Meet Goran Yodanoff...Clown Killah!
(from TradingMarkets.com):
tradingmarkets.com
<snip>
What a week! By the close of trading yesterday, everyone felt warm and cozy again, completely assured that the "worst was behind us."
In fact, if you were fortunate enough to miss CNBC late Thursday and all of Friday, I will give you a brief synopsis of what was discussed (and declared): Bottom, buy now, don't fight the Fed, worst is over, bottom, new bull, shorts covering, intrameeting rate cut, bottom, buy now, worst is over ...
"Be prepared to see this bear market in all three indices persist, at the very least, well into 2002."
In fact, all of these preceding themes seemed to be discussed, expounded, and ritualistically beaten into our weary craniums in what seemed to be a never-ending loop of bullish analysts and strategists. These gurus will have us believe that because the semiconductor index is trading so well, the Nasdaq has indeed bottomed and the road to recovery is just ahead.
In reality, we are witnessing just another chapter in the saga of sector manipulation and seedy "pump-and-dump" tactics that are still to this day successful in accomplishing the objective of making the rally-hungry public reach for their wallets and buy equities.
In the brighter days of bubble-past, we were led to believe that the Abbys, Galvins, Battapaglias, Blodgets, and Meekers of the world were demigods able to foresee massive swings of trillions of dollars in market capitalization before they happened.
In reality, our selfless friends at the major brokerage houses fabricated the illusion in our heads that everything we hear from this group is to be taken as Gospel. They created the mass-psychology framework whereby any word uttered by the aforementioned Fab Five would result in a self-fulfulling prophecy.
Would AMZN have reached $400 a share had Blodget not given us reason to believe it would? Probably not. Would the Internet bubble have reached the bloated diameter it did had Meeker not fueled the flames at every opportunity? Again, probably not.
Why are we made to buy the underwear that Michael Jordan and Jim Palmer wear? Why do we want to drink the soda pop that other celebrities drink? Why, still, do we need to buy the cars that Ricardo Montalban and Sting drive? Nobody knows why. But the fact exists that we still do.
So, you see, the Fab Five was created by the "great game" as being people whom we needed to follow for our financial health. When you get down to it, it was nothing but a sell-job, just like the ones we see interrupting our favorite television programs, begging us to buy everything from beer to SUVs.
Yet to this day, the Fab Five and other wannabes will "pound the table" (as Maria B. puts it), seemingly with their golden sepulchers, in an attempt to rekindle the manias of the past. However, their golden sepulchers have long tarnished, and their crowns of diamonds have lost their shine.
In fact, Goldman Sachs must have a pre-recorded videotape of Abby Joseph Cohen saying "BUY NOW; there is real value here" that they play every time the major indices lose 5%. It has become glaringly obvious to many who closely follow the machinations of this stock market that it is the Abbys, Galvins, Battapaglias, Meekers, and Blodgets of the world who have become "funny — like clowns."
It is this continuing attempt by the major houses to stimulate the markets to rally — plus the houses' continuing campaign to create momentum sectors in the face of a darkening economic outlook — that clearly demonstrates to me that the bottom is not in. As long as the public buys what Abby and Joe tells it to, the market is still in a bubble and will not learn until the lesson becomes exceedingly more painful.
Have no doubts: Regardless of what the market is manipulated to do and what the economic conditions are spun to "reveal," the worst is not even remotely over. Be prepared to see this bear market in all three indices persist, at the very least, well into 2002.
(Ladies and germs, that concludes the "rant-about-the-market" segment of our commentary. Now, on to the technical analysis.)
Let us look at charts of the Dow and Nasdaq:
As can be seen in the chart, this week's candlestick displays the large bounce that was seen off the lows near 9,100. Although this bounce was impressive, believe me, it's nothing to get excited about.
The weekly picture is clearly moving downward, as it is clear that the Dow found resistance at prior support levels (as shown). This index may bounce slightly further or consolidate in a sideways fashion before resuming the next leg in its new downtrend.
Be ready to short the bounces by focusing on sectors such as banks, retailers, healthcare, and oil services.
Now on to the index voted "most likely to cause more Porsche repos than ever in history" — the Nasdaq Composite.
The weekly candlestick of the Nasdaq is a classic harami cross that indicates a short-term reversal from the prior trend. Keep this in mind: The Nasdaq sold off for nearly eight straight weeks, so it is due some type of reflex move. However, the length or reliability of such a bounce is suspect, because we are not having a pullback in a bull market, but, rather, a complete meltdown during a brutal bear market.
Anything is possible here, folks. Just be cautious, and don't get sucked back in. You can see a clear gap on the weekly chart that should dump a ton of water on whatever fire the bulls may be trying to generate. At this time, I am focusing on shorting semiconductor issues such as AMAT, LLTC, MU, VTSS, and others.
Because both indices are mired in significant downtrends, it would be prudent to play the long side in a "scalp-only" fashion and not hold any overnight longs. In addition, the best opportunities here appear to be in building positional shorts on the rally attempts in the sectors that are clearly in the initial stages of their newly found downtrends (i.e., retailers, apparel, and oil service).
Remember: When the market is confusing, don't feel the need to trade as actively as you would during a nice trend day.
Last night, I reviewed the biggest losing trades I have ever made in my career, and they all turned out to be intraday scalps that did not set up in the direction I was attempting to scalp on the longer-term charts. In addition, I did not have a stop in place to get me out of the trade with a minimal loss.
As hard as it may seem for you to take that loss, it will inevitably save you from realizing much larger losses when the position continues to move against you. At this stage of my career, I don't even like to scalp against the major market trend in a stock or index. Rather, I will look for the right opportunity to enter a trade when it appears ready to move in the direction of its longer-term charts and trading channel.
Have a great weekend! |
