Excerpt from Dr. Elder's 5/11/2001 Newsletter
Early in April, after returning to New York from our Pacific Traders' Camp, I could not get over how many latecomers were becoming interested in short-selling. Lots of eager beavers were piling into the markets, selling
short YHOO and SUNW below 14, AMZN below 10. At that time the charts of many stocks and stock indexes were tracing massive bullish divergences. I pointed all of that out in my letter to you, ending with this conclusion -
"If you are a short-seller, review your charts, take profits on some positions and tighten stops on others. If you are holding stocks, you may get a better opportunity to sell them and cut losses. And short-term
traders are likely to have a field day trading long for a while. Bear market rallies tend to be sharp and lively affairs."
The stock market rally had exploded in late April, doubling prices of many stocks. I have enjoyed hearing from many clients and readers that my comments helped some to make money and others to avoid losses.
Now, a little more than a month later, many stocks have doubled. A week ago, speaking to a group, I said that in reviewing several dozen leading stocks I could not find a single one to sell short. This is now rapidly changing! More and more stocks are starting to act toppy. In stock after stock the rallies have fulfilled the measuring requirements of their bullish divergences. This means that many of them have risen as high as they had to go, and from now the new highs are more in the nature of froth, the wagging of the tail end of this bull move.
The market has punished those who shorted near the lows and did not run fast enough. I've heard from at least two traders who busted their accounts shorting in April. But now the pendulum has moved to the other side and the amateurs are buying in force. Bearish divergences are
starting to emerge on many daily charts. Force Index, my most sensitive oscillator, is tracing bearish divergences in one stock after another. MACD-Histogram, which is slower and calls more important turns, is starting to follow Force Index with its own divergences. There are no divergences
yet on the weekly charts, meaning this is not the end of the rally, but it is getting very late in the bullish game. It is time to tighten stops on long positions and start putting out some shorts. Take a look at MSFT as
it struggles just below its November high of 72+ (a false upside breakout would not surprise me), and compare the peaks of MACD-Histogram on April 18 and May 4. This pattern is starting to show up in more and more stocks.
The market has the lows of April in its sight!
Source: elder.com |
