Tuesday, February 24, 2009
(Cont'd from above)...

Jim:       In this market, we have got lots of the big money guys going by the technicals… they are making their decisions based on the action… now even if we think that technical analysis is a bunch of mumbo jumbo… not to say chicken gumbo… we have to respect the fact that a lot of money managers out there are making their decisions based on it… and they can cause the market to put in a bottom or rally higher like they did today… and while I am indeed a died in the wool fundamentalist, in the tradition of Benjamin Graham, not Billy Graham… even I sometimes rely on certain pieces of technical hocus pocus because they have been so right in the past… and I really like Top Stocks Meisler’s reasoning…. so what is Meisler’s case for a rally, or at least a short term one starting this week and extending thru the end of the month… how did she predict it.

First let’s look at her proprietary overbought oversold oscillator… wow, jibberish… this is a different a little from the oscillator that you sometimes hear me talk about, I talk about the S&P 500... they both measure excessive selling and buying… when you see this go all the way down, that is excessive selling… this market has gotten very oversold… again, authentic western jibberish… well, actually Wall Street jibberish, but I happen to like the movie Blazing Saddles… meaning that stocks have fallen so far the sellers have given the market such a pounding… that as soon as they are done, we can bounce back… I want you to consider it kind of like a stretch rubber band… you let it go, it can snap back… simply because it has been pulled too far, too fast… when we bounce back that is called an oversold rally… in my experience these happen like clock work when things get really oversold… and that is what you see in this chart… we are just starting this because we just started that…. we are getting about as oversold as we can be… Meisler thinks that is what is happening… because when we have been oversold this much in the past… we have rallied… in her experience, this is a reliable pattern… not an earnings report that is driving this baby higher.

That is one technical reason to believe that we can rally more… but Meisler has more, okay… here is a chart of the new lows on the New York Stock Exchange with a chart of the S&P 500... now get this.. .this is the kind of stuff they look at… it is really amazing.. .you can see that there are fewer new lows on Monday vs. Friday… and much lower this time down vs. the vicious declines in October and November… we went down much harder in the terms of the S&P… but this time… see we went much lower… but, far fewer lows… to a technicians this indicates that there is less selling pressure this time down… fewer sellers trying to pound the market down… technicians call this what is known as a divergence… everything should be going down… but not everything is going down… some are rallying that shouldn’t be if things are really awful… that is positive, positive divergence… that can cause other positive divergences… I want you to consider it a hole in the bear dyke… so to speak.

The third technical reason to expect a rally is what is known as the put call ratios 10 day moving average… it is the ratio of the volume to put options calling to call options… remember more put buying indicates negative sentiment, because put buyers are taking out insurance that the market is going lower… Meisler thinks that too much insurance right here has been taking out… people are too cautious… every time we had this much insurance bought… A, B, C, D… we caught a rally… and look at these rallies after the peaks they are really terrific… they have been terrific… and she thinks that we are seeing a peak right now like peak E… that is Everest… see we have big put buying and then boom… big put buying and then boom… big put buying and then boom… every time we see big put buying… if that happens it should mean the volume of put trading declines now relative to the buying of call buying.. .that is also bullish… think of it like this if everyone is bearish in buying puts… there is just too much negativity… everyone has been a seller… none left… they have already sold everything… everything they are done… the flip side, everyone is bullish in buying calls it means that there is no one left to come in on top of them… the buyers are spent.

Now, I could go thru a dozen other technical signs that Meisler thinks will herald a short term rally… but these are some of the most important, and I think you get the point… does this mean that
you should buy stocks here… okay, fundamentalist Cramer… I don’t think so… by the way even Meisler has a bearish tilt… she thinks that this is an over sold rally… these are the stress in the system that have produced rallies in the past… what I would do is use this rally if it happens to sell and raise some cash… especially accidentally high yielders that might not be too high in a couple of days… that way you can buy more as the market winds its way back down… as I said on the Today Show this morning… we are getting higher prices to sell at because of these technicals… we have a virtually no hope environment that is long since extended from the financials to the industrials… with the talk of nationalization in the air… there is not much of a case for a longer term rally based on the fundies… the sentiment right now is that all companies are frozen until further notice… the numbers are too high and every company with a lot of debt might as well just give up… everyone thinks that we can’t go up so they are selling… and the sellers are exhausted… that too is what the oscillator measures… exhaustion by the people that are selling… and boy are they exhausted… I think that kind of sentiment can produce the kind of oversold rally that Meisler has talked about.

First let’s take a look at the Nasdaq… the NASDAQ chart… see here look… this is measuring selling pressure… it is always down here… when it got down last time, boom… when it got down here last time, boom… when it is here now, should be boom, okay… we have the same thing so it is not just the New York Stock Exchange… there was a big rally… there was a big rally after we got here… we got down here, we should expect a big rally… will it take out that rally, I don’t know… but I still am worried because the estimates are too high… and we still haven’t gotten the number of cuts that we need… business is bad across the board… I would be more optimistic long term if companies would be more proactive and opportunists, but they are not… without a feeling, a perception of things will eventually get better, they can only get worse.

Here is the bottom line…

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