It has been a very busy weekend of surf and visiting friends so I am running behind on a lot of my activities that I normally have fully up before Monday. However, due to the great surf on our north shores after a summer of lame surf on our south shores again, I decided to spend a little “too much” time in the water and fried myself to a crisp. So I will avoid the sun today and throughout Sunday night and into Monday morning everything will be updated fully.
Last week was a very dull week for a lot of traders as the market did not make much headway. However, last week was definitely a “bullish” week for me as when I saw that AAII number come out and it had more bears than bulls. When so many are getting bearish, after a long advance, and when the market loses steam still can not pullback, I start to get very suspicious of the market even being able to pullback.
Instead, it seems to me that the market is so strong and being so strongly accumulated that we might not have a chance to get our stocks on a market pullback. You might have to get used to buying as we move up and up and be ready for some sort of climax run in your stock or low volume highs before being able to sell.
The strength last week was apparent to me via four key areas that really tell me how the market is doing. The first area is, “how are my new longs doing?” Those new longs continue to hold support and if they don’t move higher immediately after a little backing and filling normally are now. The second key area for me is, “how are my current longs doing?” “Is there any abnormal signs that this run could come to an end?” The first answer is “they are doing great.” The second answer is “no, there are no signs that this market is anywhere near done on the basis of how individual stocks are acting.
My third area is “how do the new shorts look and act?” Well, they look good when they setup. In fact they look real good. However, the execution on shorts is not working out. They are all, minus two, recently, moving immediately up with the market thus ending their chance of being a long-held short. The final question is “how are the shorts doing in my portfolio?” Well since they are not working out immediately the obvious answer is they are not doing well.
Therefore, both the new longs and current longs are doing great with no more than 2 full sells per day the past nine sessions. At the same time, shorts are not doing well at all. That makes it clear to me that this market is very bullish and that shorts have almost no business operating in a market that is acting this bullish with the crowd actually bearish and not bullish.
The biggest problem with this rally is that I have been used to CANSLIM-quality stocks moving and leading the market higher via their very strong charts and fundamentals. At the exact low in 2002, there were some CANSLIM stocks clearly leading and the indexes even show you that the Relative Strength line was able to keep up and beat the market. This rally, however, for the first time in my life, the IBD indexes are lagging the entire time (meaning they are lagging the overall market in this uptrend; EXTREMELY rare).
That action has kept me from loading up on any one stock as the best stocks are just reversing and hurting our feelings while the worst stocks with cheap stock prices and horrible fundamentals take off. Thank God I have learned to listen to the charts of the stock market and not the fools that call TA “voodoo or useless.” This is keeping me long a LOT of small-cap stocks that are rocketing higher. Even if we are not going to get a 2,300% in TASR or an EGHT 295% move in less than a month, we still have a lot of stocks out there that are starting to give us quick 100% gains due to their too-cheap stock price.
As long as these cheap stocks with poor fundamentals lead higher, keep going long these stocks. Once the IBD indexes can start leading, if they can, that will be my signal to shift money from these cheap leaders to position myself in less stocks of higher quality. That will not happen as long as the .50, 1, 1.50, and 2 stocks keep leading.
So beside my actual problem with the lagging IBD indexes, overall this is a pretty straight forward market. The trend is your friend and just like some other bright technicians I like to keep it simple. That means by using the simple 50 and 200 day moving average that I favor, you have buy signals in the indexes. That means you go hunting for longs. When the 50 DMA is above the 200 DMA and the 200 DMA line is sloping up, you buy support. When the 50 DMA is below the 200 DMA and the 200 DMA is in a downtrend you short the rallies. Go over the Nasdaq from when I started in 1996 to now and see how well that index worked with those two moving averages using that simple formula for being bearish or bullish above. If you would have listened to it, you would have been bearish in 2008 and in July (right when our best movers started showing up) 2009 you would have turned bullish. So far, once again, those simple averages are working.
I am going to go ahead and wrap up this market commentary for the weekend as I have a lot of work to do to complete all the important areas of this site that need to be updated to prepare you for the Monday stock market session. Great luck everyone, stay positive, and the trend really is your friend. Don’t fight it ever, unless you want historical lame returns. It takes a while to understand the methodology we use as it is NOT COMPLETELY easy and if you are a brand new newbie to the stock market you should give yourself AT LEAST three years to see if you got what it takes. If you honestly think you can just start and become a professional overnight, you are seriously mentally DELUSIONAL! If you are looking for a black box system, great luck! I still can’t name one popular one from my early days that exist today and looking ahead 10 years I am 100% certain the same thing will be said then referring to now. By the way, if you are a lazy person by nature, the stock market is not for you.
Aloha everyone, great luck, and surfs up for stocks!!
Free small YouTube video for FREE/SILV members:
Oddly enough, my video technician was a complete no show for the first time in a year (not bad huh? :)) and I was forced to make one long 22 minute video for subscribers. However, I will allow him to post the first 11 minutes on YouTube when he gets it. I am also making a short video two for subscribers because I want to talk about the China stock market a little bit. Great luck everyone. I will see you in the chat room and I am sure my video technician will be back Monday. I am sure something came up. 🙂 Aloha!
