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)!!!!!

When all the selling was done, the Nasdaq led the way below with a 1.3% decline falling right back below the 50 dma, the SP 500 and SP 600 followed with 1.1% declines, and the DJIA fell 119 points or .95%. The worst of the selling hit leading stocks, with the IBD 100 falling 1.7%.

Volume was slightly lower on the Nasdaq, giving a bit of comfort to the nasty decline. On the NYSE volume was much higher, giving this index another clear distribution day.

Breadth was downright horrible. Decliners beat advancers by a 2.5-to-1 margin on the Nasdaq and by a 3-to-1 margin on the NYSE.

What else is there to say about today except that today was ugly. Reversing the gains that we made yesterday, with the Nasdaq and SP 600 falling back below the 50 dma is not good. However, when I went through all my stocks tonight I found very few to completely sell. The huge losses, you would have thought, would have forced me to sell a lot of stocks that completely failed moves. But that did not happen. Most of the stocks that had to be cut were also completely speculative as the true leaders are still holding their 50 dma’s.

So while I have all my stocks holding key support, I have to take into account that the market is weakening. That is why I have been taking profits on stocks that make big one day gains and taking partial losses on stocks that immediately do not follow through. But overall I have a lot of stocks that are still holding support so there is nothing for me to panic over.

Saying that, the Nasdaq has had 3 distribution days in the past four weeks and the NYSE has had three also during that time. A couple more of these and the indexes under the 50 dma, along with more stocks breaking down on high volume and I will have something to worry about. Being prepared is the best defense against a possible correction if one is coming.

If we have to take recent earnings reports of how things are in the economy, they are clearly telling us that it is slowing. This is turning out to be the first quarter where earnings did not rise double digits since 2002. The stock market is forward looking and if it starts rolling over, we can conclude that the inverted yield curve and slowing economic numbers are finally catching up to stocks.

Overall, it is really hard to form a concrete opinion on the market right now. i am neither bullish or bearish but I am keeping a bullish bias simply because I still have many stocks in clear uptrends. However, my new buys have either done really well or have reversed and let me out very quickly. Things have definitely gotten rocky out there but not scary yet.

I wouldn’t be surprised if selling hit the market tomorrow but at the same time it sure shouldn’t shock anyone if the Nasdaq and SP 600 retake the 50 dma. The only thing certain right now is uncertainty. I saw today that the AAII bulls is at 39% with bears coming in at 33%. That clearly tells me that there are another large group of traders just on the sidelines. That indicates to me that we could be in some choppy action for a little while. With bulls and bears in a tug-of-war some sideways movement would not be surprising either. Bottom line the market is not to be messed with here.

Keep your new buys small, cut your losses fast if your stock does not work out immediately, don’t let big winners turn into losers, take profits on the way up, and do not use margin at this stage in the game. It is not time to short either. Right now, playing the market is like playing with fire–it doesn’t end well usually.

The bears are starting to gain some control but the bulls still have control of the major trend. We shall see how we end the week tomorrow. Aloha and I will see you in the chat room. Be careful out there!!

At the close, the SP 600 led the way with a .8% gain, the Nasdaq and SP 500 followed with a .3% rise, and the DJIA was the lone loser but it only ticked down a fraction. Leading stocks did their thing today, keeping up with the SP 600, rising .8%. The big winner was the NYSE. That index rallied to a new all-time high.

Volume was much lower on the Nasdaq, not giving a particularly positive situation to this bounce, after such a sharp decline on heavier volume yesterday. NYSE trade was slightly higher, giving that index an accumulation day.

Breadth was positive on both indexes, with advancers over decliners by a 3-to-2 margin on the Nasdaq and by a 2-to-1 margin on the NYSE. Good strong breadth on a day of support, after a selloff, is nice to see.

It was a rough week, for the Nasdaq and SP 600, with each falling 2% and .75% respectively. The SP 500 also lost .02%. The DJIA and the NYSE, however, escaped with gains, rallying .1% and .4% respectively. Big-cap non-tech are still holding this market up, even with big-cap tech trying to drag it down.

The worst performer was the SOX index. That index got trashed by 5.3% and TONS of stocks broke down from solid bases. I listed them in the last post, on Thursday’s market. That index is normally like by traders to be a leading indicator of momentum stocks and the ability to make a lot of money in the market. Well, if that is any indicator, the market is not going to offer a lot of speculative money. The long-term trend is down, the intermediate is up, the sub-intermediate is down, and the short-term is down.

Anyone long this extremely weak sector needs to reevaluate their trading strategy and reason to be long this sector. They are being sold hard and they are being sold all-around.

Overall, it was a rough week, but what do you expect from a market that has gone basically straight up since August without a reall selloff.

Avoiding a fourth straight down day for the Nasdaq is an accomplishment in and of itself after such a nasty selloff we saw on Wed and Thurs. As I said yesterday, signs have been pointing for an upcoming selloff for a little while now.

With big-caps leading, breadth poor, growth stocks taking forever to take off, and new highs contracting this rally has a feel of a rally near the end of its great bull.

Still trying to predict a top, after four years of gains is pretty stupid, imo. How many top pickers have I met the last four years that no longer trade for a living? Sadly, I don’t even think I can count that high (I am exaggerating).

The trend is still up and the fact that the Nasdaq, again, found support at the 50 dma is very positive for the chances of further price gains. Heck, the NYSE hit all-time highs. How can it be smart to be short here? It isn’t.

The fact of the matter is any selloff has plenty of room underneath and stocks in uptrends to find support from institutional traders. It is when the markets start A CLEAR DOWNTREND and we have multiple distribution days that we need to take caution. Three in the past four weeks is a lot, for the Nasdaq. But until we get one more and a clear downtrend can be seen on this index betting against the trend is simply retarded.

The greatest traders of all-time NEVER bet against the trend; EVER! They waited until the market was giving no new buy candidates, there longs were violating key support areas, the markets were in downtrends, and for leaders to start selling off, across the board, on heavy volume. We are not there yet.

The other important thing to remember, which IBD hit on this weekend, is the fact that this is normal for a market to have pullbacks in uptrends. I hate markets that rally like this without a selloff. Why do I hate it? Because, normally your biggest one day declines happen after stocks race higher and higher and higher without ever having a normal pullback.

Some of the biggest price declines in history of the stock market come during a bull market. Visa versa with selling. Some of the biggest up days in the market come in the middle of bear markets. It is obvious why this happens. These one day sharp declines ALWAYS scare the weak bulls into selling there good longs. I know many traders who let go of stocks on Friday only to see them rebound and hold their moving averages.

In bear markets, short squeezes always nail bears who bet too far on the short side. When this happens normally rational decisions are then left far behind and the next thing you know you are covering a stock just as it is about to top out on the short term and resume the downtrend. The market is a cruel beast. And I love it!

This is why you must stay disciplined, disciplined, disciplined. I can not believe some traders sold perfectly great stocks with HUGE EPS and sales growth when the chart did not flash a sell signal. This is panic trading, and though you will never go broke this way, one thing is for sure: You will never become extremely wealthy that way either.

What is the stock going to do in the future? I don’t know and NO ONE does. When they tell you they know, they ARE LYING TO YOU. The market has been up for four years and we now have big cap stocks leading when they have not the entire way. I have studied enough market cycles to know that at the end these stocks lead. This rally could last another six month, for all I know. However, I am starting to plan for a correction, in my head. I just wont bet against the market.

Until that correction happens, I am going to continue to stocks with beautiful green charts and some sort of strong fundamental growth. When they stop showing up, then I will know my feelings are in step with the market.

The first signs of a slowing in the economy, besides an inverted yield curve and slowing economic data, is recent earnings.

Positive surprises have outnumbered negative surprises by a ratio of about 1.5-to-1, Zacks Investment Research says. At this point during Q3 earnings season, positive surprises outnumbered negative ones by a ratio of better than 2-to-1. Earnings growth keeps rising. But the median company in Zacks’ universe has banked Q4 profit growth of 9.4% — below some recent double-digit tallies.

This is clearly showing a slowing economy that is now starting to hit the financial statements of stocks.

It was a good day Friday, not seeing the market follow-through with even more selling but still with the lack of volume I am not sure how much the bulls can muster here to overcome the recent selling pressure.

We will see what next week has in store for us. Aloha and I will see you in the Chat Room!