Every once in a while you like to look back and review your notes to locate where your research was right and where it was wrong. The simple technique of following stock market leaders and the NH-NL ratio nailed the period of time when the market transitioned from an up-trend to churning to the “Big Decline”. We nailed it here on this blog and every reader was prepared for the imminent decline. No one can dispute that. Readers of this blog were told to move to cash to preserve capital in late 2007 and early 2008. Now, I am not talking about day traders but longer term traders or investors that work full time and do what I do.
The chart highlights in red where I was making the sell posts (the articles are listed below):
Anyway, I have been posting twits about the strengthening of the NH-NL ratio which is starting to tell me that the newest trend change is beginning. Yes, this is my first major blog post saying that my screens (market tools) are telling me to wake up because things are starting to change. It’s not time to jump in with both feet and buy every stock that’s up on above average volume but it’s time to sharpen the skills and be ready. We may look back and point to March and April of 2009 as the bottom of the market or at least the start of the changing trend.
We don’t have market leaders yet but when they appear, I will locate them, post up charts and talk about them nightly on twitter (twitter.com/cperruna). Too many stocks still have their 50-d moving averages below their longer term 200-d moving averages and new highs are still limited. However, new lows have dried up considerably and the NH-NL ratio has a moving average that is trending higher for about a month now. That’s the most sustainable trend for this ratio since the big decline started.
Stay tuned to the blog and my twits for follow-ups to my research on individual stocks and the overall trend.
In the meantime, take a look back at the numerous blog articles I posted in 2007and 2008 talking about a market decline, shorting stocks and selling in general. Learn from what the simple tools were telling us. I am far from a market genius and far from rich but I can make a few dollars following the leaders and the NH-NL ratio.
A Review of Articles Pointing to a Stock Market Decline in early 2008:
- May 23, 2008: Smelling Trouble
The bottom line or point of today’s rant is the fact that I still feel that the market is headed for a decline or as I phrased it a couple weeks ago: The Big Decline (long term perspective of course).
- May 8, 2008: Market Distribution
I originally started to point out market troubles back on March 14, 2008 in a post titled Snapshot Friday; I highlighted both the Dow Jones and NASDAQ with clear yellow shaded areas showing the 200-day moving averages pointing down for the first time since 2003 (that’s huge if you ask me).
- May 7, 2008: The Big Decline
I am a positive person by nature and I prefer to buy stocks going up but I am starting to see several leading stocks struggle to hold new highs or fail to challenge recent highs. These patterns are familiar and they are suggesting that the recent bounce is the final stage before a possible market decline.
- January 23, 2008: Setups for Selling Stocks Short
I wrote an article on October 15, 2007 titled How to Make Money Selling Short, precisely when the general market indexes were topping. I am not going to take full credit but subconsciously my charts were giving me signals that the market was showing the major red flags and signals of what we are seeing today.
A Review of Articles Talking about Selling, Profit Taking and Market Distribution in late 2007:
- 10/03/07: Is Shanghai a Nasdaq Déjà vu
Well, the current two year rise of the Shanghai Stock Exchange Composite Index looks remarkably similar to the rise of the NASDAQ of the late 1990’s and the charts below explain better than I can!
- 10/04/07: A Technique for Profit Taking
What do you do in a market like today when you have profits in multiple positions but you don’t want to give it all back? You want to continue to ride the winners but at the same time, you want to maintain the unrealized gains in your account. HOW?
- 10/12/07: Distribution Day
This was the largest showing of volume in two months and is not healthy because it was pure distribution. It was only the second distribution day over the past month so we can’t call this a bear run but please be on the lookout for a possible correction of 5%-10%. Technology stocks led the decline as BIDU gave back 10% of its amazing run.
- 10/15/07: How to Make Money Selling Short
- 10/17/07: Inverse ETFs
Have you ever wanted to short the market because you knew it was going down but your were too overwhelmed, nervous or even scared because you were unsure of how to do it. Well, Inverse ETFs may be your thing.
These inverse ETF’s closed Wednesday with gains of 13.42%, 15.43%, 22.31% and 18.76% since I wrote about them.
- 10/18/07:The Real PTR Climax Run?
I was early in September by trying to locate a climax run in PTR in this post:
Petrochina (PTR) Climax Top? However, the HUGE volume on the latest push to new highs clearly indicates something is going on. - 10/20/07: Second Major Distribution Day
Technically speaking, we now have 4 distribution days for the NASDAQ and 3 for the DOW over the past month. It’s now time to start focusing big-time on the market leaders to see where they are going to take this market. If they start to roll over, you better be quick to take profits and even quicker to take losses.
- 11/01/07: CROX getting Swallowed
I wrote a post titled Will CROX get Eaten? on September 20, 2007 and strongly noted the declining institutional support (see numbers below). Someone was jumping out of the stock and we now know why!
- 11/08/07: Market Corrections, Bears and the Big Picture
Keep in mind that nearly 75% of all stocks follow the general market trend. Your cash doesn’t need to be committed to the market at all times. This philosophy is suited to making the most money in bull markets or markets trending higher.
- 12/11/07: When to Sell
Why do so few books exist on the subject of “How to Sell”? Selling techniques are far more complicated than buying techniques and subject to considerably more emotional pressure, than those of buying.
Hey Chris, great stuff as always & thanks for your insight. I know that you’ve provided the necessary cautionary note with this preface, but I wanted to get your take on the obvious declining volume on this run-up. Such a thing is only natural, as massive buying can only go on for so long, so it means it’s due for a pullback.
Although volume as a whole has been larger than average over the past few months, the decline still sticks out to me. What level would you need to see breached to the upside on the technicals to improve your semibullish stance for the longer term… 8500? 9000? It seems to me as if a lot of selling will occur there. At any rate, just thought I’d drop a comment as I don’t think I ever have before. I’m Jay by the way, and marketfolly.com is where I blog about tracking hedge fund portfolios among other things. Thanks again for your work.
Jay