As I said in the post NH NL Picks Market Tops and Bottoms:

Consistent Nasdaq readings above 100-200+ will be the official confirmation to grab and add shares for trend traders!

That’s what I am looking for! Until that happens, a “true” up-trend is not sustainable. The up and down whipsawing of the past several month is what we can continue to expect until we see consistent readings in the triple digits.

System Development and Market Psychology:

Great All-around Reads:

All Others:

The average gain of the stocks showing a profit is 26%.
The average loss of the stocks showing a loss is 11% (-5%, -8% and -21%).

The top performing position is DXO, currently up 65% with a peak gain above 70%. Following DXO is EJ at 56%, STAR at 50%, RVBD at 40%, FRPT at 32%, ARST at 26% and V & VMW tied at 25%.

Visa (V) has appeared the most with a total of eight mentions (I may be biased since it’s my largest personal holding). DXO has also been an active play of mine since 2008 so it has been the second most popular ticker in my tweets, appearing five times over the past two months (DXO first appeared on this blog last November as a speculative oil play).

I would like to emphasize that the stock down 21% (APEI) would have been cut for a smaller loss using simple money management tools but for purposes of this update, we’ll assume everything is still being held.

Below is the list of stocks highlighted on my Twitter account, listed in date order (starting on March 31, 2009):

• HTS: +7%, $26.15 from $24.35 on 3/31/09
• V: +25%, $69.28 from $55.60 on 3/31/09
• VMW: +25%, 32.59 from $26.12 on 4/1/09
• RVBD: +40%, $21.52 from $15.37 on 4/2/09
• STAR: +50%, $22.45 from $15.00 on 4/5/09
• CXO: +14%, $31.90 from $27.96 on 4/5/09
• DXO: +65%, $4.48 from $2.72 on 4/20/09 (1st posted on 4/6/09 at $3.07)
• EJ: +56%, $16.78 from $10.79 on 4/9/08
• ARST: +26%, $18.19 from $14.46 on 4/9/09
• FRPT: +32%, $9.36 from $7.09 on 4/13/09
• WMZ: +12%, $19.85 from $17.70 on 4/14/09
• CTCT: +10%, $20.14 from $18.36 on 4/20/09
• TNDM: +15%, $30.78 from $26.81 on 4/20/09
• CFL: +11%, $30.60 from $27.50 on 4/26/09
• PAR: +3%, $11.27 from $10.94 on 6/2/09
• APEI: -21%, $34.56 from $44.00 on 4/2/09
• MDAS: -5%, $15.90 from $16.79 on 4/23/09
• MELI: -8%, $23.62 from $25.60 on 5/12/09

If you haven’t joined already, take the few seconds to follow me on Twitter as the bulk of my analysis appears there weekly, if not nightly.

P.S. – the bragging title of this post probably signals a short term top in the market! As I wrote yesterday:

“The main purpose of the stock market is to make fools of as many men as possible.” - Bernard Baruch

A secondary indicator, the cumulative advance decline line, is one I have been studying since late last year. I didn’t use this tool in past markets because I wasn’t too familiar until I picked up a book by Justin Mamis, The Nature of Risk (which I highly recommend – quickly becoming one of my personal all-time favorites).

Several ingredients that can signal a bottom include:

• The initial market breakdown: 2008
• Bear market bounces: late 2008 and early 2009
• An investor “give-up” phase: Increasing market pain that seems to never end and will get worse
• When bad news fails to carry stocks even lower
• When new lows dry up and new highs creep up

In addition to the items above, some secondary indicators can work alongside price action, volume and the NH-NL Differential. This is where the Cumulative A-D line and divergences can help confirm the main indicators.

The lesson is that indicators exist in a real, everchanging world. They are not so definable that you can put them in a computer, with parameters that ring bells, because a human being still has to interpret their subtleties. But a few indicators do still work, the most important of which can be described as the divergence pair. - Justin Mamis

As Mamis notes, they work because they are statistical summations of what the individual stocks are actually doing. Essentially, this is exactly what price and volume tells us (real time information of what the market is doing). Lastly, the NH-NL ratio packages that information and lets us get a true reading for a possible trend (the NH-NL does lag price and volume slightly).

Looking at the 2009 NASDAQ Cum A-D Line, we can see that an up-trend is forming but it is not in new high territory yet. However, the NYSE line is in new high territory, which Brian Shannon of alphatrends pointed out last week in this chart.

The point of this post is to show you the similarities of the 2002 and 2008 markets versus 2003 and 2009 markets. It’s very interesting to see that the 2003 market had a bottom in Cum A-D line in March and made a new yearly high in late May. Well, this year’s Cum A-D line made the low in March and is trying to make a new high here in early June, very similar.

The same findings were true when I posted up the charts for the differential last month. Only time will tell what’s going on but things are slowly changing from 2008. Let’s keep watching and get ready to pounce if and when the ultimate buy signal appears.

See the post Visa, from December 17, 2008 for further details:

Why do I like VISA’s potential?

• $1o Billion would represent the second largest IPO ever!
• Revenues are expected to grow steadily as consumers continue to use their cards
• VISA processed 44 billion transactions totaling $3.2 trillion in 2006 (Mastercard processed 23.4 billion transactions totaling $1.9 trillion)
• VISA has made $771 million on $3.7 billion in revenue during the first nine months of 2007
• VISA makes their money from the fees it charges to card users and merchants using its network

BEST OF ALL:

• Because it acts as an intermediary, Visa doesn’t sustain losses when consumers don’t repay the debts run up on credit cards bearing its brand. Those liabilities instead fall to the banks that issue the cards and set the terms of repayment
• Most of Visa’s major stockholders are banks. They include: J.P. Morgan Chase & Co., which owns 23.3 percent of the company’s Class B Stock; Bank of America Corp., 11.5 percent; National City Corp., 8 percent; Citigroup Inc., 5.5 percent; U.S. Bancorp, 5.1 percent; and Wells Fargo & Co., 5.1 percent.

Let’s see what happens. The gov’t here in the US scares me these days when it comes to credit cards so pay attention to what they are doing. I wish they would just butt-out and go back to doing what they are meant to do.

Well, you don’t need a crystal ball, you don’t need any Wall Street guru’s, you certainly don’t need fancy computer software and you can simply ignore the talking heads. It’s that easy. Maybe we won’t pick absolute tops and bottoms but we can identify trends as they begin to develop.

You just need to follow the action among the individual stocks in the market! Learn to focus on the number of stocks making new highs versus the number of stocks making new lows. It’s been the true crystal ball in my method since I started to turn a consistent profit in 2002. It’s the backbone of my trend following methods.

The NH-NL Differential is simply the number of stocks making new highs minus the number of stocks making new lows.

I follow the progress of stocks making new highs and new lows on the NASDAQ and NYSE and pay specific attention to turning points in the differential. I am not so interested in the extreme highs or lows of the ratio but rather changes in trend from positive to negative and negative to positive over a period of time.

The yearly Nasdaq New Highs and New Lows (Differential) are captured in my charts below, dating back 10 years. With many market pundits (or talking heads) saying that we may have reached a bottom, I felt it was time to do some homework and study the past charts so we know what to look for in 2009. It is true that the trend seems to be changing but we aren’t quite there yet. Focus on 2002 and 2003 to get an idea of what we may see if this market decides to make a true up-trending run, one that’s sustainable.

Consistent Nasdaq readings above 100-200+ will be the official confirmation to grab and add shares for trend traders!

• cperruna@fortune8 - $V entry is $61.50 , 12% stop (just below last dip). Risk is $7.38; reward long term is 5.2x at $100 and 3.86x at $90.less than 5 seconds ago from web in reply to fortune8
• $CFL - $27.50, new all time high for young stock. Alarms always up in poor economy; break-ins up at same time.1 minute ago from StockTwits
• $V - $60.38, technically, the pivot point is $61.50. All that is left is for the 50d to move above 200d - then look for $60-$100 move.6 minutes ago from StockTwits
• $STAR - $18.78, ready to make new 52-wk high. Closed Friday up 18% on volume 301% above ave. Watch it - trender12 minutes ago from StockTwits
• $RVBD - 17.81, up 15% last week on heavy volume. 50d moved above 200d ma (positive). Quadruple top breakout! About to challenge 52-wk high15 minutes ago from StockTwits
• RT @KeithShepard Global Warming Delusions (http://bit.ly/rWewn) “The evidence that global warming will have serious effects on life is thin.about 23 hours ago from web
• $MDAS - $16.79, up 4.81% on volume 218% larger than ave. Looks like it is ready to move. 50d above 200d is all that’s left for long term7:29 PM Apr 23rd from StockTwits
• Rough day for longs: Only 308 advancing issues, the the third fewest on NYSE in 2009. 2,823 decliners, 4th highest total in ‘09 $$11:03 PM Apr 20th from StockTwits
• $DXO - $2.72, the gap has filled, down 10% on heavy volume in early trade. 50d ma is at $2.62 (support entry?).9:38 AM Apr 20th from StockTwits
• $TNDM - $26.81, watch this one, volume exploding but it is extended. I will grab shares at 50-d ma if given the chance.9:04 AM Apr 20th from StockTwits
• $CXO - $27.70, let’s see if 50d can recover 200d. Buy with strong move above $29 (triple top breakout on P&F).8:59 AM Apr 20th from StockTwits
• $CTCT - $18.36, blasted above 200d last week on above ave volume. Entry was $17.50 on P&F charts. Keep an eye on it.8:58 AM Apr 20th from StockTwits
• $FRPT - $7.67, up more than 10% on above ave volume. Up 8% since Monday’s mention. Like I said - $14 is next long term resistance1:46 PM Apr 16th from StockTwits
• $V - $58.33, challenging the 200d ma. Expect struggle here. Becomes long buy when 50d crosses above 200d ma. Will enter $60-$100 run10:37 PM Apr 14th from StockTwits
• $WMZ - $17.70, trending higher w/ 50d ma above 200d. All-time high not far off above $20. Up 2.5%, volume 188% above ave. Entry at 50d10:24 PM Apr 14th from StockTwits
• $FRPT - $7.09, low priced stock about to make new 52-wk high. Next resistance is $14 area. Not my cup of tea, but maybe you?10:12 AM Apr 13th from StockTwits
• $ARST - $14.46, like the young gun but it’s extended past any logical buy point (solid risk/ reward). $10 was ideal entry. Will gap fill?10:22 PM Apr 9th from StockTwits
• $EJ - $10.79, up 13% on volume 432% larger than the ave. 50d ma is about to cross above 200d ma. EPS rating is weaker than I like.10:18 PM Apr 9th from StockTwits
• The last back-to-back net double-digit NH-NL ratio for the NYSE happened on 5/29-5/30/08, +22 & +35. The market dropped 50% from there.8:21 PM Apr 9th from StockTwits
• NYSE: 13 new highs today, the most in 2009. All this with 0 new lows; net +13, tops since 9/19/2008 when we had +110. Market bottom? $$8:14 PM Apr 9th from StockTwits
• $VMW - up 9% on volume 93% larger than ave; strong move above 200d ma9:40 PM Apr 8th from StockTwits
• Market Bottoms: “The crowd is bargain hunting in what was; the knowing are buying what will be” - Justin Mamis; Can you say RIMM? $$10:38 PM Apr 7th from StockTwits

The chart highlights in red where I was making the sell posts (the articles are listed below):

Anyway, I have been posting twits about the strengthening of the NH-NL ratio which is starting to tell me that the newest trend change is beginning. Yes, this is my first major blog post saying that my screens (market tools) are telling me to wake up because things are starting to change. It’s not time to jump in with both feet and buy every stock that’s up on above average volume but it’s time to sharpen the skills and be ready. We may look back and point to March and April of 2009 as the bottom of the market or at least the start of the changing trend.

We don’t have market leaders yet but when they appear, I will locate them, post up charts and talk about them nightly on twitter (twitter.com/cperruna). Too many stocks still have their 50-d moving averages below their longer term 200-d moving averages and new highs are still limited. However, new lows have dried up considerably and the NH-NL ratio has a moving average that is trending higher for about a month now. That’s the most sustainable trend for this ratio since the big decline started.

Stay tuned to the blog and my twits for follow-ups to my research on individual stocks and the overall trend.

In the meantime, take a look back at the numerous blog articles I posted in 2007and 2008 talking about a market decline, shorting stocks and selling in general. Learn from what the simple tools were telling us. I am far from a market genius and far from rich but I can make a few dollars following the leaders and the NH-NL ratio.

A Review of Articles Pointing to a Stock Market Decline in early 2008:

• May 23, 2008: Smelling Trouble
  

  The bottom line or point of today’s rant is the fact that I still feel that the market is headed for a decline or as I phrased it a couple weeks ago: The Big Decline (long term perspective of course).

• May 8, 2008: Market Distribution
  

  I originally started to point out market troubles back on March 14, 2008 in a post titled Snapshot Friday; I highlighted both the Dow Jones and NASDAQ with clear yellow shaded areas showing the 200-day moving averages pointing down for the first time since 2003 (that’s huge if you ask me).

• May 7, 2008: The Big Decline
  

  I am a positive person by nature and I prefer to buy stocks going up but I am starting to see several leading stocks struggle to hold new highs or fail to challenge recent highs. These patterns are familiar and they are suggesting that the recent bounce is the final stage before a possible market decline.

• January 23, 2008: Setups for Selling Stocks Short
  

  I wrote an article on October 15, 2007 titled How to Make Money Selling Short, precisely when the general market indexes were topping. I am not going to take full credit but subconsciously my charts were giving me signals that the market was showing the major red flags and signals of what we are seeing today.

A Review of Articles Talking about Selling, Profit Taking and Market Distribution in late 2007:

• 10/03/07: Is Shanghai a Nasdaq Déjà vu
  

  Well, the current two year rise of the Shanghai Stock Exchange Composite Index looks remarkably similar to the rise of the NASDAQ of the late 1990’s and the charts below explain better than I can!

• 10/04/07: A Technique for Profit Taking
  

  What do you do in a market like today when you have profits in multiple positions but you don’t want to give it all back? You want to continue to ride the winners but at the same time, you want to maintain the unrealized gains in your account. HOW?

• 10/12/07: Distribution Day
  

  This was the largest showing of volume in two months and is not healthy because it was pure distribution. It was only the second distribution day over the past month so we can’t call this a bear run but please be on the lookout for a possible correction of 5%-10%. Technology stocks led the decline as BIDU gave back 10% of its amazing run.

• 10/15/07: How to Make Money Selling Short
• 10/17/07: Inverse ETFs
  

  Have you ever wanted to short the market because you knew it was going down but your were too overwhelmed, nervous or even scared because you were unsure of how to do it. Well, Inverse ETFs may be your thing.

  These inverse ETF’s closed Wednesday with gains of 13.42%, 15.43%, 22.31% and 18.76% since I wrote about them.

• 10/18/07:The Real PTR Climax Run?
  

  I was early in September by trying to locate a climax run in PTR in this post:
  Petrochina (PTR) Climax Top? However, the HUGE volume on the latest push to new highs clearly indicates something is going on.

• 10/20/07: Second Major Distribution Day
  

  Technically speaking, we now have 4 distribution days for the NASDAQ and 3 for the DOW over the past month. It’s now time to start focusing big-time on the market leaders to see where they are going to take this market. If they start to roll over, you better be quick to take profits and even quicker to take losses.

• 11/01/07: CROX getting Swallowed
  

  I wrote a post titled Will CROX get Eaten? on September 20, 2007 and strongly noted the declining institutional support (see numbers below). Someone was jumping out of the stock and we now know why!

• 11/08/07: Market Corrections, Bears and the Big Picture
  

  Keep in mind that nearly 75% of all stocks follow the general market trend. Your cash doesn’t need to be committed to the market at all times. This philosophy is suited to making the most money in bull markets or markets trending higher.

• 12/11/07: When to Sell
  

  Why do so few books exist on the subject of “How to Sell”? Selling techniques are far more complicated than buying techniques and subject to considerably more emotional pressure, than those of buying.

As I said in a recent response to a blog comment by Jeff: “The NH-NL ratio is showing some up-tick from the brutal beating it has taken recently. A positive shift will peak my interest. Not there yet.” I am keeping better watch lists because of the slow trend change in the chart below. We have a ways to go before we can start buying shares but very subtle changes are taking place.

Recent Tweets:

• The 10-d m.a for NYSE NH-NL ratio is now -3.4, highest it has been all year. Was -338.6 to start March & peaked at -478.5 six days later 35 minutes ago from StockTwits
• CXO - One to watch if this industry starts to move. Buy at 200d ma; 50d ma must cross above 200d - very positive. about 22 hours ago from StockTwits
• STAR - decent risk/reward to add shares near 200d ma. Keep an eye on accumulation vs. distribution (weekly). Short term target $18. about 23 hours ago from StockTwits
• V jumped into $57-$60 buy zone that I mentioned Tuesday. Resistance here at 200-d ma; 50-d ma still below 200-d ma - this must change 3:49 PM Apr 3rd from StockTwits

*Chart courtesy of DecisionPoint.com