The Novice Bear

Fade this rally. I did.

One thing that I’m learning about bear markets is to never worry about missing an entry point because there will always be a bounce. I’ve been watching EZCorp because it looks to be entering its mark down phase. EZPW used to be #1 on the IBD 100 and is now showing signs that it is finishing off a rounded top pattern. It is also consistently below the 10 week moving average. Fundamentals might say that a pawn shop company might be coming into its sweet spot with all of this sub prime crap, but the chart certainly says something different. I think EZPW might be a victim of being over owned by the fund managers. I think 90% of the float is owned by institutions.

When the market looked like it was bouncing this morning, I put in a order to short EZPW at 12.16. My target for now is 10.50 and depending how the volume looks, I might hold longer. Notice the weak volume on the bounce and how it stalls inside the swing point of 7/25/07. There are also some nice TDST lines to guide the resistance and support areas.

I’m up a little early today and I made the mistake of listening to CNBC’s Squawk Box. They are hammering two points that I find unbelievable! First, they keep saying that insider stock buying are at record levels, emphasizing the financial sector in particular. What they fail to tell us is that there is no buying going on at the big broker/dealers like Goldman Sachs and Bear Stearns.

Second, and certainly more irritating to me is that they keep saying that volume was very light during yesterday’s sell off so the loss shouldn’t be taken seriously. Where was this concern about volume when the S&P was climbing on progressively lighter volume last week? The reality is that volume was higher yesterday than what we saw on the counter trend bounce. I don’t care about their bullish bias, but don’t mislead people.

You can find this “double bottom” or “bullish W” post on the Resource Stock Guide. You can also find it at SafeHaven.com.

I wonder if Boris is related to Miss South Carolina?

I’ll take O’Neil’s advice over the “Fast Money Five” any day.

I have watched Fast Money for the last time. On Friday they declared that the bottom is in and that a retest of the lows is not needed. They also stated that rising on lower volume is a bullish sign.

Wow, how crazy is that? Volume confirming price is a general rule for technical analysis.

I looked back at some recent corrections and the mild bear market of 2004. While it is true that volume can be light while coming out of a correction, if that correction comes in the midst of a bull market, a retest of the high volume lows almost always takes place. Anytime you see a V-shaped base that is usually a bad sign for the medium to long term. William O’Neil has studied many bases of many stocks and he always says to avoid the V-shaped base. They work sometimes, but have a high failure rate.

I’m showing the correction of 2005, 2006 and the bear market of 2004. Notice the 3 V-shaped bases during the bear market. You will also find many V-shaped bases during the 2000-2003 bear market. Notice also how well the TD-Sequential worked for the two corrections I show below.

If you haven’t had a chance, go check out this post on “The Big Picture”. It is a collection of letters written by quant funds “explaining” why they have lost so much money recently.

Thank you Barry Ritholtz for providing such valuable and fascinating information to the rest of us.

The bounce looks to continue higher. I’m still shocked by low volume and will be ready to enter more short positions as we move higher.

On the long side, I might add to my Metalink position soon.