Thursday, October 9, 2008

TODAY'S BREAKOUTS & BREAKDOWNS (10-9)

What we saw today was a continuation from the indecision signal that was given yesterday – the market was simply taking a breather before resuming its trend. You can’t blame it on the shorts because they just got started today and they wouldn’t cover today. I know I didn’t. What seems to be going on is that funds of all types have having trouble meeting redemptions and withdraws, now bought on a large-scale by disgruntled investors. People have lost nearly $3 trillion in a matter of days, and there is no question that people are demanding to have their money pulled out en masse. Fear produces panic, which is the start irrational hysteria, in this case, selling.

This will go on for quite a bit. When we do get a reactionary rally once we hit a major capitulation point, it will be sharp and dramatic, but longs will still be selling during the duration, because panic doesn’t subside in a few days or overnight. In order take advantage of this situation, identify the day with capitulatory volume (I hope it comes tomorrow – after all, which longs are crazy to hold over the weekend) and go long and don’t look back. This rally will be sharpest rally that anyone of us will have seen so far in this bear market. Once the rally is underway, the market must make a decision on whether we will start a 4th primary leg down (this one will be even scarier than this one). We shall see in due time, but I’m still looking for my overdue rally.

When I reference “oversold”, it is only a technical term. The market’s true value, right now, indicates that the levels we're at, right now, are correct. I find it interesting that people who are aware of the catastrophe (which is everyone), are still expecting or wishing that their portfolios to go back up. Sorry, the market is always right.

No breakouts today. You can expect any on days like today. We had 13 new highs today and 2,862 new lows. On the NYSE, 90% of stocks declined and only 8% advanced. Declining volume on all exchanges are around 90% of total volume. These are signs of panic-driven selling and forced liquidation and this trend has gone on for a long time.

As for breakdowns, we have too many. I estimate that my article would be over 4,000 pages long full of breakdowns, but we’ll only over 10 today. The important lesson here is the same as it was on my past three articles: don’t let your stock end up on my list. Comb through your stocks and see if you see any of same patterns forming. Those are very clear warnings, and have provided dozens and dozens of examples with comments so far. Every single day matters – one day can reverse the entire trajectory of a stock. You’ll notice that the majority of major losses in anyone’s portfolio can be avoided. Capital preservation starts with prevention!










Don't forget to try out the Free Trend Analysis. It's FREE, so give it a shot!

8 comments:

lars said...

I'm not personally sold on V shaped recovery high volume capitulation day and then sharp rally... we've been capitulating for months in an orderly fashion (and not so orderly) we've been blowing through weekly and monthly bounce points without hesitation... this tells me contrarian momentum buying is gone (no one is going to defend the "oversold" oscillator)... based on the economic fundamentals and still rich valuations hedged value buyers will stay on the sidelines.... retail index fund investors continue to liquidate along with mutual fund investors and jimmy retail is selling to try and salvage his 401k.... worst of all commercial are leading the bear market down... forced to sell equities as these assets are some of their most liquid holdings next to commodities (margin calls hurt).... so if we bounce... WHO WILL DO THE BUYING?????????

In my opinion we will not bounce hard AT ALL.... any bounce that comes in the future will be led by these brand new short sellers covering.... the market will then move sideways in a state of apathy as the real fundamentals are slowly poured into the media spotlight and digested by a half dead market with no buyers and most importantly... fewer sellers. the market will then decide where it wants to go from there...

but hey that's my opinion....

John C. Lee said...

I too think it'll be short. The shorts, now that they're in the market, will do most of the buying when covering.

People can't buy cause they lost all their money! It will not be a sustained rally...just a chance for longs to sell at a sightly higher price than before, unless their stock is going bankrupt.

Anonymous said...

Wait for the market bounce and go short again. This market is 1929 all over again. Look at chart for DOW in 1929 and compare. Stay Short!

John C. Lee said...

word, but I'm still going long the reaction rally, then switch it up.

Anonymous said...

when is the first signal of a reaction rally john?

John C. Lee said...

capitulation on massive volume

Anonymous said...

you don't think we have reached that point yesterday?

John C. Lee said...

its still shaky. We don't have buyers buying right now, that's the prob and since shorts just started, they're not much covering either.