Now before you start saying: “But Joe, you recently put out a blog post talking about why you continue to sit out,” keep one thing in mind…MY OPINION OF THE MARKET CHANGES FREQUENTLY. Why? Because the market is extremely dynamic and can change its character very quickly. You have to be open-minded and flexible. Being stubborn and sticking to an opinion gets you nowhere, especially when the market is proving you wrong. That is why I run screens and go through approximately 1,000 stocks every night. It’s the only true way I know how to evaluate the market’s overall health. When I find an abundance of setups, I feel more positive about the market. When the ideas dry up, I become more defensive.

Last week, I started to find a few decent setups. The end result: I took profits on some stocks ($V $MA $CMG $HANS) and got stopped out of a few others ($BIDU $ACTG $WYNN). I took quick profits because I don’t trust the market yet, and I took small losses because my number one rule is to protect my portfolio. The bottom line: I made very little progress, further telling me the market is not ready to start a SUSTAINABLE uptrend yet.

I realize that many big caps are holding up well ($AAPL $AMZN $GMCR $PCLN), however, as we start to bottom, I would prefer to see leadership broaden out. Currently, it seems very narrow to me. In other words, everyone’s watching the same 5-10 stocks! Historically, that does not bode well for the market.

Wednesday morning (9/21/11), I returned to a 100% cash position when my trading instincts told me to be defensive. As a result, I dodged the subsequent decline on Wednesday afternoon. Going forward, I feel the market needs more time to correct before we will see a sustainable advance. My advice is to remain cautious and keep positions light if you trade. An even better suggestion is to simply sit out, as traders tend to get “chopped up” during these volatile times.

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1) I am finding very few quality setups. Many of the stocks I got stopped out of recently have traded lower, and most of the stocks on my watch list have failed to breakout…all these observations make me cautious for now.

2) When I tweeted these thoughts earlier, many people responded: “You’re in the wrong stocks.” I realize that a few stocks such as $AAPL $GOOG $BIDU $PCLN $LULU $AMZN $GMCR are acting well, but the leadership seems to be narrowing.

3) The narrow leadership reminds me of Sept/Oct 2007 when the market was being driven higher by 3 stocks: $AAPL $GOOG and $RIMM. I’m not saying that we are topping here, but I would prefer to see more “broad-based” participation. In addition, most of the big cap stocks mentioned above are getting “later-stage” in their moves and are extended from proper buy points. Keep in mind that I look for the best “low-risk, quality setups” that I can find.

4) The debt ceiling issue is not a factor in my stock trading. Why? Because after it’s done, the media will find something else to scare us. Remember Egypt, Greece, Libya, the earthquake in Japan, all the nuclear waste that was headed our way, Italy, Greece again, etc. That’s why I pay attention to the price action of stocks and ignore the news.

5) I always keep an open mind and realize that my analysis can be wrong. Therefore, I constantly maintain a watch list of quality stocks. If they begin to act better, I will be ready to pounce on the long side. For now, I remain in 100% cash. If I’m wrong, I’m not worried because I can always get back in.

I suggest being a little defensive and trading lighter-than-normal positions until conditions improve. Keep in mind that I trade with an EXTREMELY defensive posture and I use tighter stops than most traders. I live by the Paul Tudor Jones quote: “Play great defense, not great offense.” Although the major averages are holding up well, my trading instincts are telling me to be defensive for now.

$AAPL $AMZN $BIDU $DIA $GMCR $GOOG $IWM $LULU $PCLN $QQQ $RIMM $SPY

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This example applies to today’s stock market. Many people are expecting this rally to end any day now, but I wouldn’t be surprised to see the market “fool the majority” and continue higher over the next 3-6 months (with corrections along the way, of course). I’m not only basing this on psychology, but also on the strong market internals. I continue to observe a large number of stocks that are acting well. Specifically, stocks breaking out on strong volume and consolidating on lighter volume.

What amazes me is vast number of sectors represented by these stocks. Examples include: Semiconductors $CREE $AIXG $VECO, Restaurants $CMG $PNRA, Retail $LULU $DECK $SHOO, Machinery $DE $CMI $BUCY, China $BIDU $CTRP, Big Caps $AAPL $PCLN $AMZN, Biotech $DNDN $HGSI $JAZZ, Natural Gas $CLNE $WPRT. The scary thing is that I could keep giving more examples.

Bottom line: I still see healthy signs overall and I continue to recommend being invested in this market. Don’t forget to take profits on the way up keep and, as always, look to cut losses on your weakest performing stocks.

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1) Stocks are acting very strong technically. Over the past 3-4 weeks, I have suggested to slowly scale into this market. The majority of stocks that I recommended have worked out well and they are now either barely correcting or they are pulling back orderly on light volume. Examples include $GMCR $ISRG $NETL $LULU $IPXL $NFLX $CLNE $ATHR $CAGC $BCSI.

2) The major indexes continue to climb on strong volume and consolidate on light volume, a positive sign in my view.

3) The big institutions continue to put money to work. If you are a large mutual fund or hedge fund, your universe of growth stocks is limited. In other words, you have to buy Big Cap stocks with liquidity. Even if you do not trade these names, it is worth observing them to see what the big boys are doing. The price action in $AAPL $ISRG $GOOG $BIDU $AMZN $PCLN $V $GS is very constructive. The majority of these stocks are breaking out or building new bases to possibly break out over the next 4-8 weeks.

4) The stocks that continue to show up on my fundamental and technical screens cover a wide range of sectors showing me that this recent rally is broad based. Examples include: Tech, Retail, Energy, Semis, Restaurants, etc.

5) Everyone seems to fall into one of two categories. They either hate this rally or they are a cautious bull. I would consider myself the latter. My point is that VERY FEW people are in the crazy bull camp and feel this market has any legs left in it. Keep in mind: “The markets tend to fool the majority.”

A word of caution: I realize the markets have had a nice run over the past few weeks. I am not saying to jump in right now if you are not invested because we could see a pullback. If you did get in recently, hopefully you have decent entry points on your stocks and you have “room” to let your winners ride. If you did not get in, don’t chase extended stocks but rather look to buy them on pullbacks to logical support areas. Overall, I remain positive on this market because of the strong signs listed above.

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1) Big Caps: I have said all along “watch the action of the Big Caps.” Why? Because the large institutions traffic in this area and watching these stocks usually shows us what they are doing. Last week $GOOG rose on strong volume and $AAPL $ISRG $PCLN $AMZN $BIDU all pulled back on light volume, a sign that the large funds are not selling their shares yet.

2) $AAPL: After reviewing RIMM’s earnings Thursday night, I don’t see how Apple doesn’t obliterate their upcoming quarter’s earnings. In their last conference call, Apple said they “couldn’t keep up with demand.” In this economy, there are FEW companies who can say that. I think you can trade Apple as a “buy the rumor, sell the news” play. In other words, buy it here at $195 (it should have support in the 186-188 range) and sell it into a potential run to $220 by its earnings in late January.

3) The Dollar rally is over! There is INSANE speculation in the $UUP 23 calls for Dec, Jan and Mar. There’s a reason why the specialists closed it Friday RIGHT ON $23! If you don’t understand this, don’t worry about it. All you need to know is that the market tends to fool the majority. In other words, when the entire world speculates the same way, it almost never happens. I don’t expect the UUP to close above $23 anytime soon. Therefore: Dollar Decline = Stock Market Rally.

4) $CML: Compellent Technologies. Strong technical Daily and Weekly chart, hot sector, 16 quarters of revenue growth…sounds “compelling” to me! The entire Storage sector is strong ($STX $WDC $CAVM). You can buy CML here at 22.50, it should have support in the 20-21 range. I’m expecting the stock to be up 30-50% in the next 12 months.

5) Internet Security: This entire group acted very well this past week. Stocks to watch include: $RAX $ARST $BCSI $FIRE $FTNT (recent IPO).

6) India: Many Indian-related stocks showed great relative strength this week. Ideas include: $WIT $RDY $CTSH $INFY $TTM.

7) China Water/Infrastructure stocks: $RINO $TRIT $HEAT. China plans to more than double its spending on environmental protection in the five years from 2011-2015. They plan to invest $454 billion during this period, compared with the $205 billion allocated for the five years between 2006-2010. I expect this increase in spending to benefit these stocks and I look for continued announcements of government contracts to help their strong earnings and sales growth.

8) Miscellaneous ideas: $HGSI (continues to trade in a very tight range, a sign that institutions are not selling shares) $LULU (46% of its float is short) $SWM (strong chart, added to Goldman’s Conviction Buy List recently).

9) One final note, if I am dead wrong about my call for a market rally, it doesn’t bother me at all. Why? Because I trade with stops and I don’t have an ego when it comes to trading. Remember two VERY IMPORTANT trading rules: “Always cut your losses,” and “Separate your ego from your trading.” The market doesn’t care if you have to provide food for your family or if you have 10 kids to put through college. In other words: respect the market, take what it gives you, and ALWAYS protect your portfolio!

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Although the NASDAQ Composite’s volume was higher on Thursday, the S&P 500 and NYSE Composite volume was significantly below average. This is troublesome because it shows a lack of conviction from the big institutions. More importantly, I am finding very few quality stocks breaking out of sound technical bases. There are definitely some trading opportunties, but they seem few and far between right now.

One positive about Thursday’s market was the action of the Big Cap stocks. $PCLN $AMZN $ISRG and $GOOG all performed well, but unfortunately, they rose on weak volume. My gut feeling is the action in these stocks “masked” some overall weakness in the market on Thursday.

Again, my best advice is to remain cautious and wait patiently for better opportunities. I realize that the market has been resilient lately, however, I would rather see more stocks “setting up” and better upside volume. If you decide to trade, keep positions light and always maintain a loss-cutting policy in case your positions turn against you.

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Although I was a bit cautious last week, I’ve said all summer that the NASDAQ Composite is headed to 2400 with sharp, nasty corrections along the way. Don’t get me wrong, I reduce my equity exposure when we have these pullbacks in case the market doesn’t rally back. However, when the NASDAQ bounces nicely off its 50-day moving average and I see stocks like $BIDU $AAPL $FIRE $CDE and $CERN breaking out on strong volume, it’s hard not to feel positive about the market.

Another thing I observed last week was the strong action of Big Cap stocks such as $BIDU $GOOG $GS $AAPL $PCLN and $AMZN. My feeling is that many large institutions are significantly under-performing the major indexes. Since their universe of growth stocks is limited, they have no choice but to “plow into” these stocks when they are “chasing” performance. Combine that with the abundance of liquidity, a Fed that will NOT raise interest rates this year, and zero inflation and you have a recipe for higher prices into the end of the year.

Here are some trading ideas:

Big Caps: $AAPL $BIDU $PCLN $AMZN $GS $GOOG $ISRG. When I highlighted $BIDU last week at $382, I got a reply telling me how “crazy” I was to recommend such an expensive stock. $BIDU finished the week at $427 highlighted by a Citigroup analyst who raised his target to $480. I like being the crazy guy whose stocks go up $45 points in 4 days!!!

Gold stocks: $CDE $IAG $GOLD $AEM and $GLD (the gold ETF). These stocks continue to go up on strong volume and correct on lighter volume, a positive sign. According to Marketwatch.com: “The Hulbert Gold Newsletter Sentiment Index (HGNSI) which reflects the average recommended gold market exposure was unchanged recently at 25.2%. This is important because the HGNSI is nowhere close its record high of 90% and…the HGNSI saw peaks of 64.3% and 60.9% at gold’s highs earlier this year.” (click for article) As I mentioned two weeks ago, Gold could quickly surge to $1,100-$1,200 since many seem to be “doubting” or even ignoring the move. If we do see higher prices, the gold stocks mentioned above should benefit.

China stocks: $EJ $HMIN $CTRP $PWRD $KONG $UTA $DGW $WATG

Internet Security: $BCSI $FIRE $ARST $RAX $SWI. This entire group is strong and worth watching.

Biotech: $DNDN $HGSI

Miscellaneous ideas: $GMCR $GFA $QSII $NEU $PALM $HITK

All of the stocks mentioned above have decent support around their 20-day moving averages. Please keep in mind that the purpose of this blog is to help people with idea generation. If you trade some of these stocks, PLEASE, PLEASE, PLEASE use stops. In other words, if some of these stocks turn against you and the market doesn’t cooperate…protect your portfolio! Thank you. Good luck trading!

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The result was a healthy volume accumulation day on Tuesday that saw many leaders breaking out. I especially like the strong volume in the Big Cap growth names: $AAPL $BIDU $AMZN $GS $GOOG $PCLN. These are all institutional quality stocks, which shows me that the big funds are putting money to work. Remember two things: 1) many funds are chasing performance and 2) their universe of growth stocks is limited; so if they have to plow into names, these are prime suspects.

Here are some trading ideas (followed by a bunch of quick notes, so please excuse the grammar):

$BIDU – Weekly chart looks amazing. Great support around 368-370. A big institutional stock. Jesse Livermore used to love trading stocks breaking through round numbers such as 50, 100, 200, etc. because “a fast and straight movement almost invariably occurred after such points were passed.” Therefore, watch for $BIDU to break 400 and possibly take out its all-time high of 429 soon.

$AAPL – Held up extremely well during last week’s decline. With the holiday season coming up and possible announcements that the iPhone will be available on Verizon, T-Mobile or China Telecom’s networks, I am expecting more upside from now until year-end. A “must own” stock for big institutions. Support around 178-180.

$GMCR – Acting phenomenal technically. Great earnings and sales growth. Their traditionally conservative management guided higher last quarter so I am expecting a solid upcoming quarter. Strong support around 65-66. Approx. 32% of the float is short. Shorts will get punished, expecting new highs soon.

China stocks – $PWRD (support in the 44-45 area, one of my favorite China plays) $EJ (great weekly chart, huge support at 20, short interest tripled in the past month -click here for data- looking for further upside soon) $HMIN (huge earnings growth last quarter, I mentioned yesterday that I was looking for a break above 30.40, we got that today on strong volume, could see 35 soon) $DGW (thinly traded, cup w/handle formation with a great shakeout in the handle 3 days ago, support at 33, could breakout soon) $KONG (acting strong, great Weekly chart) $CTRP & $UTA (China online-travel ideas) $NTES (waiting for more volume strength, not buyable yet).

Gold – I read over the weekend how every time gold dips below $1,000/ounce, people seem to forget about it (a very true statement because I’m also guilty). My feeling is that gold might surprise everyone and breakout to $1100-$1200 when no one’s expecting it. Stocks to watch include $CDE $IAG $GOLD $AEM and $GLD (the gold ETF).

Biotech – $DNDN (very strong support in the 24-25 area, major institutional accumulation recently) $HGSI (bouncing nicely off the first test of its 10-week moving average).

Internet Security stocks watch list – $BCSI $FIRE $ARST $RAX $SWI

Miscellaneous ideas – $SXCI (support around 44, major acceleration in earnings the past 4 quarters) $ININ (support near 18, looking for a breakout above 20.5) $GFA (major increase in earnings expected next year, strong technical chart with support near 28) $WFMI (support near 28, highly shorted) $ISRG (support around 240).

Please keep in mind that the purpose of this blog is to help people with idea generation. If you trade some of these stocks, PLEASE, PLEASE, PLEASE use stops. In other words, if some of these stocks turn against you and the market doesn’t cooperate…protect your portfolio! Thank you. Good luck trading!

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Although the NASDAQ Composite experienced heavier volume today, I don’t consider it a “distribution day” because the market showed incredible resilience and rallied back to nearly even. More importantly, plenty of stocks held up well and were actually positive when the Dow was down over 100 this morning. I also like how the NASDAQ found great support on its 20-day moving average (near 2090).

Here are some stock ideas and quick notes:

1) $GMCR – I mentioned this stock as a potential breakout candidate in my Market Notes (9/27/09). On Monday we saw a nice move from 69-75 on strong volume. I tweeted on Tuesday that the stock could pullback to retest its breakout area of 70-72. I like how it pulled back on Tuesday and Wednesday on lighter and lighter volume, and found support today right around 72. Look for a breakout above 75 soon as I am expecting more upside in the next day or two. The stock’s high short interest could fuel this upside.

2) China ideas – $BIDU is nicely consolidating it’s up move from the week of 9/13/09. I believe it will run to 420-440 soon. $PWRD and $NTES broke out on strong volume on 9/23, pulled back to retest their breakout areas on light volume and are setting up to go higher. I like $PWRD better because it has a higher Relative Strength rating and stronger earnings growth. $HMIN is looking strong and I reported huge earnings growth last quarter. $EJ is building a great base on a Weekly chart and has great support near 20, which is near its 10-week and 50-day moving average. The short interest in $EJ has tripled over the last month (click to view) probably because people expect China to tighten its lending practices soon, but I think rates will continue to be accommodative worldwide and the shorts will get punished.

3) Gold – Many gold stocks broke out on strong volume in early September and pulled back recently on light volume. You will notice this in the charts of $CDE $IAG $GOLD $AEM and $GLD (the Gold ETF). According to Marketwatch.com: “The Hulbert Gold Newsletter Sentiment Index (HGNSI) which reflects the average recommended gold market exposure was unchanged recently at 25.2%. This is important because the HGNSI is nowhere close its record high of 90% and…the HGNSI saw peaks of 64.3% and 60.9% at gold’s highs earlier this year.” (click for article)
Gold has made several attempts to break $1,000/ounce over the last two years. Its recent surge might be sustainable this time since the majority seems to be doubting or even ignoring the move. If we do see higher prices, the gold stocks mentioned above should benefit.

4) Big Caps – $AAPL $GS $PCLN $AMZN $GOOG $BIDU. I mentioned over the weekend how most of these stocks found support last week near their 10 and 20-day averages, a positive sign. I tweeted this morning how $AMZN was holding up well (up +0.20) while the Dow was down –130 and was worth buying if we rallied back on the day. It finished up +1.64. Great example of why (as a trader) watching intra-day relative strength is important.

5) Miscellaneous watch list – Internet Security – My 2 favorite ideas are $ARST (support at 21-22) and $FIRE (support at 20). Biotech – $DNDN (support 24-25) $HGSI (support 17-18) and $MNKD (support at 8-9, the company’s founder Alfred Mann has a history of building successful Biotech companies and selling them). $HITK $PEGA $SXCI (these companies all have very strong earnings and sales growth numbers). $WFMI and $ISRG (also on my watch list).

My best trading ideas for the remainder of this week include: $GMCR $PWRD $HMIN $CDE and $AMZN

Please keep in mind that the purpose of this blog is to help people with idea generation. If you trade some of these stocks, PLEASE, PLEASE, PLEASE use stops. In other words, if some of these stocks turn against you and the market doesn’t cooperate…protect your portfolio! Thank you. Good luck trading!

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