A Lesson, A Few Differences, A Few Similarities
A Lesson
The most important lesson I have ever learned came from
trials, tribulations, mistakes,
contemplation and agonization. Heck, I don’t even think that’s a word.
The lesson is simple: No matter what yesterday was like in
the market, no matter what
stance you may have had, no matter what you are being told, today is
all that matters. I was very proud of my October
15 report. Not because of any
grand call, but because I adjusted right when the market told me to…not
a day early, not a day late. Just go and back
and read my previous reports…all
bearish as could possibly be. My first point is to notice that I moved with the
market. I found a signpost that changed the playing field and acted. My second
point to make is that it is very tough to move off a stance
one has had for a particular period of time. You must shut out all the
noise and follow the bouncing ball. I urge you
each and every day to keep listening
to the market and to keep adjusting.
It is now at this point I wanted to tell you about some
similarities and differences I
am seeing in comparison to all the failed follow-through days of
the past 30 months. Please understand that I list them just to be out front. All
you really need to do is interpret day-to-day action and you will be
fine.
Similarities:
The bad news is that I am still seeing many similarities
to every failed rally of the
past 30 months. That does not mean this rally won’t be successful.
Some thoughts:
Repeat after me: 1100 points in four days! 1100 points in
four days! How many rallies
started off this way in the past 30 months only to trash you soon after?
The answer is…just about every rally. These sharp, quick upward thrusts
have not worked.
All the charts look the same after the sharp move. Many
charts now have “V” shaped
patterns. “V” shaped patterns are simply unreliable.
Bottom…bottom…bottom…bottom…bottom…bottom. The
popular media strategists (you know who they are) are now out in force again
calling this the real bottom.
Volume is already tailing off as the market edges higher.
I would love to see volume tail
off as the market pulls back.
The best moves are reserved for the worst stocks in the
market.
Differences:
There is some good news about this latest rally.
Sentiment is bearish for the first time on a rally. The
bulls/bears numbers I follow are
in deep bearish territory. In other words, the wrong-way crowd does
not believe the rally. This is in stark contrast to every other rally.
Bearish advisors are at 43.2% and bulls stand at 28.4%. I
will be watching this closely as this number has helped us out in the past.
The market put in the double bottom I told you could
possibly happen. Volume off the bottom was strong. If this is real, it would be
the tenth time in 50 years that a bear market leg ended in October. For some unknown
reason, this month likes to
start rallies. Bottoming is a process, not an event. The double
bottom turns the move into a process.
Every time the market pulls back, put/calls spike. Once
again, fear shows up on any drop. This is the complete opposite of the past.
What to do?
WATCH THE MARKET.
That’s all you need to do. Right now, the market is in a confirmed
rally off the lows. The market had to pull up its bootstraps somewhere.
Watch for more and more stocks breaking out of bases.
Watch for light-volume pullbacks and heavy-volume rallies.
Watch for doubt by the wrong-way crowd.
And most importantly, watch to see if this rally is going
to falter. If it does, you
needn’t worry. You needn’t worry because stocks will not break out…keeping
you on the sidelines. You needn’t worry because all readers of this
column have a strict discipline of cutting their losses. You needn’t
worry because you recognize that if breakouts
start to fail, something is amiss.
You needn’t worry because the market’s action will quickly turn your
stocks into cash.
Please make sure you won’t need to worry by following
these sound principles.
Longer-term, nothing has changed. We are still in a
secular bear market.
Shorter-term, we may now be in one of those mini-bull
markets of unknown duration or
price. I expect more upside near-term, but I don’t expect an “A”
rated rally. Pick the best breakouts with the
highest relative strength that acted
well off their previous earnings report. You will find these stocks on
the NEW HIGH LIST.