I focus a lot on the IBD indexes because these indexes consist of the highest quality stocks based on fundamental and technical data. Historically speaking, these stocks normally do MUCH better than the overall market when you are in an uptrend. This rally, since the March lows, has been the COMPLETE opposite.
There is no previous FRESH/NEW rally I have ever seen, after such a selloff of the magnitude that we had from November 2007 to March 2009, that has had so few high-quality longs setup, breakout, and put in strong gains in a short time. We are almost going into the sixth month of this rally from March and I still have not had a single ‘perfect/hot’ chart setup. The two closest has been my best long RINO which was ONLY an 11 day base and then VITA which didn’t have enough max-green BOP before the base and in the base. Not only that but VITA didn’t close at the HOD or close to it showing that it wasn’t that ‘hot’ during the breakout.
At first I was beating myself up for not loading up on VITA as a 12% gain was had after the first two days. Then the collapse came three days later as VITA fell 25% after announcing earnings. Whew! Thank God I didn’t load up. Looking back, there are a few things to say. The first is that the non-HOD close saved my butt from buying too much. The second is that by not having max-green BOP the whole way or by not having more max-green BOP before the base it became clear I wasn’t going to buy a lot. If both of those points could have been worked out I definitely would have gone very-long VITA and would be hurting and shellshocked. So thank God the stock had those flaws to keep me out.
The biggest points I take from VITA and ADY, SYNA, HURN, and all the other stocks gapping down on huge volume is that this market is very dangerous to go long. It sure is hard to feel super confident on any long no matter how pretty it is. Now, if you take the time to look at LMLP in 1999 to see how to buy a stock with a near-perfect to perfect chart that is not ON the 50 DMA, you will learn a lot I am sure.
Then if you go to 2003 HIL or 2007 AFSI or 2006 HRZ you will see EXACTLY what I am looking for off the 50 DMA. Now MDAS was the closest one so far (6/10/09) with price/volume/BOP action that I have liked in a long time. Sadly for MDAS the BOP was not green to max-green the whole way in that base (of course, ugh) and that kept me from getting nuts and “loading up” on this long. On 7/31 I was beginning to feel vindicated for not loading up as the stock, and the market, looked very tired. However, MDAS has pulled it back together in August and now looks good again with price/volume/BOP looking very good. Even without the green to max-green BOP in the base, the stock is still up 12%. While that is not a lot AT ALL for a ‘near perfect’ long, it is at least up and proving that these patterns work in bullish markets. They just don’t work well when things are “off.” What tells me that things are off? I’ll tell you.
This market is weird in many ways and I want to make it clear what I like and don’t like. First off, I never fight the trend of the market. So even though I am not happy with this rally at all, you are NOT going to see me short stocks that are moving up on lower volume that I feel will selloff. Instead, I will wait to the crowd is back on my side and once the stock puts in a toppy pattern then I will look to go short. If you don’t know what I look for in a short, please review my recent new shorts and ESPECIALLY RECOMMEND THAT YOU GO OVER MY PAST BIG WINNERS THAT I HAVE POSTED IN THE SHORTS AREA. Now, while I have not fully updated that area (in fact I don’t think I have 1/4 of my big winners in the past bear of 2008 up there–I need more free time or an assistant). As of now we have three short positions, along with a possible new short Monday morning.
So until those shorts setup, you are not going to see me act on my cautious stance. Instead, as long as the market is moving up, I will be going long. That is why I have, so far, five new longs for Monday, while having only one new short position. I would much rather be long a stock like KONG than short a stock like HURN. The long side has the potential to make you a LOT MORE money over the span of a rally. The good thing about shorting is that you can make money in bear markets and, not only that, you can make that money in real good shorts in a very short amount of time. So learning how to short is a very important dynamic in this game.
Why, if I have more longs than shorts, and the market is moving higher, am I bearish? Is it my opinions on the moron-in-chief? No. Is it because the founding principals that made this country GREAT are being destroyed by community-organizer-socialist? No. It is because I see some very troubling signs that I always see in bear market rallies.
My biggest problem comes with the IBD indexes lagging the overall market. Like I told you earlier, when the market rallies, normally the IBD indexes and the BEST stocks in terms of fundamentals and technicals do MUCH better than the overall market. Yet here, as I have shown you in market commentary videos, we have the RS line of the IBD 85-85 hitting new lows WELL BEFORE the price of the index has–this is negative divergence. The IBD 100’s RS line hit new lows in April!!!! Just one month after the rally attempt got underway. Now the extremely weak RS line is testing those lows again with it looking like one more down day will send the IBD 100 to a fresh new low. While the IBD 85-85 is weaker than the overall market in a shocking display of how bad this rally is the IBD 100 is the weakest index we have since the rally attempt started in March. This is something we haven’t seen since the 2000 summer rally that ended with the market hitting new lows. The RS divergence worked then and I think it is safe to say that it more-than-likely it will work now.
Many websites have come out showing that the worst rated stocks in terms of bond ratings are doing much better than triple-A rated firms. Not only that, but the stocks with horrible fundamentals are doing much better than stocks with top fundamentals. This is obviously confirmed via the IBD leading indexes. This lagging by great stocks and outperformance of crap stocks hints at a rally that is being driven by short-squeezing rather than fresh buying.
If the market was being freshly accumulated for a new bull market, you would see top-rated stocks based on fundamentals/technicals, especially those with big market caps, doing much better than the crap stocks. There would be a very bullish divergence, instead of this nasty divergence between crap stocks with horrible ratings to quality big stocks with high ratings. This is the kind of stuff you historically see in bear market bounces. That is why I am going to be cautious the entire rally and for however long it last until something changes.
What would that change be? Well hopefully the change is with multiple things that I have a problem with. If any of the things I am about to list would happen I would be much happier:
If the market was rallying on VERY HEAVY volume and pulling back on lower volume I would be very happy. Instead, when I throw up a weekly chart of the Nasdaq, the IBD indexes, the SP600, or ESPECIALLY THE NYSE/SP500, it is clearly visible that the selling (distribution) we saw in 2008-2009 was MUCH HEAVIER than the buying we have seen off the March lows. I mean just LOOK at those charts! Besides the initial three weeks of the rally attempt, volume has gone below average ALMOST EVERY SINGLE WEEK. If this was a new bull market, like 2003, you would see a previous selloff on LOWER volume and then witness the market rally on HIGHER volume. That is how you know you are out of the bear bounce and into a new bull. To me then it is clearly a bear bounce.
If you need more confirmation on the volume then do me a favor. Take a look at the beloved former leaders that I still hear AMATEURS talking about. GOOG, RIMM, AAPL, BIDU and MSFT are still talked about a lot and they are still loved. However, when you look at weekly charts of those stocks, you should get a butterfly feeling in your gut. This is not good for price/volume acc/dis ratings. AAPL and BIDU make it the most clear that this rally has been SUPER LAME and the selloff SUPER FIERCE! There is some good news, however, in terms of big caps. Not all (but almost) show this pattern. Two former LOVED stocks INTC and CSCO show a little bit better setup on the weeklies. Still it is nothing to be too excited about. I think we have the acc/dis aspect of this market DOWN PAT!
Another problem I have of course is the divergence of the leading IBD indexes to the market. This is the clearest sign that something is wrong. I mean, in EVERY SINGLE real rally from 1998-2007 the IBD indexes have led. Even at the end of 2007, the IBD indexes were there to put me on top of the market. That is how I ended up going long FSLR for a 250% gain in less than six months, went long DRYS for a one month 100% return, and long APPY for a 125% return in one month. It was not hard buying a lot of all three of those longs as they all had either perfect charts (APPY) or were high-quality liquid Featured stocks (DRYS and FSLR). When you have the IBD 100 and IBD 85-85 leading the market higher, you have a LOT MORE confidence in going long stocks breaking out of ‘hot’ patterns in bulk!
The last divergence that bothers me is the recent negative divergence in the Nasdaq to the SP500. About the only positive in this rally, besides some Chinese issues, was the fact that some Nasdaq issues were producing some strong gains due to the Nasdaq leading the way in the rally. Thanks to this outperformance, I had more confidence going long the ‘near-perfect’ short-base of RINO. If RINO was RNO, I might not have been as confident in my long.
One of the scarier things that keeps me on the edge of my seat in this rally is the reversals that I have seen in stocks like ADY, SYNA, HURN, VITA, MLNX, TKLC, LMNX, and about another two handfuls of issues the past week. Was this going on in 1999? No. Was this going on in 2003? No. Do you know why? Because those were REAL bull markets and this is a flash-in-the-pan rally that not only is producing blowups every week but is not producing ANY HUGE winners that are breaking out of historical chart patterns that I have taken since I started to do this in 1996. I didn’t get the buying part down until 1998 and the selling wasn’t down until late 1999 (just in the nick of time–2000 top) but even before 1998 I could tell what charts were pretty that I wanted to go long like IOM 1995 and AOL 1996. Do these max-green BOP filled beauties exist now? NO.
RINO was perfect in every way: the BOP, the volume, the shape of base, the near-HOD closes both days I went long, the RS line, and moneystream. EVERYTHING was perfect with green as far as the eye can see (May 2009 ;)) but one thing (well two things since the first problem was factored in) stopped that all. The base MUST be AT LEAST 3-weeks–15 days–long as this is a long enough time frame to help launch a possible 500% run in six months. Too bad RINO could only handle, at first eight days, and on the second and final breakout 11 days. After the 8th day it tried to start its fun but made it back into the base and on the second breakout on the 11th day the stock finally TOOK OFF.
While the stock is up around 70% since both buy dates in one month and still has the chance to produce a 500% to 1,000% gain, the truth is that it is up too much too fast WITH ALL THAT HUGE VOLUME. If the rally was more orderly in an uptrend with stair step sessions with pullbacks on low volume and then moves higher on heavy volume, I would be more bullish on RINO in the long term and would not have taken 50% of the long off the table already. If we pretend that the stock went up a few days, based for a few days, and then went up a few days, with BOP staying max-green to green the whole way, I would still be long around 75% of the stock and would be looking to ADD to my long position.
Instead with this non-stop rally on huge trade the whole way it will be impossible to find another SANE buy point that could lead to bigger gains. In fact, RINO sold off Friday on very heavy trade and broke the uptrend line the stock was in (which was unsustainable anyways).
Besides the action in the overall market, with the IBD indexes lagging the whole way and the Nasdaq just now starting to lag the SP500, there is also problems with the psychology that is out there. First off, the nutjobs that are beholden to the left really do believe that all is well. Some psychotic douche-bag that I know from facebook actually had the insanity in him to say that “Obama has fixed the country.” With delusional insane left-wing psychopaths telling me that America is now “fixed” and that the bottom was DEFINITELY in March, I have a feeling too many people are bulls right now. I know a lot of market professionals think this market is in insane rally mode. I know a lot of us want a pullback including RevShark who is in this boat as he says “this market is beyond reasonable and it is very frustrating.” His words, not mine. I also saw on the now-pathetic website of TSCM’s LameMoney.com (I mean Realmoney.com) that Ron Insana sold all of his longs as he feels we have a top. Well I don’t know if this is the top but I really question how we can rally much further before we crack wide open on such strong force that almost all of our gains are wiped out in a short amount of time. I am just very happy that I take profits on the way up.
Also confirming that the crowd might be getting too bullish is the Investors Intelligence survey which shows bulls at 47.2% and bears at 25.8%. The AAII confirms this with bulls hitting 50% while the bears hit 35%. I don’t know about you but I NEVER fight the trend. However, there are times that I don’t agree with it and this is definitely one of them. I think I have made myself very clear why I don’t like this rally and if you still have more questions and do not understand why then, if you haven’t already, watch the video below. If you still have more questions, please try JUST ONE month of my services. See if I don’t beat the rest of the professionals out there with my stock picks. I still don’t see anyone operating the market like me. Back in the day I felt like I was one of the few–besides those that followed the Featured system, obviously–that were able to hold TASR for nine months and get the 2,300% gain. While something tells me it is going to be ions before we see gains like that again, I am wondering where all the position investors are at with 100%+ gains on multiple stocks.
As you can see below I have done VERY well with my stock picking in this rally. However, for the first time since 2000, I am lagging the overall return off the March lows to the top. This is disappointing but if FIRE, ISTA, ATSG, DAN, AVNR, KONG, TEN, CAR, OMN or RINO (stocks up 70% or more that I am still long) would have setup in ‘perfect/hot/near-perfect’ chart patterns then I would be KILLING IT on FULL 200% margin (with 2×1 margin). Instead I am sitting here with A LOT OF CASH waiting for the Featured quality stocks to lead or for the HOTTTTESTTTT most beautiful and perfect charts to setup. When that happens, I will not be going long 1,000 shares of RINO, I will be going long 10,000 to 20,000 shares of RINO. I want my AT LEAST 3-week long, huge accumulation, no distribution, max-green BOP filled, moneystream and RS leading bases to setup and then breakout. If that happens, especially if those fundamentals are getting better, I will have no hesitation about getting VERY LONG this market. Until then…
TOP LONG POSITIONS UP FRI WITH TOTAL RETURNS SINCE 1ST PURCHASE: ATSG 123%, DAN 174%, FIRE 112%, AVNR 129%, ISTA 120%, KONG 139%, OMN 72%, CAR 69%, TEN 87%, SOA 50%, ACTG 44%, SMED 43%, AFFX 47%, CLRT 35%, COOL 36%, CISG 28%, DRCO 22%, TXIC 25%, LAD 36%, SRT 26%…and even my RINO is still up 60% after the drop on FRI. Hopefully my long that begins with R that is pretty speculative, yet is my 2nd biggest position, will pull off a run like RINO.
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