In my experience, the market always re-balances itself.     Here’s the way I see the market and it’s possible paths, with a simple explanation of timing.  Knowing this model can drastically improve your trading.  I mean, imagine all the people who were shorting at Vix 80, Vix 60, Vix 50!  Pretty soon I will post something saying, “Imagine all the people getting long in Vix 35″  … hehe.   It really is your job to figure out the definition of “re-balanced”, and the timing of it.   Again, understand the psychology behind it all.

Given our current state of market:  Low volume rally off of November lows, excluding quadruple witching day; Vix reversal to the 200 day moving average; massive relief rallies.

IF:

• Market sells off on low volume = bullish;  this increases the timing for bulls.  Think of the decline in your longs as “the price to pay for a bigger rally.”  It really isn’t something worth dumping all your longs for!
• Market sells off on high volume = bearish;  this shifts the momentum to the bears
• Market moves up on low volume = bearish; this increases the “speed/velociy” of the next selloff (See my “Sisyphean Rally” theory)
• Market moves up on high volume = bullish;  probability for extended rally increases with a “follow-through-day”.  However, this also “re-sets” a lot of other technical indicators.  For example, our perception of volume changes.

Now go make some money fool!

Been getting some questions on Twitter about some of the longs I’m following and considering to buy.  I am in search of leadership folks, so none of these stocks have the attributes of a relief-rally play (you won’t see a DRYS or an ARTC), they are simply just good looking stocks.  I rarely recommend any longs, and when I do, then usually it’s no more than 5 out of a select basket of 20 stocks I follow.  For now, the list is small, but I hope to build it a little more.  I think most of last year I only recommended one long with zeal and passion… AFAM.  And I will continue to use the pattern in AFAM as something to guide you through finding leadership stocks.

As you can see, I haven’t got up to 20 stocks yet, but I did find more long candidates faster than I thought (starting from this post: http://ibankcoin.com/gioblog/?p=2628).  Must be due to all these false open-bar tails in the market (every dip since November bottom is being quickly bought.  Remember, this happened since Vix dropped below 60, and the market became “different” as no bad news could knock it down).

China Sky One Medica (CSKI)-  I’m liking the accumulation on this stock, but would wait for a signficant pullback before entering.  Today we hit a new 52-high!  In fact we almost hit $20!

California Water Service (CWT)-  received the pullback we expected.  It got downgraded today, so let’s buy this dip soon.

Eldorado Gold Corp (EGO) - right now I’m short this stock on a pullback, but it’s the only gold stock I want to own when I get the chance.  Waiting for sub 7 to get in.

NCI Inc (NCIT) - expecting this to trade similar to CSKI.  Going with this with a “All dips should be bought” mentality.

And that’s it!  I only have 4 stocks so far on the long side, versus about 30 stocks setting up to short.  As long as that shows up on my scans, I cannot get long aggressively, and am now net-short.

Policeman:  “Be careful pulling out”

I’m establishing a net short position here.  No time to get into detail, but a few alerts came up.  Something like leaders pulling back while ugly stocks still spiking up (it’s okay if both move in same direction.)

- With the exception of AFAM, a few stocks on my new-leadership are pulling back a little.

-  Leadership Education stocks pulling back on profit-taking.  See STRA 5-day.  Expecting APEI to follow the leader down.

-  Leadership Water stocks failed to breakout with market.  See CWT, and watch action on 12-day support = 42.85.  A dip below that would be a healthy correction.

-  AVAV having trouble breaking out of 39.  A pullback here is healthy.

I’m expecting the low volume relief rallies to get hit here.  A little too early to buy EEV.  I lowered entry point under 43

-  NCIT failed to stay green today, but on low volume.  Earnings in about 1-month.  Volatility should pick up here.  Looks like a good swing short here for the rest of January.

-  Bad stock, ARTC, up 100% after completing consolidation 10 days ago.  Just 10 days!

-  Forgot to mention, keep CSKI on your watch-list.  This one looks good on a haircut.  Off to get myself a real haircut, keeping the sideburns for fun. Lol.

I hate to be a knife catcher, but the way the media has been pumping the “world markets” as being super bullish, flaunting their “extended gains” is starting to irritate me immensely.  I plan on catching EEV by the handle, then using it on a myopic bull.  Perhaps I will come in a cloak, and deliver the dagger.  It’s a crazy bearish equation that not many can see.  Well, I’m not meant to be seen anyway..

rising on hope + rising on low volume

Here’s an example of the hope:

Asian markets rise on hope

World Markets Extend Gains, Nikkei up 0.4% (Lol)

Friends, this is not a healthy market to be getting long in, but if you were prudent enough to get long when the Vix was in the high 50s (when we kissed the 60s good bye, early in December), then you should begin to sell some stocks to the dumb money.  If you’d rather ride this out, which is a viable option to swing trading this tape, then I strongly suggest you start buying some hedges, for example, getting long SRS or EEV here (due to panic in the bear camp, I have a buy-limit set on EEV between 43.50 - 44.50.  I will gladly override that), which will help you to “buy time.”  Right now, it’s a little difficult to use shorts as a “hedge”, I mean, did you see the reversal on MELI on Monday (maybe energy’s sell-on-the-news is a place to short)?  That was a bear killer.  If you’re having a little difficulty finding a bear-trade to hedge longs, then go with our default strategy for uncertainty… lighten positions!

-gio

Say goodbye to the keyboard, and hello to the MacBook Wheel.  Everything is just a hundred few clicks away!…

Short AAPL @ 97, set stop to 99 for a swing trade.  I got my limit set.

I am initiating a new watch on the following stocks for the next few weeks..

AVAV

NCIT … cleared a buy point.  I’ll post it sometime this week.

CWT …I’m bullish on water.  Weird huh.  But, I was alone for quite some time when I was bullish on home-health-care.  It’s water in 09… just you wait!  Or is it Gatorade?

Dudes… I am waiting for these stocks to pull back a little before entering any positions.  Take a look at AFAM’s chart in the past 3-months from early December, that will tell you how to play leaders.  These bullish stocks almost always pull back on lower volume, and bounce off key supports.  Search for these points.  I haven’t recommended any longs in a long time, because the market was just stupid ugly.  But whether you’re bearish or bullish on a certain timeframe, it’s good to at least keep some plays against the current, just to keep FRESH. 

Time to get “Fready”… Fresh and Ready.  (it’s pronounced “Freddy”)

 

“That Was a Bad Idea”

Although I am medium term bullish, long term bearish, a move like this week makes me short term bearish.  A lot of false bullish signals showing up.  Be careful not to mistake bullish moves in bad places as, well, bullish moves.   I did enter a few shorts, as I noticed the Vix barely dropped on this move, as well as seeing some inverse ETFs showing relative strength (SRS, SKF… not FXP, EEV, I am bearish on FXP which should be de-listed for being so idiotic).  My strategy here is to short on the rips and buy on the dips on any index that moves +4% over a multi-day period.  It’s too early in the year for me to pick a side.  I still think retail traders are moving this low volume tape, and the institutional investors are waiting to sell at higher prices.

Nevertheless, some things I noted today:

-  Ugly stocks moving up

-  Volume down on major indexes

-  AAPL testing 91 resistance

- Nice move in solars today, but solars is not a leading sector.  FSLR, JASO, SOL, SPWRA

3 of the 4 commodity horsemen were strong on price, but weak on volume.

- Nice jump in oil.  Again, stocks up in the energy sector are up, but about 1/2 the trading volume.   CLR looks good for a swing long.  APWR is a trader stock.

-  Gold was weakest.  I am short EGO.

-  Steel and other worthless scraps of metal were also up.  X, MEA (up almost 30%!  Mama MEA!)

- Ag/Fertz stocks up.  MOS, POT, TNH, MON

… keep positions tight!  It’s still a little to early to short aggressively, but I do think it’s a little late to enter new longs.  But, whatever is working for you, stick to it with a few exit strategies.  

Go check out Pearlman’s new blog.  He’s a trader focused on trader psychology, so his field and skill intersect a little with my sentiment trading background.  For those interested in a technical approach to the indexes, I think C-Addict’s latest post about the Indicators is a must read.

K, back to work!!!

-gio-

What will happen in 2009?  Hmm, let’s see…  TSCM will be delisted, then will be re-listed on the Nasdaq as LMAO.  Removal of Bush will spark a rally.  The best time to short will be further down than you think, maybe July, after the Obama hype is over.  Detroit will upset Celtics in the second round, Lakers will win it all.  Yankees won’t make the playoffs.   AAPL to the 70s as news of Jobs retirement hits investors in a negative way.  Hawaii stocks will get hit hard. 

 …….. Yeah, I have a lot of crazy ideas.  Anyway, here is my map of 2009.  I wish I put it into a timeline, but ironically, I ran out of time.  Remember, these crazy ideas are either “crazy” or just “ideas.”  But all are likely scenarios, at least in my mind.  Nevertheless, predicting 2009 will be harder than we all think.  Anyway, here’s a snapshot of clairvoyance for you…

Download My Predictions in a PDF Here (interactive PDF)

If you download it, click on the “+” signs to expand the map

 

 

Bernanke will raise rates

Target: Quarter 3

Market will tank on the news

Part of the Auto Industry will be owned by the Government, then reorganized. Chrysler will be no more.

There will be a few bull markets in weird places

Invest in Water… I will buy this h2o stock

Home Health Care Bubble will be a top industry

The Bush Rally

Market to rally 12%

Everyone will be happy!

America will cheer as soldiers in Iraq come home in mass

Dow to 10,777!

Ignited by the Bush rally, a few weeks later the market will trek its way back above 10k on the Obama rally

Vix will be in the mid 30s

Now will be the time to short!!

The Dow will drop -22% in a 3-day period

After the Bush + Obama Rally Sisypean Rally

The $ will crash

A global economic faction will be formed

A global unit of currency will be the focus of this summit… hehe, not really, but that would be cool.

Vix spikes to 80s = capitulation baby!

The Exchange Stocks will be nuked after a false rally, will lose 1/2 market caps

CME to double digits

NDAQ drops 60%

ICE drops 60%

Epic Scandals

Madoff will hang himself

FFH will drop -80% on scandal (I don’t know why)

TNH will drop -70% after cutting interest yields in half

Goldman Sachs to 0 …just kidding.  But it will get slammed.

The Dollar smashes foreign markets in the first half of 2009

Perma bears shorting the $ will lose big

EEV will double

After the $ kills foreign markets, get long China as they will unexpectedly rebound

FXP will be de-listed

The return of the 4-commodity-horsemen will come galloping back making a winepress out of Bears’ blood. I see 30% squeezes before setting up for another commodity Armageddon.

Gold

Will rally on INFLATION scares

Setting up a great short, as Gold dives back to 700

Oil

Oil will rally 30% back to the 60s

Agriculture

Steel/Copper

TIE will be bought by RIO

Retails will be horse nuked… after the Bush rally

Consumer spending to historic lows

Demand for luxury goods historic lows

.com Part 2

Consolidation into the industry will cause many smaller .com retail sites to lose considerable value

Good bye to… BFLY, SFLY, OSTK, and other queer me-too .coms

Solar Flare

Target: 4th quarter

Things to look for: Obama policy

One solar stock will move 600% on an epic short squeeze

 

Enjoy 2009!  Or not.

I gave the VIX the kiss of death early in December , taking note that the market environment had drastically changed:  People were not selling stock after bad news!  That led to a 500 point rally.

Since then the VIX has melted down over 25% in the past 10 trading days.  What does this mean?  For me, it just means this is not a good place to enter new longs, or if you already enjoyed the rally, you have to start thinking about taking profits in some of those longs.

Conversely, you may ask, is this a good time to short?  I can say it’s a much better time to short than when we were in the 50s, and since then, this light volume trading has shook out most of the weak bears.  The time to short is certainly getting closer, and the Vix has almost reached my range to start shorting which was 35-39.  If I get a spike down there I will definitely start shorting.  If we throw in the double top in the VIX on November 20 = 81, then the VIX has been cut in half in about 1 month.  Since then, the market rallied over 1,000 points.

I do think we can go higher within the next 2-3 months, but as a swing trader, it’s better to get out when complacency hits extreme levels, then re-enter on a dip.

I was out all day on Tuesday.  Had to take a business trip to Maui early in the morning (so early that my socks weren’t matching.  They all looked black to me!) then fly up to the Big Island.  Every year I get to visit some of the major construction projects on Hawaii across the islands, and check on their progress, make sure they’re on time… well, it’s basically just to show face, and have free lunch with some important people.

Anyway, after breakfast in Maui, a few handshakes, laughing nodding and “keep up the good works”, we boarded back on Hawaiian Airlines jet to Kona which is on the Big Island.. you know, the one with the active volcano, and proceeded for more laughs, handshakes, hardhats, and “good job dude.”  It’s kind of funny because I have NO carpentry/construction skills and I have to act like I know what’s happening … so sad.  I wear an extra crispy bleached white collar.

While it’s a pretty fun job, it’s sort of my on the street access to how Hawaii’s construction, hotel, and tourism industry is doing. This year was definitely different from all the others.  Normally, all the project managers for these new hotels are upbeat and optimistic, now, many of them are afraid of what 2009 will bring, or if their next project will go through.  Don’t get me started on occupancy!  Many of these multi-million dollar condo-hotel-timeshares are empty.  I’m not sure how significant the lack of buyers are, but I’m speculating that it’s not as great as they hoped.  For these reasons I will probably short Hawaii stocks heavily in the second half of 2009.  I just wanted to illustrate how I am more of a fundamental trader, that uses technicals to time my entry points.  There’s always a reason behind a bearish chart!  I hope to hedge against a slowing Hawaii economy in the same way I was long oil while we were paying $5 per gallon in Lanai, Hawaii!

Who knows, maybe in a few years these ridiculous condo prices will drop and you can get your own dream condo or vacation timeshare?  For now, forget about it.  Here’s some pictures I took.  Weather was crap, but still probably nicer than yours if you live on the East coast.

Breakfast at Kaanapali Resort, in Lahaina Maui…

Touring one of Lahaina’s newest condos.  All rooms are over a million.  Sad, no?  One of these days!….

Lunch on the Big Island!  Here’s King’s Golf Course, which is in Waikaloa Resort.  I highly recommend staying there if you visit Kona…

See, plants growing in lava rocks.  That is our state flower, the hibiscus.  It’s a real word so you can use it in Scrabble.  I’ve also seen it used on a national spelling bee.  H-i-b-i-s-c-u-s

And it’s great to back home on Oahu!  Wow, 4 airplanes in one day!  I’m ready to zzzzzzzz…

My 2009 predictions are coming up on my next post!  It’s a timed-post.   I already wrote it, and set the timer to post it about 1 hour after the market closes.  Check it out if you like!

-gio