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Sunday, April 17, 2005
Market Recap
The black Friday scenario that we predicted in Thursdays commentary played out Friday and like we expected and it was very ugly. All three of the big indices took a major pounding. The DOW was crushed by 191 points, suffering its largest one day in two years. The NASDAQ lost 38 points and the S&P lost 19. This was quite a pounding and left the DOW all the way back down to 10087. The DOW has fallen almost 900 points from its yearly high of 10984, just 6 short weeks ago. We should have known that when BSNBC was talking about DOW 11000, it was our clue to get short. No kidding, it seems every time I hear a prediction on that channel; things seem to go in a completely opposite direction. How about that Oil call of $105 by Goldman Sachs? Oil went straight down since then. There is no time tonight to tell you about all of the other bad calls that I have heard from that media outlet. There is plenty of other important stuff to discuss, so let get right to it.
Fair Warning From STHQ
Here are some recent comments from the commentary from April 13, 2005, as well as some alerts sent on the 13th and 14th. I hope some of you listened to these warnings that came well ahead of black Friday.
“This could be “the big one Ethel”
“The chances of a complete collapse looms”
“Black Friday could be just ahead and I hope you took my advice and got out of all your long positions”
“Get out of the way of the bear when it starts to bleed”
“Believe me, you do not want to be long anything”
“Go to cash or get short some stocks that are in downtrends”
“This market could get very ugly, very fast since the Dow closed below the 200 SMA”
“Imagine the damage of a close below the 200 SMA? You do not even want to think about it”
“You will find your portfolio under water very quickly”
“Go to cash or get short and ride it down”
Alert April 13, 2005
“This lack of follow through on yesterdays rally spells doom for the Bulls, in my opinion”
“This market is in trouble and Cash is King, in my opinion”
Alert April 14, 2005
“Downside breakout for this market is coming. If you are long, you need to sell. Cash is King my friends”
Ladies and Gentleman, the Bull Has Left the Building
We officially entered a Bear market on Friday. All 3 major indices have now closed below their respective 200 SMA. The S&P was the last of the big three to give way on Friday afternoon in the bloody market sell off. Many other indexes have also fallen below their 200 SMA, including the TRAN and RUT. If you are still not convinced the bear is here, check out this list of other indexes that have closed below their 200 SMA's. BKX, BTK, DDX, GIN, HUI, IIX, NDX, SOX, XAL, XCU, XCI and the QQQQ's. There are others but you get the picture. When it rains, it pours and if all of these leading indexes are below their 200 SMA, then we have to face reality. The Bear has taken over and the Bull has left the building.
Tradable Bounce
A possible tradable bounce should come soon because the market is approaching over sold. Level's but not quite there yet. Just like the markets do not go straight up or straight down either. I expect a bounce soon but please do not be confused; this is not the end of the down trend. We will see lowers lows after the bounce so understand that if you do go long, you should not be buying and holding. In this market, take profits as soon as you get them.
Capitulation
There is one thing that I see as possible good news. The volume on Fridays sell off was huge. These massive volume sell off's can sometimes signal a bottom because whoever wants out has already sold Friday. When all the sellers panic and sell, it is called capitulation and it happens at market bottoms. This big volume we saw Friday could mean that there are no sellers left. If there are no sellers, the markets will bounce as bargain hunters start buying.
VIX at +17
Another clue that selling may be close to being over is that the VIX spiked up Friday over 3 points and is now close to 18. Recall the chart I showed of this on Thursday. I said that a reading of between 17 and 20 is the level that we need to see before a bottom could be in place. We are in that range right now and I have the updated chart for you tonight.
Stoch %D
Recall the commentary we did on the Slo Stoch indicator last week and notice that the %D line still has some room to move down on the DOW. In other words, the DOW is not over sold yet and should continue down Monday with follow through selling. If this happens, the slo stoch should be over sold just about the time that the VIX hits 20. That, my friends, is the signal to go long for a tradable bounce.
Come Monday
I expect follow through selling Monday with a possible bounce and rally in the afternoon or on Tuesday morning. However, I do not think the rally will have any legs. After a small bounce, the market will undoubtedly re-test the lows at some point. If those lows hold and the ensuing bounce makes a higher high, then it is possible that we have bottomed out. We do not know where the bottom is and it is impossible to get back in at the exact bottom. Trying to pick a bottom is financial suicide, in my opinion. It is better to wait for a trend reversal before going long.
Bulletin Update
Even after the bloodshed on Friday, there are only 2 stocks with charts bad enough to be removed from the long list. The remaining charts still look fine, however I do not recommend being long at this time. I will be concentrating on the short side of this bear market until the market strength comes back. Look for new stocks on the short watch list of the bulletin each night and probably not many new additions to the long watch list. There is no need in being long when the market trend is down.
On Vacation This Week
Please be cautious when trading this week. I will be back next Sunday with a bulletin. Do not chase the market down. There will be a bounce and that will be our signal to take more short positions. Remember, the trend is now down, so if you are going to take any long positions, they should be for tradable bounces only and they are not to be held for long. Shorting is the position of choice but you have to wait to short strength or you will be stopped out on the bounces only to have the stock fall right back down. Good luck, I will be back next week.
Important Announcement
There will be no bulletin or commentary the week of Apr 18-21. It is spring break and I have a trip planned with my family. This is the first vacation that I have had since September 2003. I will do a bulletin on Sunday Apr 17th and the next bulletin will be the following Sunday Apr 23rd. I will miss 5 trading days and 4 bulletins but will have stop prices listed in the Sunday bulletin on any positions I leave open. If those stop prices are reached, Mike Serven will send the sell alerts.
For New Members
For all of the new members with us, please make sure to read the link “How to use Bulletin” at the bottom of the Bulletin page on the website. It is critical that you know how to use this trading tool before trying to trade the stocks mentioned. The effectiveness of your trades will diminish if you do not completely understand how the information is presented.
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