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Afraid of the sharks on Wall Street? Then tune in to our Shark.

Tomorrow, Feb. 26,


trading guru Rev Shark (aka James De Porre) will host a

special interactive chat.

In this chat, Rev Shark will give his Five Trading Commandments of why active trading is the best way to safeguard your capital in this tough-as-nails market. Tune in to find out why he doesn't subscribe to buy-and-hold theory of investing, and his chosen ways to stay alive in the game of trading.

After this presentation, Rev will open the floor to questions from you and try to answer as many as possible in the time allotted. The chat will last from noon to 1 p.m. EST.

Not familiar with the Shark's work? Below is a sampling of his posts, from Thursday, Feb. 20.

For more information on how to sign up for the chat,

click here.

(Can't make the scheduled chat time? Sign up anyway and you'll have access to the transcript. Or, after the chat, you can call our customer service department for access.)

Morning Outlook

07:45 AM EST

"I will prepare and some day my chance will come."

-- Abraham Lincoln

Over the last few days the market rallied on low volume and then pulled back on even lower volume yesterday. In fact, I think it was the second-lightest volume day of the year. Pullbacks on light volume are a good sign but it helps if the rally had some decent volume to begin with.

We are always tempted to try to read great meaning into everything the market does but often it's a mistake to proclaim that something profound is occurring. The facts are simple: We have been drifting around on light volume while we wait for some clarity on the Iraq issue. We got a bit stretched to the downside, bounced a bit to relieve the pressure and are now sitting here once again, scratching our heads and trying to figure out what this market will do while we wait contemplate the possibility of war. We could easily move a bit higher or roll back over again but mostly this action is simply random.

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The bottom line is that we are unlikely to see volume and interest pick up until an Iraq resolution is closer and clearer. For now our efforts should be focused on preparation. We should see some big moves, both up and down, as world events heat up. If you know what stocks you want to buy or sell as the market moves, you will be well prepared to do battle.

It's been argued by some that last Thursday was a bottom of consequence. I strongly disagree. Although the market was somewhat extended after a steady month-long drop we never saw the extreme emotion that signals capitulation bottoms. A very clear illustration of this is Chartcraft's Investors Intelligence data from yesterday, which showed that bulls had actually grown to 41.6% from 40.2% over the last week. However, the percentage of bears also increased to 33.7% to 31.5%. Meaningful turns in the market usually don't come when bullish sentiment is rising. When there are more bears than bulls then we can start thinking about a lasting turn.

Why do we continue to have this fairly high level of bullishness? The most likely explanation is that there are plenty of folks who are looking for a war rally. They anticipate that a resolution of the Iraqi situation will generate a powerful, long-lasting rally. That belief is fairly widely held and is probably the main reason we aren't seeing extreme negativity that leads to tradable bottoms.

Will a war rally occur? It may, but the real danger is that a rally could happen from much lower levels. Even if you think a big rally is inevitable you should have some cash on hand to average in further over the next few weeks while the market grapples with Iraq.

We have a positive open shaping up. Europe bounced back a bit overnight. There are some decent earnings reports on the wires and a few upgrades that are helping the tone. However, unless we see some acceleration in volume, trading is going to remain very tricky.

So the Bachelorette picked the fireman with the bad poetry rather than the more charismatic executive type? Which just goes to show that when it comes to placing bets I better stick to the stock market.

No positions in stocks mentioned

More Chatter on the Chips

07:50 AM EST

Merrill Lynch says, "We are shifting our stance on the semiconductor sector from negative to slightly positive. We believe valuation is reasonable, if not highly attractive, while low inventory levels and low capital spending will tend to increase the industry's sensitivity to any improvement in demand."

The stocks that they are upgrading include the following from neutral to buy:


; and the following from sell to neutral:



Merrill points out that "evidence of a recovery in demand remains very thin" and is not the reason for this upgrade. They are focusing on low inventory, low capital spending and valuation. In other words, these aren't growth plays but value plays.

We saw Morgan Stanley with bullish comments on the chip stocks yesterday. If you were a cynic, you might think that Merrill doesn't want its competition to get too big of a jump in calling a bottom, but of course, we all know that these sorts of upgrades are based purely on fundamentals and nothing else.

No positions in stocks mentioned

Data Not Much of an Event

08:50 AM EST

The economic data is coming in under expectations and cutting some of the early optimism. Jobless claims came in a bit higher than expected, but the miss isn't particularly significant statistically. The moving average remains fairly flat, so this is a nonevent.

The PPI had the biggest jump in 13 years due mainly to high energy costs. If this was seen as a continuing trend, the specter of inflation could cause us some problems, but there seems to be little concern about overall inflation although raising oil prices obviously have negative implications.

The trade deficit also rose sharply to record levels due mainly to poor overseas sales of aircrafts and telecommunication goods. The major ramification here is the impact on the dollar, which has been having quite a struggle lately. The weak dollar helps drain foreign investment and that's no positive for the stock market.

No positions in stocks mentioned

Search for Meaning Continues

10:08 AM EST

"Search for meaning, eat, sleep. Search for meaning, eat, sleep. Die, search for meaning, search for meaning, search for meaning."

-- Doug Horton

The market is searching for some meaning and not finding much at all. The semiconductors are catching some bids on the Merrill Lynch upgrades, but banks, biotechs and retail are in the red.

Can this market build a sustainable rally on the second chip upgrade in two days? That's your primary indicator of where this market is headed. The technology bulls have been giving some ammunition to work with and now they must prove they know how to use it.

My game plan remains "short the rallies." This rally has a lousy technical base, and I believe we are going to receive some news soon on Iraq that's going to send us down fast.

No positions in stocks mentioned

Rambling Rambus

10:20 AM EST


(RMBS:Nasdaq) has exploded on rumors of a takeover by


(IFX:NYSE). Be careful with this one.

No positions in stocks mentioned

Unyielding Skepticism

11:11 AM EST

One thing that has really changed about this market over the last year or so is the high level of skepticism that greets analyst upgrades like the Merrill Lynch semiconductor call today. Upgrades of this sort have been far better short opportunities rather than a time to go long. Even the conference calls have a large number of bearish participants.

The whole process has always been driven by considerations other than pure fundamentals, and now market participants are keenly aware of it. The end result will eventually be that analysts who do real research and add valuable insights will be increasingly recognized.

If the bulls can't run the technology stocks after the recent upgrades, can we have much faith that this rally is going to hold? I don't think so. I'm staying very cautious on the upside and am focused on the downside.

No positions in stocks mentioned.

Risk to the Downside

12:06 PM EST

I'm still holding a small index short position but am waiting for better entry points before doing anything more substantial. It looks like we have some option expiration pinning action that is going to keep us fairly flat for the moment. The Nasdaq is flatlined, and there is little we can do other than stay patient for now.

My sense is that the risk is to the downside on some news with regard to Iraq. Sooner or later news about the potential war is going to give us a big shake and will give us some interesting opportunities.

No positions in stocks mentioned.

Don't Hold Your Breath

01:02 PM EST

Spot gold is up about $4 to the $353 level, European markets are struggling, the dollar is weak, oil is strong, economic data is lackluster, chips are up slightly on the second upgrade in two days, volume is abysmal, but there are plenty of folks looking for a "war rally." Are those the conditions that lead to a big rally? It's possible, but it sure isn't the way to bet.

A number of folks haven written to me recently about the possibility that there is a longer-term trend toward lower volume, and therefore maybe I should be less concerned about it. When it comes to volume, I am generally looking at levels over the last 30 to 90 days. Long-term historic levels are not important in my analysis. I want to see volume increase over its 30- or 60-day moving average as an indication that interest is starting to build.

The long-term trend of volume may indeed be down, but the short-term trend is what will signal the best trading opportunities.

No positions in stocks mentioned.

Looking for Action

02:10 PM EST

Clearly the Nasdaq is outperforming the rest of the market today. If we are looking for leadership, we have to look at that index. Are there groups or sectors within the Nasdaq that have the potential to lead this market higher?

That is the question I am always looking to answer throughout the day. I want to know where the money is flowing. What stocks are attracting buyers and seeing higher than average volume?

I scanned through the Nasdaq for stocks that are up on the day and on pace to trade 150% of their average daily volume. This is the list I came up with:



What does this list tell us? We have a few issues that are seeing buying due to the Merrill chip upgrade, such as


. Some are earnings-related movers, such as


. FDA news is driving




. Overall, I can't identify any compelling theme. I see no reason to suspect that buyers are building positions in any particular sector or group.

When we start seeing systematic accumulation at above-average levels, then we can start feeling more optimistic about the upside. For now, the prospects look very limited.


Signs of Late Spike

03:12 PM EST

The last four days in a row we have had a fairly powerful spike up in the last 30 minutes or so of trading. That is the sort of pattern that traders don't overlook and they will be watching for signs that it may occur again. If we do start to see some upticks, watch for the buyers to jump in quickly and make a strong finish a self-fulfilling prophecy.

No positions in stocks mentioned.

The Spike Gets Crowded

03:40 PM EST

In my prior post I mentioned the recent pattern of a late-day spike. Today the spike started a bit earlier, and that may mean that this pattern is now overanticipated and likely to fail.

That is the nature of the stock market. As soon as too many folks recognize the same thing, it no longer works.

No positions in stocks mentioned.

Yesterday All Over Again

04:16 PM EST

"If history repeats itself, I should think we can expect the same thing again."

-- Terry Venables

We basically had a repeat of yesterday's rather dull action. Once again we saw low volume and a tight range that didn't challenge any significant technical levels. Breadth was better, which is a positive, but with the exception of a few technology stocks, there wasn't any significant upside leadership.

The big question now is whether two days of slight pullbacks on low volume is basing action which will allow the bulls to digest the recent gain, regain some energy and deliver another leg up, or whether this is the bulls running, struggling to hang on and getting close to throwing in the towel. One way or the other, I'm looking for them to step aside fairly soon.

I continue to believe that we will take out last week's lows within the next few weeks. I look for a sell-off to be triggered by some sort of news related to Iraq. I think we'll see market participants get very nervous as events heat up. That sell-off will eventually lead to a very powerful rally, but we aren't going to see that sort of rally until we get a better washout first. When folks start doubting a post-Iraq rally, we will begin building the floor for such a rally.

This continues to be a very tough trading environment. If you are struggling, it's because there are few decent edges at the moment. Stay patient and optimistic, and the opportunities will begin to turn up sooner or later. The key is to not let yourself become frustrated.

Have a good evening. I'll see you in the morning.

No positions in stocks mentioned.

David Morrow is editor-in-chief of In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback and invites you to send it to

David Morrow.

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