Archive for September, 2008|Monthly archive page

Play it safe, don't mess with this market

Forget about the Follow Through Day (FTD) from last week.

Just as it looked like institutional players were leaning toward gathering a net-long bias, Congress had to fall short of passing the bailout package for banks.

Odds are most of those voting against the package are too lost to even explain what it means or how banks got into trouble in the first place. All they know is that voters back home won’t take kindly to them helping out a bunch of “rich guy” Wall Streeters.

But back to what we do here at The Growth Stock Report: We’re going to play it safe and not mess with this market until we can discern an edge.

Down is the path of least resistance. But any passing of the bailout plan, or other Fed intervention, could easily change that.

Stay tunes.

Advertisements

Placing some faith in the market

The market is likely in for some rough trading this week as the bailout package from Congress tests waters with its planned signing.

Media pundits are saying Treasury Secretary Paulson‘s plan could either fix or make the financial crisis worse. Only time will answer.

Follow Through Days (FTDs) on the Dow 30 and S&P 500 are indicating institutional buyers are placing some faith in the market. The Nasdaq and Russell 2K‘s inability to do the same will either prove them as leaders or laggers to what ultimately develops as a trend.

We’re not in the business of making predictions about the stock market. Some people don’t understand that.

We simply take orders from the market. When it’s made clear institutions are buying and Leadership from industry groups emerge, we know it’s time to look for opportunities on the long side.

Conversely, when heavy selling is en vogue, we’re sure not to test the direction the market’s dominant players have set forth.

We take heavy selling in Cyclicals last week as a sign that traditional growth drivers of the economy may not be well bid for the fourth quarter.

On the other side of that was heavy buying in Drugs, a traditionally safer industry in economic downturns. Biotechnology has been holding its relative strength against the broader market, this may be a precursor to opportunities should we rally this fall.

And wouldn’t you know, Homebuilders also finished the week with a gain. The bigger picture for the industry remains negative. But even the Bull get’s a run in beaten down markets sometimes.

Follow Through

The market got a vote of confidence Thursday as heavy buying supported an almost 2% upside move on the S&P 500.

The move counts as a legitimate Follow Through Day (FTD.) While we recognize market players may have been holding off until the Fed’s bailout plan was passed, it still qualifies as an indication that institutions are willing to step up to support the market.

All market bottoms have had an FTD, but not all FTDs lead to rallies.

Next sign we’re looking for is Leadership. Any durable rally should have leadership. Without it we’ll consider any advance suspect.

Shut Jim Cramer Out

Lots of interesting chatter over the health of the market. But only the market will decide who’s right and wrong.

Our strategy is one of patience. We don’t pounce until we know things are stacked in our favor.

We’re going to consider Thursday’s low as a potential bottom, thus we’re looking for a Follow Through Day (FTD) to happen beginning Wednesday.

An FTD occurs between four and 11 days of potential market low, with one of the major indexes up at least 1.2% on volume greater than the previous day’s. This is a sign on institutional support for the Long side of the market.

Waiting four days gives shorts time to cover before we can discern real institutional buying. And in this environment it saves us from the incredible turbulence we’re having.

While pundits like Jim Cramer may have uncanny insight into business, predicting what will happen with price-action day to day is a losers game. Ignore people like that claiming the market will resume its nosedive.

The longer-term picture for the stock market may very well be bearish. But we play the intermediate-term, and look at trading environments as simply good or bad.

This means the macro-economics at hand mean little to us because the market doesn’t really care about them. How many times have you seen markets rally despite all the negative hype? Markets habitually screw popular sentiment. So do we.

Our risk-averse method has saved us from a lot of pain last week.

If we don’t get a FTD, it tells us the bear is on course.

But we’ll let the market tell us what to do, not Jim Cramer.

Whipsaw…

The S&P 500 has posted two accumulation days this week. That’s right, heavy buying amidst all the panic!

Thursday’s high-volume turn around is characteristic of a bottom (whether that be for the long or short term.)

It may seem crazy to be looking for a potential bottom amidst all the chaos, but that’s exactly what markets are known to do.

As intermediate-term Growth Stock buyers we’ll look for a Follow Through Day (FTD) beginning Wednesday next week.

FTD’s occur when one or more of the major indexes rallies more than 1.2% on volume greater than the previous day’s.

No FTD means the Bear Market is alive and well. It’s all about wait and see…

Reflex or Nose Dive?

Monday’s honking distribution day with the S&P 500 down nearly 60 points is just the beginning of more downside – or the end of it.

We’re inclined to believe the market is in a longer-term bear market. But that doesn’t mean we can’t have a reflex rally here. Especially because were looking at a potential double-bottom chart, which is usually attempted – if anything – when the level comes into play.

This will be a very interesting week for sure. Stay tuned.

Bulls Running For Cover

Heavy selling sends the Bulls running for cover.

September is historically a bad month for the markets.

We’ve changed our bias to bearish.

We also expect volatility to pick up.

The majority of sectors are trading well below their 40-week moving averages, which is putting pressure on areas of the market still above this key trend mark.

November’s election will also add to volatility, creating an edgy environment for investors.

Chances of new lows to be hit have gone up, creating an opportunity for short sellers nimble and aggressive enough to stomach the risky trade.

But smart money is on the sidelines waiting for an outcome to the battle likely to ensue this month.

If you like gambling, now is the time to test your luck in the market.

If you like putting the odds in your favor, you’ll wait for conditions to stack up one way or another.

Bears' Unloading Sets Tone

Two days of distribution lead-off the S&P 500 for September, which is traditionally one of the market’s weakest months..

We’ll hoist the Red Flag sellers’ bias once the 50-day MA is broken with a close below this mark.

We expect to see volatility ramp-up in the coming weeks as market players battle it out for control of direction.

Gurus…

This always kills us. The so called gurus of the media who make a living writing about what we should be investing in can’t even hit better than even as a group…