Dollar gets cover treatment

The magazine with no bylines and anonymous editors feels the dollar panic is unwarranted.

So far, this remains only a fear. Although the dollar has been falling at quite a lick—down 6% against a trade-weighted basket of currencies since August—it has seen no chaotic slump, but a slide interspersed, as this week, with brief rallies. Americans' expectations of future inflation have not yet risen much. Yields on government bonds have fallen: clearly, investors do not yet expect higher premiums for safe American assets. Whether disaster strikes depends on what exactly is driving the dollar down and on how policymakers react.

IBD follow through days

So IBD changed their interpretation of follow through day. Irrespective of what IBD does on this particular instance, let us look at the logic behind the IBD follow through method for confirming new rally start and see if it makes sense and is it logical. The fundamental hypothesis behind the IBD overall market direction is based on the logic that large investors like mutual funds, pension funds and hedge fund drive the market because of their large size. It uses a price and volume action as a proxy to figure out what these institutions are doing. So when a market is in rally mode, it looks for a possible top when there is a cluster of 5-6 high volume selling days. It calls those days distribution days. It defines distribution day as a day where the market was down and volume was up. When such distribution days are clustered in a short time frame it indicates that the large funds are selling or distributing stocks. So after 5 distribution days it says you should be preferably in cash. Besides that it uses list of market leaders (stocks which had outperformed the market in price and earnings term ) to see the health of the market. If majority of stocks in that list are going down below 50 day MA it describes the market as risky .

Now once a market goes in to correction mode as signaled by number of distribution days , then the next logical step is to see when to get back in to market. For that it uses again a proxy of large speculators buying to confirm possible start of a new rally. How does it do it, by looking at rally attempts. So in a downtrend it looks for a positive day. Once there is a positive day, it looks for second positive day on high volume. The second day should come in between 4 th and 7 th day of the rally attempt otherwise the rally attempt is considered a failure and you start all over again. It has tested the system on last several years of market data and it calls a turn in 80% of the time correctly.

The more important question which is not really been asked is should you follow it and do you have a better system. The IBD system has a context which is most important to understand and that in IBD model of CANSLIM, it buys stocks with primarily two main characteristics 1) those with earnings momentum and 2) price momentum. One of the primary characteristics of such stocks is that they outperform during market rallies and significantly under perform during corrections. So they will double quickly but give up 50% or more of their price gains when the market turns. While high growth is sexy there is a corresponding high risk associated with it. So by staying in cash during the correction phase , you significantly narrow the risk. If you are not trading those kind of stocks, it does not matter and you should not follow it.

A must read book

Your Next Great Stock: How to Screen the Market for Tomorrow's Top Performers (
by Jack Hough (Author)

Beg, borrow, or steal this book. I have been reading it since last night and almost through with it. If you want to make money just read this book. Once you read it you might find lot of similarities to many of the ideas behind methods discussed here.This is the most practical book I have read this year so far on investing.

The author details ways to screen for stock likely to move using various researched anomalies. All the screens can be done using Moneycentral. I will have more detailed review later once I finish the last few pages.

If you are considering a Chirstmas gift to a investor or trader, this book will make a nice gift.

Later:
Save your money do not buy

Invest Like a Shark: How a Deaf Guy with No Job and Limited Capital Made a Fortune Investing in the Stock Market

This is the most disappointing book on investing I have read this year. It is just one big rant against Wall Street and Buy and Hold investing with no meat. Pages after pages Revshark goes on and on ranting against the big Wall Street conspiracy against small investor without providing any clear insight on trading or investing. It is a terrible book . Save your money. This Shark cannot write a useful book.
I will have more detailed review later.

Cautiously optimist

While a 900 plus bullish 4% breakouts in Market Monitor is significant, the backdrop to this rally attempt is different from last time where market rallied after reaching extremes of below 200 on 65 days reading intra day. The McClellan Summation Index turned last time from much extreme level than currently it is at. More than that nothing changes the reality that leading stocks have seen widespread reversal and overall market had many days of high volume distribution compared to last turn. So this bounce must be looked at against that backdrop. Seasonal forces might help put together a some sort of scratchy rally for next few weeks, but personally I have low conviction about this rally attempt. Only more sustained buying and the 65 days ratio turning green will have me becoming more optimistic.

Yesterday does not count as follow through day on IBD system, only a follow through day of 1.7% after 4 to 7 days after a rally attempt is valid breakout. The IBD Big Picture is also skeptical of this rally attempt. Unlike that last time it was screaming, buy, buy, buy during correction. The Big Picture read of the market is one of the best read I have seen on the street. It is seldom wrong in its overall readings.

From IBD Big Picture



Wednesday's price gain was one of the biggest of the year for the Nasdaq, an encouraging sign. But one big day doesn't mean much in the grander scheme. The Nasdaq's nine biggest up days of all time all occurred during the bear market of 2000 to 2003.

More recently, the Nasdaq's biggest up day of this year came on Nov. 13 — right before the market started a new leg down.

For now, consider Wednesday to be Day 2 of a rally attempt by the major indexes. We'll need to see more signs of strength among both the broad indexes and leading stocks before the market can take on a more bullish hue.

What it means in my scheme of things is light commitments and very low 5 to 10% profit targets on all methods.

75 Resilient Stocks

While the selling was broad based in last few weeks, some stocks have managed to withstand the selling. Such resilient stocks tend to be first to bounce back once a new rally develops. The list also gives you an idea of resilient sectors.

ABAX,Abaxis Inc (Google  Yahoo  Earnings  Chart) 
AG,Agco Corp (Google  Yahoo  Earnings  Chart) 
ALNY,Alnylam Pharmaceuticals (Google  Yahoo  Earnings  Chart) 
ANV,Allied Nevada Gold Corp (Google  Yahoo  Earnings  Chart) 
ANW,Aegean Marine Petroleum Network Inc (Google  Yahoo  Earnings  Chart) 
APPY,AspenBio Pharma Inc (Google  Yahoo  Earnings  Chart) 
ASUR,Forgent Networks (Google  Yahoo  Earnings  Chart) 
ATRO,Astronics Corp (Google  Yahoo  Earnings  Chart) 
AUXL,Auxilium Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
AXYS,Axsys Technologies (Google  Yahoo  Earnings  Chart) 
BIDU,Baidu.com Inc (Google  Yahoo  Earnings  Chart) 
BIOS,BioScrip Inc (Google  Yahoo  Earnings  Chart) 
BITI,Bio-imaging Technologies (Google  Yahoo  Earnings  Chart) 
BOOM,Dynamic Materials Corp (Google  Yahoo  Earnings  Chart) 
BYI,Bally Technologies Inc (Google  Yahoo  Earnings  Chart) 
BZP,Bpz Resources Inc (Google  Yahoo  Earnings  Chart) 
CEO,CNOOC Ltd Adr (Google  Yahoo  Earnings  Chart) 
CLDA,Clinical Data Inc (Google  Yahoo  Earnings  Chart) 
CPLA,Capella Education Company (Google  Yahoo  Earnings  Chart) 
CSIQ,Canadian Solar Inc (Google  Yahoo  Earnings  Chart) 
DECK,Deckers Outdoor Corp (Google  Yahoo  Earnings  Chart) 
DLB,Dolby Laboratories Inc (Google  Yahoo  Earnings  Chart) 
DV,Devry Inc (Google  Yahoo  Earnings  Chart) 
EHTH,Ehealth Inc (Google  Yahoo  Earnings  Chart) 
FFH,Fairfax Financial Holdings (Google  Yahoo  Earnings  Chart) 
FLIR,Flir Systems Inc (Google  Yahoo  Earnings  Chart) 
FSLR,First Solar Inc (Google  Yahoo  Earnings  Chart) 
GHM,Graham Corp (Google  Yahoo  Earnings  Chart) 
GLDN,Golden Telecom Inc (Google  Yahoo  Earnings  Chart) 
GMO,Idaho General Mines Inc (Google  Yahoo  Earnings  Chart) 
GOLD,Randgold Resources Ltd Ads 1:2 (Google  Yahoo  Earnings  Chart) 
GVP,Gse Systems Inc (Google  Yahoo  Earnings  Chart) 
HDB,HDFC Bank Limited (Google  Yahoo  Earnings  Chart) 
HL,Hecla Mining Co (Google  Yahoo  Earnings  Chart) 
IDP,Idera Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
INP,iPath MSCI India Index ETN (Google  Yahoo  Earnings  Chart) 
ISIS,Isis Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
ISRG,Intuitive Surgical Inc (Google  Yahoo  Earnings  Chart) 
LTRE,Learning Tree Internat (Google  Yahoo  Earnings  Chart) 
LUNA,Luna Innovations Inc (Google  Yahoo  Earnings  Chart) 
MBT,Mobile Telesys Ojsc Ads (Google  Yahoo  Earnings  Chart) 
MLNM,Millennium Pharmaceuticl (Google  Yahoo  Earnings  Chart) 
MOS,Mosaic Company (Google  Yahoo  Earnings  Chart) 
MTL,Mechel Steel Group OAO ADS (Google  Yahoo  Earnings  Chart) 
ONXX,Onyx Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
PBR,Petroleo Brasileiro S.A. Petrobras ADS (Google  Yahoo  Earnings  Chart) 
PBR.A,Petroleo Brasileiro S.A. Petrobras ADS Class A (Google  Yahoo  Earnings  Chart) 
PCLN,Priceline.com Inc (Google  Yahoo  Earnings  Chart) 
PODD,Insulet Corporation (Google  Yahoo  Earnings  Chart) 
PRGO,Perrigo Co (Google  Yahoo  Earnings  Chart) 
PRVT,Private Media Group Inc (Google  Yahoo  Earnings  Chart) 
PSEM,Pericom Semiconductor Cp (Google  Yahoo  Earnings  Chart) 
PTEC,Phoenix Technologies Ltd (Google  Yahoo  Earnings  Chart) 
QSC,Questcor Pharmaceuticals (Google  Yahoo  Earnings  Chart) 
RICK,Rick's Caberet Intl (Google  Yahoo  Earnings  Chart) 
RIMM,Research In Motion Ltd (Google  Yahoo  Earnings  Chart) 
RSTO,Restoration Hardware Inc (Google  Yahoo  Earnings  Chart) 
RTP,Rio Tinto Plc Adr (Google  Yahoo  Earnings  Chart) 
SCON,Superconductor Tech (Google  Yahoo  Earnings  Chart) 
SIGM,Sigma Designs Inc (Google  Yahoo  Earnings  Chart) 
SOHU,Sohu.Com Inc (Google  Yahoo  Earnings  Chart) 
SPIR,Spire Corp (Google  Yahoo  Earnings  Chart) 
SPWR,SunPower Corp (Google  Yahoo  Earnings  Chart) 
SQNM,Sequenom Inc (Google  Yahoo  Earnings  Chart) 
STP,Suntech Power Holdings Co Ltd (Google  Yahoo  Earnings  Chart) 
SXE,Stanley Inc (Google  Yahoo  Earnings  Chart) 
SYNA,Synaptics Inc (Google  Yahoo  Earnings  Chart) 
TELOZ,Tel Offshore Trust (Google  Yahoo  Earnings  Chart) 
TKC,Turkcell Iletisim Hizmetleri ADS (Google  Yahoo  Earnings  Chart) 
TRA,Terra Industries Inc (Google  Yahoo  Earnings  Chart) 
UTHR,United Therapeutics Corp (Google  Yahoo  Earnings  Chart) 
VIP,Vimpel Communication Ads (Google  Yahoo  Earnings  Chart) 
VLNC,Valence Technology Inc (Google  Yahoo  Earnings  Chart) 
XRA,Exeter Resource Corporation (Google  Yahoo  Earnings  Chart) 
ZIXI,Zix Corporation (Google  Yahoo  Earnings  Chart) 

Individual investors have advantage

With the market still in correction mode, probability of fresh breakouts leading to rally decreases. When market is in rally mode, you can buy 5 breakouts and 4 will work, but once market turns a breakout has higher probability of resulting in to congestion or reversal. The grater risk in weak market is, if you hold multiple positions, you wake up one day to find all of them have reversed and by the time you get out you would be down 15 to 20%.

The systems like Double Trouble, IBD 200, Episodic Pivots, Virgins are built to take advantage of the momentum phase in market. The Market Monitor is an overall filter on top of these methods. When the Market Monitor is in correction phase, one needs to adjust the trading time frame and risk to suit the new reality.

In my style, I like putting all probabilities behind my trades. When you are in confirmed uptrend the individual market behaves differently. History repeats itself and if you look at historical precedents you will find when leading stocks, after a climax run reverse, it usually is a loud warning sign. When risk is very high, in my book it is prudent to wait out such periods. Individual investors have advantage of flexibility, where you can deploy your cash quickly and get fully invested. Mutual funds and other big investor have to be fully invested or have to move large size and cannot be so flexible. If the market turns in next week, it is not very difficult to get fully invested.

One of the problems with long running bull markets is it conditions people to trade in certain way. When the underlying dynamics change, people are slow to react and continue to trade same way. By the time they realize what is happening, in many cases the account suffers. Flexibility and adaptability is key when market character changes. Methods should adapt to market quickly.

Pre mature bulls get whacked

Market acted the way it acts when it is in confirmed correction phase as per Market Monitor. A holiday induced , low volume bounce on Friday had some people excited. For bulk of the day the market struggled to get any traction and finally it sold off hard. That should not surprise anyone tracking the action on Market Monitor. During last correction also there were lot of pre mature bulls calling for a turn before the readings reached turn zones.

When the market is about to turn, the Market Monitor readings will indicate that. At current levels, we are at best likely to have reflex bounces. Many market participants have been spoiled by the last 4-5 years action where such corrections quickly reversed and lead to rallies. Till now this correction is different, it is coming after a blowout phase , where many sectors and stocks had a climax run and then the market reversed.

If you recall when the readings on stocks up 50% plus in month were at extreme levels, not seen in years in October (Oct 5 to Oct 11 on Market Monitor), that was the climax phase. During that phase if you look at my posts, they said such high readings are not sustainable and lead to corrections. That is what happened. The extreme momentum phase resulted in correction. However quickly the correction transformed in to distribution phase.

Unlike normal correction, it had different feel from word go as stocks which had climax run started dropping fast and along with them other stocks started reversing. Breakouts were not having follow through. Remember my posts prior to Cancun trip where I was very uncomfortable with the action and reduced my market exposure to bare minimum. Since then I have been mainly in cash in all my accounts, that include my long term accounts and mutual funds accounts and only taking sporadic short term tactical trades.

When the Market Monitor indicates turn, there will be lot of opportunities to make money. Till then cash is king.

S&P Lagging stocks

These stocks are in bottom 10% by relative strength. Many value investors and bottom fishers like to look at such stocks. During reflex bounce, such beaten down stocks have 1-5 days rallies, which offer good profit opportunities for nimble traders.

ABK,Ambac Financial Group (Google  Yahoo  Earnings  Chart) 
BC,Brunswick Corp (Google  Yahoo  Earnings  Chart) 
BIG,Big Lots Inc (Google  Yahoo  Earnings  Chart) 
BSC,Bear Stearns Companies (Google  Yahoo  Earnings  Chart) 
C,Citigroup (Google  Yahoo  Earnings  Chart) 
CBG,Cb Richard Ellis Svcs (Google  Yahoo  Earnings  Chart) 
CC,Circuit Cty Strs Inc (Google  Yahoo  Earnings  Chart) 
CFC,Countrywide Financial (Google  Yahoo  Earnings  Chart) 
CIT,Cit Group Cl A (Google  Yahoo  Earnings  Chart) 
COF,Capital One Financial Cp (Google  Yahoo  Earnings  Chart) 
CTX,Centex Corp (Google  Yahoo  Earnings  Chart) 
DDS,Dillard's Inc (Google  Yahoo  Earnings  Chart) 
DHI,D.R. Horton Inc (Google  Yahoo  Earnings  Chart) 
ETFC,E Trade Financial Corp (Google  Yahoo  Earnings  Chart) 
FHN,First Horizon Natl (Google  Yahoo  Earnings  Chart) 
FNM,Fannie Mae (Google  Yahoo  Earnings  Chart) 
FRE,Freddie Mac (Google  Yahoo  Earnings  Chart) 
HAR,Harman Internat Ind Inc (Google  Yahoo  Earnings  Chart) 
HBAN,Huntington Bancshares (Google  Yahoo  Earnings  Chart) 
JCP,J.C. Penney Company Inc (Google  Yahoo  Earnings  Chart) 
KBH,Kb Home (Google  Yahoo  Earnings  Chart) 
KEY,Keycorp (Google  Yahoo  Earnings  Chart) 
KG,King Pharmaceuticals Inc (Google  Yahoo  Earnings  Chart) 
LEN,Lennar Corp Cl A (Google  Yahoo  Earnings  Chart) 
LIZ,Liz Claiborne Inc (Google  Yahoo  Earnings  Chart) 
LOW,Lowe's Companies Inc (Google  Yahoo  Earnings  Chart) 
MBI,Mbia Inc (Google  Yahoo  Earnings  Chart) 
MCO,Moody's Corporation (Google  Yahoo  Earnings  Chart) 
MER,Merrill Lynch & Co (Google  Yahoo  Earnings  Chart) 
MS,Morgan Stanley (Google  Yahoo  Earnings  Chart) 
MTG,Mgic Investments Corp (Google  Yahoo  Earnings  Chart) 
MU,Micron Technology Inc (Google  Yahoo  Earnings  Chart) 
NCC,National City Corp (Google  Yahoo  Earnings  Chart) 
ODP,Office Depot Inc (Google  Yahoo  Earnings  Chart) 
OMX,Officemax Inc (Google  Yahoo  Earnings  Chart) 
PHM,Pulte Homes Inc (Google  Yahoo  Earnings  Chart) 
Q,Qwest Cmmnctns Intl Inc (Google  Yahoo  Earnings  Chart) 
RSH,Radioshack Corp (Google  Yahoo  Earnings  Chart) 
SHLD,Sears Holding Corp (Google  Yahoo  Earnings  Chart) 
SNDK,Sandisk Corp (Google  Yahoo  Earnings  Chart) 
SOV,Sovereign Bancorp Inc (Google  Yahoo  Earnings  Chart) 
TER,Teradyne Inc (Google  Yahoo  Earnings  Chart) 
TEX,Terex Corp (Google  Yahoo  Earnings  Chart) 
TIN,Temple Inland Inc (Google  Yahoo  Earnings  Chart) 
TLAB,Tellabs Inc (Google  Yahoo  Earnings  Chart) 
TSN,Tyson Foods Inc (Google  Yahoo  Earnings  Chart) 
UIS,Unisys Corp (Google  Yahoo  Earnings  Chart) 
WM,Washington Mutual Inc (Google  Yahoo  Earnings  Chart) 
XL,Xl Capital Ltd (Google  Yahoo  Earnings  Chart) 
ZION,Zions Bancorporation (Google  Yahoo  Earnings  Chart) 

S&P Leading stocks

These are stock in top 15% by relative strength. These are the kind of stocks which have the potential to rally when a new rally starts.

AAPL,Apple Inc (Google  Yahoo  Earnings  Chart) 
AFL,Aflac Inc (Google  Yahoo  Earnings  Chart) 
AIZ,Assurant Inc (Google  Yahoo  Earnings  Chart) 
AOC,Aon Corp (Google  Yahoo  Earnings  Chart) 
APA,Apache Corp (Google  Yahoo  Earnings  Chart) 
APC,Anadarko Petroleum Corp (Google  Yahoo  Earnings  Chart) 
APOL,Apollo Group Inc Cl A (Google  Yahoo  Earnings  Chart) 
AVP,Avon Products Inc (Google  Yahoo  Earnings  Chart) 
AYE,Allegheny Energy Inc (Google  Yahoo  Earnings  Chart) 
BDX,Becton Dickinson & Co (Google  Yahoo  Earnings  Chart) 
BIIB,Biogen Idec Inc (Google  Yahoo  Earnings  Chart) 
BTU,Peabody Energy (Google  Yahoo  Earnings  Chart) 
CEG,Constellation Energy Grp (Google  Yahoo  Earnings  Chart) 
CHK,Chesapeake Energy Corp (Google  Yahoo  Earnings  Chart) 
CIEN,Ciena Corporation (Google  Yahoo  Earnings  Chart) 
CL,Colgate-Palmolive Co (Google  Yahoo  Earnings  Chart) 
CME,Cme Group Inc (Google  Yahoo  Earnings  Chart) 
CNX,Consol Energy Inc (Google  Yahoo  Earnings  Chart) 
COST,Costco Wholesale Corp (Google  Yahoo  Earnings  Chart) 
CVS,Cvs Caremark Corp (Google  Yahoo  Earnings  Chart) 
DE,Deere & Co (Google  Yahoo  Earnings  Chart) 
DUK,Duke Energy Corp (Google  Yahoo  Earnings  Chart) 
EMR,Emerson Electric Co (Google  Yahoo  Earnings  Chart) 
EOG,Eog Resources Inc (Google  Yahoo  Earnings  Chart) 
ESRX,Express Scripts Inc (Google  Yahoo  Earnings  Chart) 
EXC,Exelon Corporation (Google  Yahoo  Earnings  Chart) 
FLR,Fluor Corp (New) (Google  Yahoo  Earnings  Chart) 
FPL,Fpl Group Inc (Google  Yahoo  Earnings  Chart) 
GD,General Dynamics Corp (Google  Yahoo  Earnings  Chart) 
GENZ,Genzyme Corporation (Google  Yahoo  Earnings  Chart) 
GILD,Gilead Sciences Inc (Google  Yahoo  Earnings  Chart) 
GOOG,Google (Google  Yahoo  Earnings  Chart) 
GR,Goodrich Corp (Google  Yahoo  Earnings  Chart) 
HCBK,Hudson City Bancorp Inc (Google  Yahoo  Earnings  Chart) 
HES,Hess Corp (Google  Yahoo  Earnings  Chart) 
HSP,Hospira Inc (Google  Yahoo  Earnings  Chart) 
HUM,Humana Inc (Google  Yahoo  Earnings  Chart) 
ICE,Intercontinental Exchange Inc (Google  Yahoo  Earnings  Chart) 
JEC,Jacobs Engineering Group (Google  Yahoo  Earnings  Chart) 
KO,Coca-Cola Co (Google  Yahoo  Earnings  Chart) 
LLL,L-3 Communications Hldgs (Google  Yahoo  Earnings  Chart) 
LMT,Lockheed Martin Corp (Google  Yahoo  Earnings  Chart) 
MCD,Mcdonalds Corp (Google  Yahoo  Earnings  Chart) 
MCK,Mckesson Corp (Google  Yahoo  Earnings  Chart) 
MHS,Medco Health Solutions (Google  Yahoo  Earnings  Chart) 
MIL,Millipore Corp (Google  Yahoo  Earnings  Chart) 
MON,Monsanto Co (Google  Yahoo  Earnings  Chart) 
MRK,Merck & Co (Google  Yahoo  Earnings  Chart) 
MSFT,Microsoft Corp (Google  Yahoo  Earnings  Chart) 
MUR,Murphy Oil Corp (Google  Yahoo  Earnings  Chart) 
NBL,Noble Energy Inc (Google  Yahoo  Earnings  Chart) 
NEM,Newmont Mining Corp (Google  Yahoo  Earnings  Chart) 
NKE,Nike Inc Cl B (Google  Yahoo  Earnings  Chart) 
NOV,National Oilwell Varco Inc (Google  Yahoo  Earnings  Chart) 
NTRS,Northern Trust Corp (Google  Yahoo  Earnings  Chart) 
OXY,Occidental Petro Cp (Google  Yahoo  Earnings  Chart) 
PBG,Pepsi Bottling Group Inc (Google  Yahoo  Earnings  Chart) 
PEP,Pepsico Inc (Google  Yahoo  Earnings  Chart) 
PFG,Principal Financial Group (Google  Yahoo  Earnings  Chart) 
PG,Procter & Gamble Co (Google  Yahoo  Earnings  Chart) 
PH,Parker Hannifin Corp (Google  Yahoo  Earnings  Chart) 
RIG,Transocean Inc (Google  Yahoo  Earnings  Chart) 
SCHW,Charles Schwab Corp (Google  Yahoo  Earnings  Chart) 
SIAL,Sigma-Aldrich Corp (Google  Yahoo  Earnings  Chart) 
SO,Southern Company The (Google  Yahoo  Earnings  Chart) 
STT,State Street Corp (Google  Yahoo  Earnings  Chart) 
TAP,Molson Coors Brewing Co (Google  Yahoo  Earnings  Chart) 
TEK,Tektronix Inc (Google  Yahoo  Earnings  Chart) 
TROW,Price T Rowe Group Inc (Google  Yahoo  Earnings  Chart) 
TXT,Textron Inc (Google  Yahoo  Earnings  Chart) 
UNH,UnitedHealth Group Inc. (Google  Yahoo  Earnings  Chart) 
UST,Ust Inc (Google  Yahoo  Earnings  Chart) 
VAR,Varian Medical Systems Inc (Google  Yahoo  Earnings  Chart) 
VRSN,Verisign Inc (Google  Yahoo  Earnings  Chart) 
WAT,Waters Corp (Google  Yahoo  Earnings  Chart) 
WFR,Memc Electronic Material (Google  Yahoo  Earnings  Chart) 
WMB,Williams Companies Inc (Google  Yahoo  Earnings  Chart) 
YUM,Yum! Brands Inc (Google  Yahoo  Earnings  Chart) 

Lagging Sectors

MG323,Rubber & Plastics
MG328,Office Supplies
MG332,Trucks & Other Vehicles
MG414,Regional-Southeast Banks
MG417,Regional-Pacific Banks
MG419,Savings & Loans
MG425,Credit Services
MG434,Surety & Title Insurance
MG440,-Real Estate-
MG442,Reit-Office
MG448,Mortgage Investment
MG449,Property Management/Develop
MG631,Residential Construction
MG634,Cement
MG731,Department Stores
MG736,Home Improvement Stores
MG752,Building Materials Wholesale
MG762,Rental & Leasing Services
MG775,Trucking
MG815,Networking & Comm Dev
MG823,Technical & System Software
MG824,Security Software & Services
MG825,Information Technology Service
MG832,Semiconductor-Memory Chips

These sectors have witnessed most selling in this quarter. List is dominated by real estate, retail, transport and financial sector.

Leading Sectors

MG113,Agricultural Chemicals
MG122,Independent Oil & Gas
MG124,Oil & Gas Drilling & Explorat
MG131,Steel & Iron
MG135,Gold
MG136,Silver
MG324,Personal Products
MG327,Cleaning Products
MG341,Food-Major Diversified
MG342,Farm Products
MG345,Dairy Products
MG349,Beverages-Soft Drinks
MG350,-Tobacco-
MG351,Cigarettes
MG352,Tobacco Products - Other
MG432,Accident & Health Insurance
MG767,Education & Training Services
MG769,Research Services
MG837,Diversified Electronics
MG846,Telecom Services-Foreign
MG851,Internet Service Providers
MG852,Internet Information Providers
MG912,Electric Utilities
MG914,Diversified Utilities

These sectors are in top 10% in terms of relative strength currently. Number of defensive sectors dominate the list.

A holiday induced low volume bounce

A holiday induced , low volume bounce finally kicked in on Friday. It is not the kind of action to be excited about much. The groups leading the bounce were beaten down groups like retail and finance. Those are not the groups likely to lead the market higher.

The market continues to be in confirmed correction mode as per Market Monitor. While the market might have a reflex bounce at this stage, we are no where close to having a sustained rally. Leading stocks are not in a shape to mount reversals. Bounces on leading stocks are on low volume. Many had several days of straight down action and currently having light volume rally. They are more vulnerable to going down. Unless we see a back to back 300 plus positive days in a week or improvement in 65 days ratio, we are unlikely to have a sustained bounce.

The art of short selling

With the Market Monitor in confirmed correction mode, short selling and cash are preferred strategies. Here are some of my old posts on short selling:

Mark Boucher on Short Selling

Why there are only three books on shorting


How to find shorts on stocks which are not overextended on the downside

How to find shorts

More panic is good

This is the kind of open you want . The more market panics better it is for a longer term bounce possibility. The market has had no real correction for years now and this washout is good. So let there be more panic.

Wild swings

The poor action over few weeks has driven the market to levels where a reflex bounce was a possible course of action. The holiday shortened week was ideal for that kind of bounce to develop. We got one yesterday for few hours. The bounce quickly fizzled out. Market gapped up as many participants were expecting a bounce. The gap up was aggressively bought and technology stocks were up a lot in few hours. Normally such bounces are followed by day long strength. But the sellers were quick to pounce on the strength and the market spent much of the day giving back those gains and regaining some at close. When market does not act according to script, that is a clear and loud warning sign. Market participants lack the confidence and are playing the bounce only for a quick buck or two.

When market enters correction zone, as this market is currently in as per Market Monitor signals, this kind of wild swings and mood change is a common thing. The last five years of rally has conditioned lot of traders and speculators to chase such reflex bounce, as they have till now lead to straight up, non stop moves. Such reflex bounce as the name indicate are just bounces and if you do not quickly lock in your profit and sell, they quickly fade, you have to anticipate them and play them, instead of chasing them. They are only for very nimble and quick traders. When the market turns for good, the Market Monitor will signal it, like it did last time after correction. That signal resulted in very powerful rally. Till that signal comes in many such reflex bounces are possibilities. Some will fizzle out quickly, some will last few days, and some will suck you in only to disappoint.

Higher odds of reflex bounce

Market went down on comparatively lower volume. In a thinly traded, holiday week, negative news flow exaggerates moves. Plus once market entered correction phase, any negative news acts as a further catalyst for dip buyers to stand aside. Attempts at bounce intra day were not successful and this lead to the market closing near lows. In a bullish market all negative news is discounted, in correction phase all bearish news has exaggerated response. Lowe's and Citibank have been in down trend for long and news from or about them is hardly a surprise. The retail and finance sectors were in down trend for months before the news about the mortgage turmoil hit the markets.

The widespread selling and no bounce and hint of panic in fact is very good as it again sets us up for a possible reflex bounce. Markets on downside seldom go down straight. Most of the things I monitor are again showing possible reflex bounce developing. The Market Monitor readings on multiple items are at levels where such bounce is possibility. The negative sentiment is pervasive. The usual suspects and bearish crowd who have been predicting doom and gloom for many years day in and day out are dancing in the street, saying we told you so.There is almost a competition amongst the bearish pundits to paint even more extreme and dire scenarios. That is the kind of scenario which offers the best chance for a bounce.

That is the speculators take on this market at this level. When the risk is high rewards are high.

Speculation: The process of selecting investments with higher risk in order to profit from an anticipated price movement.

A possibility of tradable 2-3 days rally exists

The market did on Friday what is characteristic of volatile correction phase where it went up, down, up, down,and up again. All between pre-open to close. But with three and half days of trading week ahead a possibility of tradable 2-3 days rally exists. There has been no high volume follow through since the up move four days ago, so such rally might be fleeting and for nimble traders.

The Market Monitor is currently in confirmed correction mode, so extreme nimbleness is key and once you have profit , protecting it is key. Look at CSIQ post earnings,it is a real test of patience holding on to it as it has had a very volatile post earnings breakout move. When 65 days ratio is positive, generally such moves are very smooth.But earnings breakout continue to move up. BIDZ, STP, FSLR, PSEM, MICC, QSC, INOD, PCLN, MA etc are some of the examples of recent earnings breakouts.

There are number of good breakouts in EP , Double Trouble, Virgin and IBD 200 on Friday and for nimble traders, they should provide enough fodder.

No one wants the dollar

In sentiment term the most hated currency currently is Dollar. Look at this news from India. Why now, why not three years ago. Now everyone gets it. Trends are your friend till sentiments reach extreme.

Dollars no good for the Taj Mahal

By Jyotsna Singh BBC News, Delhi

Foreign tourists to many of India's most famous landmarks will no longer be able to pay the entrance fee in dollars, the government says.

The ruling is aimed at safeguarding tourism revenues following the recent falls in the dollar.

Until now, foreign tourists to sites such at the Taj Mahal have had the option of paying in dollars or rupees.

Monster Stocks By John Boik

Monster Stocks
How they set up, run up, top and make you money

This is the book which I finished reading last night . It is basically another take on growth investing. Much of the book is rehash of CANSLIM method.

Here is a gist of the book.

• A monster stock is basically a stock that doubles in price in 4 to 18 months. Many of them will go up 3, 4 ,5 or 10 times plus in short time periods.
• If you want monster returns, you should know how to identify and handle the next monster stock.
• Book covers some monster stocks that appeared in last 10 years (1997-2007)
• Monster stocks are growth companies, most trade on Nasdaq, have new and innovative products and above average earnings and sales growth . When they catch the attention of big money investors, the huge demand from these players leads to them making monster moves in short time frames.
• Each major up move in overall market leads to emergence of such monster stocks.
• Eventually all such stocks top and often the top in such stocks coincides with new downturn in overall market.
  
  Recognize a monster stock at right time, sit with it for right amount of time and then sell it at correct time. That in short is the way to monster returns.
  "It only takes a few monster stock, if you handle them correctly, to improve your life financially" Jim Roppel.

Another Signal of Dollar Bottom

When rappers start giving tips on dollar direction, you know we have sentiment extremes.

Rapper Jay-Z dissing the dollar

Wads of dollar bills are usually as much a part of rap videos as fast cars, diamond-encrusted jewellery and scantily-clad models.

But in an apparent nod to the low value of the dollar, rapper Jay-Z's new video Blue Magic features another currency.

He is seen cruising the streets of New York in a Bentley (made by Germany's Volkswagen) with a briefcase full of 500 euro notes.

It follows reports that the supermodel Gisele Bündchen also favours euros.

The catwalk star's twin sister and manager Patricia told Bloomberg in September that: "Contracts starting now are more attractive in euros because we don't know what will happen to the dollar."

Market spent much of yesterday going nowhere. That looked like a normal reaction after a strong one day bounce, however last hour saw a bout of selling which drove the market straight down. In last week or so, this kind of last few hours selling is regular feature in the market. The kind of environment is not very conducive to trading on long side. Sitting on cash and waiting for opportune time is the preferred strategy at this time. Which for many can be very difficult. But periods like these can quickly reduce your trading accounts with small losses adding up.

While the market action is dreary and there is lot of negativity around, one must remember such correction phases turn on dime. If you study reversals in market over a long time frame and over several episodes in the past, you will notice that on the bullish side the markets turn suddenly. Compared to that most tops are long drawn out process. Plus at most bottoms the logical explanation of economy and its future trends is most pessimistic. So the bearish argument always sound most tempting at all such stages. So current stance is cautious but ready to jump on to new up leg in market.

One of the very good thing about this weakness or any other weakness in market is, it leads to shuffling of the sector and stock themes and new themes and new stocks emerge from such correction phases and offer new opportunities. While some old leaders regain their rallies, most of the time you have new sectors which were not part of earlier rallies breaking out. As the correction plays itself out the sector trends will emerge. At this stage sectors like China, Aerospace, Alternative Energy, Medical Technology, Airlines and the likes are the ones showing bulk of breakouts in EP and 4% plus universe.

One trusted method which always works in such corrections is earnings breakouts. Earnings and earnings revisions are two things which always get the street excited. INOD and CSIQ are two examples of this from ysterday.

What I am reading currently

The market is a snooze fest, so time to catch up on some reading:

• Invest Like a Shark: How a Deaf Guy with No Job and Limited Capital Made a Fortune Investing in the Stock Market
• Monster Stocks: How They Set Up, Run Up, Top and Make You Money
• Hedge Hunters: Hedge Fund Masters on the Rewards, the Risk, and the Reckoning
• Hedge Fund Masters: How Top Hedge Fund Traders Set Goals, Overcome

Gisele Bündchen signals Dollar bottom

A tradable bottom in dollar might be near.

Beauty deals a beastly blow to the US dollar

The saga of the declining dollar has turned from a drama into a crisis.

We’ve got used to having Chinese officials hinting darkly that they might diversify their foreign exchange reserves out of the US currency, as they did again last week. We can even take it when Bill Gross, the world’s most influential bond investor, tells the public, as he did, also last week, that their investment strategy should consist of not buying anything that has a dollar sign attached to it.

But when Gisele Bündchen, the Brazilian supermodel, trashes your currency by insisting that she wants to be paid in euros, not dollars, it really hurts.

A dumb model indicator at work. When sentiments reach extreme a bounce is on hand. Short dumb models, long dollar.

The Little Book That Makes You Rich

The Little Book That Makes You Rich- A proven market beating formula for growth investing

Louis Navellier in his book gives a formula for beating the market using growth investing. There are many flavors of growth investing and this book presents one of the approach to selecting growth stocks for investing purpose.

At the heart of the Navellier system are eight variables he has found useful in selecting growth stocks. They are:

1. Earnings revisions
2. Earnings surprises
3. Sales Growth
4. Profit Margin Expansion
5. Free cash flow
6. Earnings Growth
7. Earnings Momentum
8. ROE

These factors are very similar to CANSLIM factors. Obviously he has added more nuances to it, but at the end it is similar to IBD approach. Growth and value form the two spectrum along which most strategies are based. The book leaves many details out and so you will have to rely on the accompanying website to replicate exactly the authors ranking.

Panic leads to rebound

After four days of selling and some panic the market rebounded. Invariably when panic sets in in the market, there is a rebound. Psychologically it is difficult trade for most traders to take that trade. But that is why it is such a high probability trade. The panic buy trade is best summarized in :


Henry Clews wrote in Twenty-Eight Years in Wall Street (1887):

But few gain sufficient experience in Wall Street to command success until they reach that period of life in which they have one foot in the grave. When this time comes, these old veterans of the Street usually spend long intervals of repose at their comfortable homes, and in times of panic, which recur sometimes oftener than once a year, these old fellows will be seen in Wall Street, hobbling down on their canes to their brokers’ offices.

Then they always buy good stocks to the extent of their bank balances, which they have been permitted to accumulate for just such an emergency. The panic usually rages until enough of these cash purchases of stock is made to afford a big “rake in.” When the panic has spent its force, these old fellows, who have been resting judiciously on their oars in expectation of the inevitable event, which usually returns with the regularity of the seasons, quickly realize, deposit their profits with their bankers, or the overplus thereof, after purchasing more real estate that is on the up grade, for permanent investment, and retire for another season to the quietude of their splendid homes and the bosoms of their happy families.

Such trades are for quick and nimble traders and one must quickly bank the profit on such trades.

Market is yet to show sign of stabilization. Early gains turned to sharp losses and selling accelerated. Many groups like fertilizers and solar energy joined sectors breaking down. Technology sector has taken big hit. We are yet to see full blown panic and sentiments are still not at extreme level. But a reflex bounce is a increasing possibility at this stage.

We are now entering stage where the good, bad and ugly are all being sold. Prudent strategy is always to sell much before correction starts or at first hint of impending correction. A few days delay can wipe out lot of profit and if you liquidate in panic, your losses are even greater.

Now I would be looking at a series of 300 plus day on positive side, reversal in stocks up 25% or more in month, and extreme readings of around 200 on stocks up 25% in 65 days to signal possible reversal. Besides that the IBD follow through day is what I would be looking at.

The next phase will have new set of stocks leading the rally. New sectors will take on leadership.

Panic should result in a bounce

I see a hint of panic after returning from holiday. The narrow set of stocks leading the rally are finally showing stress and in many cases breaking down. However such oversold conditions have the potential for a counter trend bounce. Under current circumstances capital preservation mode is preferred mode.

Once the volatility subsides many of the stocks in 100% plus universe will offer long opportunities. Most of the earnings breakouts have pulled back and once the market clouds lift, these stocks will bounce back.

Vacation

I am currently on vacation. Will be back next week

It is not the end of the world

Most market weaknesses have fast selling phases and slow selling phases. The fast selling phases are dangerous, but once market settles down in slow selling mode, you will see 100 or around that number 4% downside breakouts a day. In those phases the EP, Virgins and Double Trouble still work, but you have to scale down your profit targets and take quick profits. At this stage it is difficult to tell how the move will progress, but a reflex bounce is high probability.

When a market goes down a lot in a day, all the kind of systems discussed in the James Altucher book , Trade Like A hedge Fund , kick in and that invariably leads to bounces. Even though Niederhoffer has blown up again because of excessive risk taking, what he says in his two books The Education of a Speculators and Practical Speculation is very useful framework to keep in mind and is supported by years of statistics. Panicky moves always resolve to upside and markets have an inherent upward bias.

Most of the time such panics are not directly related to underline fundamentals but linked to some business blowing up, some hedge funds or group of funds blowing up, or systemic issues. Because bulk of market participants follow sound risk management strategies, in such situation the selling feeds on itself as more participants are forced to sell to manage risk. When that phase passes, we have roaring rallies like we witnessed in August/ September. Bearish phases in market tend to be of short duration.

Score one for bears

But this market will not go down without a fight. There are lot of leaders who had recent breakouts and they might dive back in to range but this story is not yet over.

To continue my last three years of practice of timing holidays with market weakness, I will be in Cancun on holiday for one week.

Don't fight the Fed

Don't fight the fed is a long standing market mantra and market participants were quick to push the buy button after the initial dip on interest rate decision. With 300 plus breakouts o upside, it was yet another good day. This time the market is starting to rally after the 50 plus readings having reached lower range. Which means many stocks in the scan are not overextended.

During this earning season the trend is firmly favoring large and mid cap plays. The small caps have not been good earnings plays so far. Large caps and large float stocks are doing well post earnings. Look at MSFT, it has followed through on earnings, which is very good sign for holders. Look at MA, SIMO, PSEM, SIRF, and IVGN, from yesterday, all broke out post earnings.