Thursday, May 7, 2009


I think I will make it a habit of posting cool battle images for the purpose of motivating people.

I feel very comfortable being in approx. 65% cash with a 30% long and 5% short exposure. I am prepared to deal with both an up and down market. I made no purchases yesterday and also removed five of my positions in the morning (FEED, COIN, CPE, NXG, WRES) primarily to build a large cash position. Not bad on the timing part. In the end, I was only down -0.27%, or basically flat, on a day when the SPX dropped -1.32%. This is the result of my morning sales, the FAZ hedge, and gains in TVL and BZ. My worst position was FLOW, down an ohh soo scary -5.9%.

Recently, I've heard grumblings from people who won along side me with 20-40% returns. They want more and are no longer satisfied with 5-10% gains. Well, unfortunately, you can't play $1 stocks forever. It's one of those strategies that work in certain situations (like the past 2 months). Many of the names I played will go back to $1 or out of business. Don't get greedy up here, raise cash and/or add a hedge and lock in profits whenever you get the chance.

As for the general market, I am very cautious. One of my short conditions may have been met today via the exhaustion bearish gap up and it was accompanied by massive volume (look at 7-month SPX chart). This kind of volume has been associated with bottoms, but it can also mark tops. Pullback volume should be much lower. In the past, however, tops were marked by decreasing volume which means that this could mark an initial phase of a blow-off top. I wouldn't surprised since we are up 34% from the March bottom.

A bearish scenario would be a "bump-and-run" reversal shown in my amateur diagram below. This occurs when a stock/the market (I'll use market) releases itself from it's primary support and simply runs up too far, too fast. It consists of 3 phases: the lead-in, bump, and run. The lead-in is the 'normal' trend support that the market has been following. The bump is when the market makes a sharp advance, leaving a 'pocket of air' between it and the support. The run is when the market rolls over to revert back to the mean. Before it rolls over, the consolidation looks like a normal pullback. Something to keep in mind.

The COMP has broken down from the 200-day on it's highest volume since November. Not good at all. I expect a lot of whipsaw around this area. Fair warning.

Long holdings are now as follows: AHD, BZ, CNO, CNXT, EMKR, FLOW, HGSI, TVL. Few of them will be sold in the morning, but I wouldn't know which ones until I see how they act.


Cliffynator said...

Any image from WarHammer 40K will always do!
Agreed with the cheap stocks. General interest in junk stocks might mean it's time to get out. And a correction of this correction is long overdue.

Anonymous said...


What stock screener do you use?

I have been looking for one that will find stocks trading above or below certain moving averages.

Cliffynator said...

Speaking of bump & run, have you ever looked at a yearly or monthly chart of the S&P or Dow since...say 1925?

Price action since that time established an upward support line, which has been 'bumped' several times before coming back...but over the span of 10-25 years!

And we are in one MAJOR bump & run correction that first bumped in 1982. The support line for that today is around 765 (for s&p) these days. By the way, that same support was successfully tested during the dip last November, but was broken last March.

Ever zoomed that far out on your charts, Addict?

John C. Lee said...

cliff - I will investigate that.

Anon - I just look at every stock that is between $1-3 with avg vol of 150K. ..about 450 charts daily.

TorontoTrader said...


Whats your target for BZ ?

Thanks for helping us make money.