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A few days ago I asked you what stock you would want to buy at rock bottom prices were you able to buy it at the absolute bottom with no fear of further declines. While I didn’t get as much participation as I would have liked for the sample size, one interesting conclusion came about regarding my readers sector of choice. Over 90% of the picks were in the commodity sector which has suffered some of the biggest declines as of late. While I do think this sector will have it’s day in the sun I think it’s important to wait for the entire sector to give the all lights go signal before getting in.

You never can be too prepared, so in the event that we do have another crash waiting in the wings and I was looking to scoop up some bargains, I’d start in the following stocks. Now I’m not turning into an investor, but if we do get a once in a lifetime opportunity to pick up bargains, then I want to designate a portion of my portfolio in longer term assets. The problem is for me to see value I feel it’s about 2000 points below where were at now, possibly more. I still can’t shake this feeling that we have a 20% down intraday decline in the works to scare the bejesus out of everybody.

MCD MO KO CAT K PG DE MMM ADM CL COST JNJ GIS

Canadian Companies: LULU THI ROG

Anybody have any other suggestions?

The idea is to buy safe “Buffet” type stock in companies whose business models are sound. I’d like to add AAPL and GOOG to the list, but that would be more of a judgement call at that time.

It’s tough to make money during bear markets, everybody knows that. But it shouldn’t be anymore difficult to make money in a down trending market as it is in an up-trending market. A trend is a trend and as long as your a trader with the ability to short, it really shouldn’t matter which way the market is moving, correct? If the markets were up 400 points today, everybody would be happy and the media would be telling you this market is ready to rebound. I think there’s a number or reasons why it can be challenging to profit from declining markets and here are a few. Feel free to add your 10 cents as to why you’ve personally had difficulty this year trading this bear and maybe we can learn something that will help us all be more profitable traders.

1. The media. They simply don’t like it when stocks go down. They blame the short sellers as if they have something to do with the fact the entire market is collapsing. Even the government got involved in this blame game when they banned shorting in certain issues this fall, pressing the idea that profiting from declining stock prices is wrong. This is all complete garbage as shorting provides a function in the capital markets. Most of the general public and some investors don’t even realize that you can make money when the markets go down. If you don’t know how to short then I recommend learning real fast because selling the rallies have been the only way to make money this year.
2. The notion that markets have to go up. Let me explain what I mean exactly. Most people tend to believe that equity markets have to rise because that’s what they’ve been told, and so far history has been good to the majority of them. It almost seems unnatural when the markets move lower, and a good bit of the move down everybody is sitting around waiting for the markets to resume it’s uptrend. Take the chart above as an example of what I mean. As a trader I should have made a killing this year, yet I didn’t and I think I know why. The trend is obviously down, there’s absolutely no question about it yet I didn’t follow through with holding on to the short positions that I had many months ago. Was it because I really felt like the markets would bounce and take my profits? Maybe I got to short sighted with these massive snap back rallies and didn’t focus on the big picture which is down. I hear time and time again, traders saying how difficult this market is, including myself, but maybe we’re just making it more difficult on ourselves. I don’t have all the answers, as I’m just thinking out loud here.
3. Fear looks and tastes different than greed. I’ve have tried to use the same strategy that makes money in bull markets and tried to reverse it when the markets are dropping and the results aren’t the same. Same indicators, same chart patterns, same discipline = different results. The only thing I can come up with is when markets are moving higher “greed” is the one driving the car. People act differently when they have a profit and they’re pressing their luck for me and the charts reflect mass psychology, therefore the charts will act different than when somebody else is at the helm. Stocks fall twice as fast as they rise so it’s important to be quick on the draw when you turn bearish, but the emotion that causes investors to act differently when they’re losing money is “fear”. Therefore you have to devise a game plan that accounts for the change in mental behaviour if you want to profit from it.
4. Government Intervention. Part of my fear of holding shorts was it seemed like every day last month the government was sticking their nose where it doesn’t belong, giving the markets false reason to rally. They need to let the free markets be free and let the chips fall where they may. It may be more painful in the short term but I think that this bear market would have stood a chance of ending sooner than it appears it’s going to. The majority of this volatility is caused from the markets inability to price in all this unprecedented money printing and intervention by our government.

41% to 59% with more coming in on downside volume which I find peculiar as the Dow was up 150 points. Yes the Nasdaq was basically unchanged, but volume was heavier on this move up which to me indicates some accumulation. This may not necessarily be the case.

The RSI (Relative Strength Indicator) is one of my favorite indicators to use when reading charts. There’s really so many ways you can you it such as looking for divergence, oversold/overbought readings, and watching for breaks in RSI trendlines. Every scan and strategy I utilize uses this indicator no matter what timeframe I choose to use.

Below you can see the trendline in the RSI on the major averages and how it’s bumping right up against the upper trendline while the price chart is hovering near the lower trendline. This is really a question of which came first. Is the RSI indicating underlying strength in the charts or is the price chart an indication of major weakness. Unfortunately you really have to wait and see how the RSI reacts when it hits that upper trendline to see if it can breakthrough it which would pull the indexes most likely up to at least their upper trendlines. However if the RSI is rejected I would look for the markets to suffer another serious correction as it seems like we’ve been flirting with all week.

While I’m not getting to excited about buying any stocks long at this time, it’s always good to have a watchlist ready should the market surprise everyone and go bullish on us. here is the latest breakout I found on my scans. It’s a low volume stock at about 100k/day, but today was a step in the right direction at nearly a million shares traded. I’ll get interested in this when I see volume begin pouring into this stock, but for those of you with lesser volume requirements this may interest you.

On a side not, EBS which I profiled on Novermber 8th had nearly a 10% move today. This is another stockto track so when the next Bull market comes you’re ready.

Great Depression 2 will hit by 2011

The above article is on Marketwatch and the way I see it, the next Depression must be a done deal if they can find not 1, not 5, but 30 reasons that we might as well stick a fork in our economy. Where exactly where these journalists when the Dow was over 14k?

Citi to Cut 53,000 Jobs, Boosting Total to 20%

Another story that really bothered me today was the Citigroup piece regarding the 53,000 employee reduction within their company. At what point do the big executives wake up and say, “Hey, I think we need to cut 50,000 jobs because we don’t need them anymore.” Don’t they have a department designed to keep a balance between work and employees? This scene from Office Space is what I picture went on inside the company when they were trying to figure out who to cut?

There has got to be a lesson in this video about the effects of lemming investing, but I’m just clear what it is. Maybe it has to do with the media and how people blindly follow what CNBC says to do. This video would strongly make a case for such behaviour. That’s why I never watch anything when I’m trading because I don’t want to be influenced on any level, conscious or subconscious.

I just can’t fathom that people can be this stupid to conform to peer pressure, when the correct answer is so obvious. Maybe the first person is a plant, designed to say the wrong answer. If that’s not the case who’s more dumb, the first subject for giving the wrong answer, or the others for blindly following him?

Link to article here.

JP Morgan examined more than a century of bear markets to look for recovery patterns and came up with a few interesting observations. It found that market bottoms are almost always retested, and that such retests result in a new low about 40 percent of the time.

Looking over a few indicators today and I’m wondering where all the bearish Put buyers are. Normally when the markets are declining people hedge their positions or are scared into buying Put options because they expect further losses. I’m not seeing much in the way of real fear from the Put/Call ratio or Equities Put/Call ratio yet, at least not the type of fear associated with any meaningful bottom, or even a tradable bottom.

I’d say the complacency is more prevalent in the $CPC as we’re well off the high levels of Sept/Oct. The VIX looks like it wants to retest it’s old highs. I’m firmly back in the bear camp after today’s close. If the market was going to follow through with last Thursday’s rally, it should have done so already. Let’s just say I was officially tricked by the market into thinking we were going to move higher on the shorter time-frame, and it was an expensive lesson.