Aloha.

TOP CURRENT HOLDINGS – PERCENT GAIN – DATE OF SIGNAL

VIPS long – 436% – 7/17/13
OVAS long – 44% – 8/8/14
RENT long – 30% – 9/24/14
VDSI long – 28% – 8/4/14
AGIO long – 27% – 9/24/14