STOCK SELL SIGNALS

Lots of emails asking about chart sell signals. First, charts tell you something that no news account can possibly tell you: institutional selling. If you are doing your homework and investing correctly you will know the exact percentage of the outstanding stock that is held by institutions; you never get this info from the Wall Street Journal, you will get it from IBD. If you are in a stock worth anything at all the institutions will hold thirty percent or more. Any movement of a portion of that percent will show on the charts right away. You must pay attention to chart action as a sell signal.

Stocks are far different than commodity futures and there is no better example than an almost sure sell signal in stocks that is usually a buy or hold in commodities. I refer here to a stock that has been climbing for a while suddenly "gapping" up on the daily charts; this means that the stock opens higher by enough to leave a "gap" on a chart and closes without "filling" the gap. It is one of the strongest sell signals on the planet. Do I follow it? No. I always hope that it will behave like a commodity future and continue to climb, BUT my warning lights are on fire and I'm ready to pull the trigger if the stock opens lower in the morning. This signal is as reliable as one gets. I rarely pull the trigger but I do set a stop that is around ten percent lower than the top of the gap. Waiting til a fifty day moving average has been penetrated is nearly as dumb as you can get, but it's at least better than holding forever. Biggest problem for all of us in the markets is admitting we are wrong; hoping it will turn around; believing that the market is wrong; and other ego generated bullshit.

Why are commodities different? The number of hedgers in any commodity is generally 75% of the total contracts outstanding. Hedgers have no profit in mind, only the price protection a position will give them. A market going down means the people short (always half the positions) will be hedge sellers who will buy back at a profit later and so on. What about speculators, as has happened in the oil markets? That's why you need to know what's going on. You can get the "Commitment of Traders" reports every week from the CFTC; my iron clad rule is that you NEVER go against the large specs. You don't remain a large speculator very long if you are wrong. NEVER go against them. If you check here in the corn market, you will see the huge imbalance of short positions held by specs; you are a moron if you stay long. You will also see the imbalance on the buy side in wheat; never mind why, just don't be short in that market.