With wild volatility whipping stocks around, it is a very difficult environment to make any moves. The best bet for now is to wait for the market to settle down, establish a trend, and wait for leadership to strut its stuff. The charts above of failed breakouts illustrate this point well.
I’d like to see the rally prove itself before diving in, but am willing to nibble and nimble. Keep in mind if today ends as a distribution (lower close on higher volume than yesterday on the DOW, S&P500, New York, NAS), then this rally will have a high probability of failing. However, if this rally holds, look for leadership in the railroads, biotechs, solars (maybe).
CANSLIM guru Gil Morales likes the action in the computer services in recent newsletters, a group I missed in my scans. These include IBM, ACN, and IT.
That’s me on page A4 of today’s IBD. The AP photographer was shooting these at the same time my SKF was tanking, so this was the best smile I could muster up. While I have my 5 minutes of fame, I like to thank some folks. God, mom, Susana, Rachel, Sarah. And the pros who help me keep an eye on the market: Covestor, IBD, Gil Morales and his newsletter service www.gilmoreport.com, Gary Kaltbaum’s Investor’s Edge radio show www.garyk.com.
The NASDAQ scored an 11th day follow through yesterday, a timing signal which IBD uses to determine a new market rally. For those not familiar with FT’s, here are a couple facts. No market rally has started without it, and it has a 70-80% success rate. But don’t stop reading yet, FT’s work best when it occurs on days 4 – 7 of a rally attempt, so an 11th day FT is failure prone. The market has also been going through wild swings lately, so I am mildly bullish at this point.
Today is the 6th day of a rally attempt and the market can go either direction; even both ways if volatility picks up. Former leaders; oils, ferts, techs are breaking down and a new crop of leaders are just starting to emerge; biotechs, truckers, industrial machinery. Keep an eye on SNHY, FLS, ODFL, JBHT, OSIP, CELG.
OK, I really blew it with my SKF trade. I had two successful trades then let emotions kick in. Greed, pride, all the stuff that kills investors. The good news, I do know where I went wrong. I also successfully applied a CANSLIM day trading technique which worked and would have protected me had I followed the rules. Here’s a rundown on how it works:
1) Study a chart and get to know it daily price volume characteristics. I’ve used SKF. The financial's are under pressure, it trades very violently, but followed a buy on weakness sell on strength pattern. So my strategy was to buy off of support then sell as it came through resistance. See my SKF chart.
2) Monitor market conditions. We continued to be correcting. Financials, housing, were leading the market down. Accumulation was picking up on the SKF and it was about to complete the right side of a cup formed from 3/17.
Things I missed. SKF started going parabolic on 7/11, and was up 11 out of the last 13 days. The NASDAQ tested support on 7/15. The Put/Call equity ratio was approaching 1. These signs indicated an SKF top and increased chances of a market turnaround.
So what, I had my biggest one day loss ever. No one is prone to losses, and I’m in good company. Best of all, I learned a valuable lesson which will equate to future profits. There was way more important things in life than money.
The last of our very thin leadership, ferts and oils, is breaking down today. One or the other has carried the market on certain days, but today, for the first time since earlier in the month, everything is down. Compound this with the fact that laggards are todays leaders, the home builders and banks, and this all adds up to a classic bear market. And this one could be huge!
6 distribution days on the DOW and S&P, with back to back days has changed the tone for this market. Also note the one day change leadership stocks. What a difference a day makes. Now is the time to get out and raise cash.
Last Thursday, Energy Conversion Devices (ENER) busted out on its highest volume ever. The pictures can tell you why. Not only are these modules frameless, they are easier to install, and work in indirect sunlight. I loaded up on this today, but am am expecting pullbacks into the 50-52 range.
Nope. This is Accuray's (ARAY) Cyberknife, and this is now! THis is the world's first and only radiosurgery system to treat tumors ANYWHERE in the body. While the product is very cool, it's stock is yet to see any love from Wall Street, but it does look to have bottomed out. I would keep this one on the watchlist as it does have the qualities of a potential winner.
Investors Business Daily published their special mutual fund report and noted RIMM as one of the top buys by top performing managers, including my favorites CGM Focus, Fidelity Contrafund, and Janus Twenty. I tend to agree, and the reason is their upcoming Blackberry 9000 phone. While specs are yet to be announced, enthusiast sites such as www.crackberry.com and www.engadget.com are already getting excited about its features. It looks as if this is more than an update. Look for 3G, much improved graphics, and desktop like web browsing capabilities.
As for the stock, it has been trending up but on low-ish volume. The price has good support off the 20-day, but I would look to buy on a pullback.
With unemployment, $4 gas, inflation on the rise, and everyone talking about recession, why would the retailers be in their own quiet bull market. The anwser? Because it is. That's the market, it's always right and people who try to make sense of it are usually wrong. So, go with the flow ... of the market. My favorites here are URBN on a breakout above 35.37 and BKE @50.50.
If you're a William O'Neil follower, then you probably also know Gil Morales. If not, brace yourself. Gil has audited returns are in 10,000% range, he was recruited by O'Neil himself to manage and his personal portfolio and provide consultating to top mutual fund managers. Recently, he started a newsletter service to the rest of us. I've been very busy culling over every issue sponging in as much as I can. This has resulted in a 21% gain in my portfolio in 2 weeks! Check it out at www.gilmoreport.com
A weekly move from 3% to 39% of leadership stocks near buy points is huge! This leadership is carrying the market, now we just need to see the major indices follow the NAS is punching thru Feb highs. The commodies are leading the way with the fertilizers, oils, and steel stocks. But don't forget Mastercard, and keep Visa on the radar
This current rally is starting to show signs of strength as leadership is starting to take form. Today's scan shows the oils as the emerging industry group. With record crude prices increasing profit margins, oils stocks have double and triple digit earnings and sales. Technically, they have all held up and recovered well through the correction. The oils were also the top industry group in new mutual fund buys in Q1.
Just returned back from my fist visit to Disneyworld and to my surprise, the DOW follows through! DOW follow through's typically are not good rally indicators, but combined with the Russell's FT, there is validity. BUT, a distribution day just 3 days after this FT is bad - almost a sure sign of a failed rally attempt, BUT price/volume action looks good. The action in the IBD100 is also improving, with stocks near buy points increasing from 4% to 16%. I think the market still needs to prove itself, and the indices will be going up against critical near term resistance (DOW 12756, NAS 2419). In the meantime, I have one position in MA.
Yesterday's lows ended a rally attempt started on 3/10, but the market does appear to be turning around. Volume on up days has been higher than down days within the past month, a sign that the bulls are starting to wake up. Still, the market has yet to prove itself before it is safe to buy.
The heat map from the day before the 3/6 correction thru yesterday shows a lot of damage to the IBD 100. Also troubling is a lack of leadership to drive the markets back up. On the upside, today should end up being day 1 of an attempted rally - not a signal that the markets are turning up.
As the major indices break down below Jan 23rd levels, their shorting counterparts are nearing buy points, with the QID is breaking out today. The SKF, has also been busting out on strong volume and looks to punch through its 147.03 buy point.
IBD has been noting the similarities between today's market movement and the 1920's - 1930's. Bill O'Neil also mentioned this on 2/12 on the Tom O'Brien radio show. It's a common practice IBD, O'Neil, and his portfolio managers to look for tandem charts. As an example, O'Neil saw the potential in Crocs by looking at the past winners LA Gear and Rebok. It should be interesting to see is Visa will tandem itself with Mastercard
Less than 3 weeks into the current rally, IBD called the correction in today's paper. This comes to no surprise as 90% of rallies will fail when a distribution day comes hits 1-3 days after a follow through. Surprising is IBD's call after only 2 distribution days, when it usually takes 6-7.
4 IBD 100 oil stocks (3 from the Oil/Gas Exploration group) are setting up nicely, but with the rally under pressure, and the markets wild volatility, buy with caution.
From Wednesday 3/5's IBD. This is the quarterly listing of new buys from the top 15% performing mutual funds (over the past 6 months). There are my notables:
AUY SWN RIG BVN BBD WFR HES APA ITU ECA CNQ ABX XTO SU
IBD changed the market status to "Rally Under Pressure" after Friday's distribution day. It usually takes 4-6 distribution days to see pressure, but this rally is doomed to fail. One day after this rally started on 2/15, the indices marked its first distribution day - a bad sign!
Leadership makes or breaks the market, and my indicator of market health is the IBD 100, which has started to show some strength. The percentage of stocks near buy points increased from 16 - 23%, and the heat map is showing better coloring (less red) since last Friday.
News, economists, personal opinions are rarely in sync with markets. So it should be no surprise how the market can trend up when recession fears are at its worst. The S&P charts from today's IBD illustrate this well.
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