. . . . . . Further Market Warnings . . . . . .
In my opinion, we saw the top of the tech markets the middle of last week, when I called the Spring Tech Sell-off. . .several weeks ago, we on the HOME thread called the top of the biotechs. . . last week, when it appeared no more news was coming out of Baltimore [which it didn't] . . I called the top to the fiber optics stocks. . . and coinciding with that, I felt we were seeing a blowoff top to tech stocks.
We then discussed Ralph Bloch's 2 scenarios for the tech stock blowoff tops. . .I offerred some alternatives to those scenarios. . . regarding certain tech stocks that would continue to tease the techie players. . .while the bulk quietly sells off in the background.
Yesterday, there were ZERO new 52-week highs made. Breadth is terrible with decliners slamming advancers. Again, for the sake of those that were not here with us on the HOME thread last year when we called the market top. . . .there is strong history of spring selloffs of all "popular" stocks, [which are primarily techs, but can include any issues making big gains]. The selloff generally lasts throughout the summer.
Such selloffs are important for consolidation so that this big bull run can continue for another year. . . if we did not have a major selloff, I would REALLY begin to worry. Another reason for the selloffs is odd, but true.
Keep in mind this is a generalization and can change.
The major players on Wall Street, which we call the Wall Street Fat Cats. . .including the hedge fund operators, brokerage houses, institutional investors, fund managers and large individual traders. . . simply leave during the summer months. I don't know how else to say it. They pack up and go to Tuscany, Monte Carlo, Cannes, Paris, the Cayman Islands, Aruba, Bermuda, Bahama, come on pretty mama. . .oh wait. . .where was I?
While the Fat Cats are away, there is a major change to the markets. First, we will notice decliners beating advancers day after day. . .then the morning spikes begin to subside. . . then we begin to see volume drying up. . . instead of multi-billion share days, we go back to half-billion share days. . . there is a noticeable difference in the elevators on Wall Street. . . elbow room.
During this period, we wait and watch. . .maybe do a little swing trading or daytrading of dogs. . .we do far more strategic position trading, using technical analysis. . .and we watch for great stocks getting dumped on bad news. . .that is generally our cue to buy a bargain. . . since this happens over several months. . .many issues get slammed.
There will be some earnings plays into the first 2 weeks of April and there will be a major spike in popular issues the few days leading up to April 15. . .tax day. . . then it is officially over.. . no more such tech rallies after April 15 until the July earnings plays. I don't take part in either, as I find there is too much opposition, resistance and competition.
By August and September we begin loading our boats for the next season. And by the first week of October the volume slowly begins to return to the markets. . . everybody talks about whether we will have an October sell-off. Often the Wall Street Fat Cats start short-selling everything in sight. . .to drive prices down further before they turn to start long positions. And once the fear of Asian selloffs [historically bad in October] subsides and the coast looks clear, the tech market starts going wild again.
And we ride the best up until about February/March then sell them to the highest bidder, as though we were selling off our prized antique after holding it until the lesser pieces were sold. And the circle continues.
Today's gap ups were marginal. . .only news is moving the big tech stocks. I have been selling into the morning buying each day since my call. I don't recommend morning buying and afternoon selling these days. . .as the smaller retail buyers continue to bid stocks up in the morning, only to get slammed by the big boys who add to their short positions before the summer comes.
At this point, I would only be interested in pending news driven swing trades, value plays, momentum plays with small floats and short-selling the QQQ or a basket of key tech stocks. Beaten down techs I do like. Again, tech stocks with news may briefly rise, but I don't believe any issues will "survive" such a selloff. . . though some [leaders] will turn when they hit a bottom, while the majority will not turn until late summer.
Beware of fools rallies, sucker rallies, headfakes and other Market Maker / Fat Cat games that are designed to squeeze money out of retail customers [you].
If you have any tech stocks in margin accounts, you need to sit down with a pen, paper and calculator and very carefully illustrate the performance in the past 5 trading days. . .compare it with performance over the past 1 month and 3 months. . . . then re-evaluate your position!! Based STRICTLY on recent technical performance, if you were starting over today, would you buy this stock on margin? If your answer is yes, move to the next stock. . . if your answer is no, then you have found a candidate for lightening that margin load.
Holding tech stocks in margin accounts through a long selloff WILL damage your performance record. . . in other words, you could lose big money. Keep a very close watch on this area. I speak from experience, having gone on vacation in April several years back, while holding tech stocks in margin accounts. . . .it took me the rest of the year to make up my losses. Never turn your back on your margin accounts. . . .and during periods in the market when it appears that techs have turned bearish, you need to know exactly where you stand.
To those waiting to see a spike like last week, before selling your beloved tech holdings. . .I urge you. . . set STRICT limits. . . or stop loss. . . don't merely go down with the ship. . . you can hold cores, while selling positions [we sold swings on techs a while back and positions last week. . . some will now decide to hold cores through the summer. . .personally, I haven't the stomach].
I believe tomorrow's PPI number will be slightly higher. . .but the spin that it receives will be this: "Inflation is back, folks! Start tightening your belt, we are in for some tough going ahead in the U.S. economy"
Now which way do you think the markets will go after that spin? The smallest amount of increase over what is expected in the PPI and I believe panic will set in. Believe me, that is NOT the time you want to be liquidating. Any rise in the CPI could be the one-two punch that fuels the sell-off.
Now, I don't believe these number REALLY mean much. . .if oil prices drop, so will the trickle down prices, in my opinion. But remember. . .
"WHAT IS" is not what drives the markets. But rather "WHAT IS PERCEIVED" drives the markets.
So while inflation is hardly affecting our lives at this time, a rise in the PPI and CPI could skew our perception of inflation. And THAT will drive the markets.
Enough for now. . .need to post this. . .leaving town today. . much to do. . best wishes to you all. . .I wish that none of you lose money ever. . . and hope that this post will stir the embers a bit on your money management strategies.
You guys are one amazing group of traders! And I am proud to have my name at the top of this thread.
Rande Is |
