Market Comments

I have been quiet for a while. In a market correction no CANSLIM long buying were contemplated. Anecdotal evidence points to the last top being a major market top and possibly we have an intermediate correction to a full bear market ahead.

My rationale is that:
1) Many leading stocks entered late stage base structures, 3rd, 4th and later stage bases. A base stage is a legal 7-week or longer consolidation. The next later stage base is a legal length base that rises at least 20% above the prior base. This occurs several times in the run up of a stock and stocks seldom rise far above 4th or later stage bases. So this observation is that the leadership had little gas left in the tank. We can get rotation sometimes but usually when the major big leaders run out of gas the market run up is finished or on its last legs.

2) Volatility tends to rise near major market tops. And this has been occuring since the end of December. Volatility here is not the VIX. My definition of volatility is to measure the 14-day average true range measured as a percent of index close prices. When a bear market bottoms this measure is usually quite high and begins a long-term decline that lasts for the entire bull market run, including interim market corrections. The ATR% makes lower lows and lower highs or just bumps along the bottom. When ATR% begins to stair-step upward making higer lows and higher highs the bull market is nearing an end state. This condition began last December and I have been believing that a major market top was building. Volatility of another sort has been obvious. The normal market indicatons of market in confirmed rally, market under pressure, market in correction has been rapidly oscillating since the beginning of the year. The IBD market calls became unstable chasing volatile market conditions.

There are only three long positions that I would contemplate in the intermediate term: Gold, Silver, Natural Gas. These are not CANSLIM types of plays but more representative of what is going on in the economy and that Natural Gas has become extremely undervalued compared to any other energy product. I happen to believe that Natural Gas do to its abundance is going to take a major role in the future energy market. It is the cleanest burning fossil fuel, and it is already piped to 50% of the households in America. Natural gas can be liquified and turned into diesel and jet fuel according to a newly developed process. In a world where the dollar will be continually pummeled only products that are made of stuff (hard assets) will maintain value. Thus my long term bias toward gold, silver and NG.

I remained in cash during the 8.5% drawdown of the NASDAQ. 8.5% is significant. Something like 75% of all corrections are contained by 8% pull back. The statistics of corrections that break the 8% boundary worsens. It usually means that we are going to get at least an intermediate term 12-15% correction and maybe much worse.

If we had had a meaningful bounce I would have engaged in some short selling. We didn't get it. We could next week.

Mike--

Thank you for the keen perspective. Well supported with systematic analysis, I can use it as I consider the market from many angles, both analytical and technical, this weekend.

With many thanks,

[QUOTE=mscott;13364] My definition of volatility is to measure the 14-day average true range measured as a percent of index close prices. When a bear market bottoms this measure is usually quite high and begins a long-term decline that lasts for the entire bull market run, including interim market corrections. The ATR% makes lower lows and lower highs or just bumps along the bottom. When ATR% begins to stair-step upward making higer lows and higher highs the bull market is nearing an end state. This condition began last December and I have been believing that a major market top was building. Volatility of another sort has been obvious. [/QUOTE]

Mike,

I follow ATR(14) with Stockcharts on the market(s) that I follow. Stockcharts does not provide historical data for this indicator. I find your idea of ATR(14) / Market index quite fascinating. I never though of that but it sure makes sense when you think of it...!

-1- I wonder if you have a chart of this indicator as it stands now so that I can follow you analysis more easily.
-2- Are you or other readers aware of a free source of data for ATR(14) for any market index of our choice?

Yours is a great idea...!

[QUOTE=Pierre Brodeur;13389]Mike,

I follow ATR(14) with Stockcharts on the market(s) that I follow. Stockcharts does not provide historical data for this indicator. I find your idea of ATR(14) / Market index quite fascinating. I never though of that but it sure makes sense when you think of it...!

-1- I wonder if you have a chart of this indicator as it stands now so that I can follow you analysis more easily.
-2- Are you or other readers aware of a free source of data for ATR(14) for any market index of our choice?

Yours is a great idea...![/QUOTE]

The %ATR14 indicator is trivial. Drop a note to freestockcharts.com and see if they will supply it. I know of someone who requested an indicator recently and it showed up very quickly.

Freestockcharts.com does have ATR14 available now for any symbol of choice.