Weekly wizards: When we last spoke in late March, with the S&P 500 at around 1350, you said the market had bottomed. Since then the index is up 5.5% and you went 9 for 12 on your stock picks in April. What did you see in making that successful call?

Jack Steiman: First and foremost, the levels of pessimism got so deep for such an extended period of time. There were seven weeks in a row, which you virtually never see, where the percentage of bulls were less than that of bears in the market. That is extreme. At the same time you had the 21-day put/call levels up near 1.20 for extended periods of time, very rarely seen. You had the put/call ratio in the regular market over 1.4 to 1.5 for multiple weeks on and off. You can't have that kind of pessimism for weeks on end and not put in a bottom in the market.  

Also, we had positive divergences, which is my favorite thing to look at -- where you reach new lows in price but the MACD does not confirm the new low. We had higher MACDs (less selling intensity), and of course on top of the extreme level of pessimism this gave us a wonderful buying opportunity.

WW: One of your picks, Millicom International Cellular (NASDAQ: MICC, Stock Forum), had an impressive gain of 5% in just a matter of days in April. Once you receive an overall market buy signal, how do you select individual stocks?

JS: There are two things that bring me to certain stocks. One thing I really like is to look at stocks that are in good bases. Normally stocks will go up and down from the top of their base to the bottom, but when they starting coming down and get stopped by the rising 50-day moving average rather than continue through it towards the bottom, that's a bullish sign and often portends a breakout. So the 50-day moving average can be a launching point, and we look for plays based on that.

We also look for stocks at the bottom of their bases and their triangles that have positive divergences. You don't want to necessarily play stocks that are already broken out, which most people like to do, because you're missing a lot of the move. The best thing to do is try to catch stocks at their bottoms when they look awful but have the divergences underneath.

So, it's a combination of buying stocks at the bottom with divergences and finding stocks near the top of their bases but that are finding good support off their rising 50-day. We look at hundreds, if not thousands, of stocks in searching for these types of charts.What do you like about the swing trading timeframe in holding your positions? It's really simple. When you find stocks in good bases, you don't know the exact moment that base is going to make a move. We've had stocks that don't move sometimes for a couple weeks. But ultimately if you believe in the pattern, you let the pattern play out over time, because when these stocks do make the break out of their bases their moves can be parabolic. So you want to wait and give them as much of an opportunity as you can to make the move out of the base. Sometimes it just doesn’t happen, but most of the time these bases do play out as you would think they would, and you just have to be patient enough. So if you get in a stock and it doesn’t move in 2-3 days and you're just going to get out because it continues to sit in the base, that's not an appropriate way to play. So what we try to do is give things a little more time -- be it a few days to a few months -- to finally make the move we believe they will make.

WW: Do you shorten your holding time given the current volatility of this market?

JS: I don't necessarily agree with that. People who do that are looking from the perspective that we're still in a bear market, so they take the gains real quick. You have to look at each individual stock. I believed that the bear market had ended many months ago, and I still believe the bear market's over. So I will give things a little more time while we're still on a buy signal to let things play out the way I think they will. Again that doesn't mean it's not appropriate, from time to time, to take something off, but if you believe you're in a certain type of market and have faith in what you see, then I think you can hold for longer periods of time, and I'm trying to do that now.

JS: I think there's a lot of potential here. An extremely important level is Nasdaq 2575. That's a measurement that's being made from this last triangle breakout, and also where a long-term gap comes in that would probably stop this market for the short-term. So if the market can make its way up towards 2575, it will probably put in a long pause, a pause to refresh and to move down and to unwind oscillators. From that pause we'd have to revisit it to see if the MACDs and all the internals are appropriate, and if they are then I would expect a much stronger move through that 2575 level some months down the road. It's impossible to time at this point. I think we all have to watch very carefully in the future how Nasdaq 2575 gets handled if and when it gets there, which I expect it will. If it gets handled appropriately like I mentioned with good oscillators, good MACD, appropriate unwinding in which the selling isn't too intense, then I think there's the potential for a much stronger move through that level over time.

JS: Tech is leading, which is great. You always want to see tech leading. When the NDX is doing well, the market is doing well. The semiconductors are coming out of their long-term slumber. Heavy construction made a big breakout over 650 about a week ago, something you haven't seen, with a very long, clear candlestick, which is very bullish, holding well in a bull flag. So, believe it or not it's those types of cyclical stocks and some materials stocks I like most. I don't think the financials will do as well as those areas of the market will do. Certainly you can play commodities still, but that's getting a little bit long in the tooth. I'd be focusing more on tech, semiconductors, and heavy construction, but really the world of tech most.

WW: A lot of people don't like to market time, as they don't feel confident in it. But that's been one of your strengths. What would you say was your proudest market call?

JS: The bottom of the bear market in 2002. I still use those charts in teaching my seminar. If you look back at 2002 when the market put in its final low, you will see one of the strongest,, largest positive divergences in the market that you will just about ever see in your life. But what makes it tough to play is the fact that things are so bad -- the news is so bad -- that no one really trusts it. Of course, that's how bottoms are made. So the volume off that bottom was very light because no one believed in it, and because the volume was light everyone thought it would just crash back down. Of course, it never did. That's my favorite call, because I went on the radio and said, "Look folks I know we're in a bear market, but you have to understand that we have huge positive divergences at the bottom -- lower prices, higher MACD, which means the selling pressure is letting go. And when you have those positive divergences you need to trust it."

JS: It was similar, except reversed. In October you had negative divergences that explained why we thought the top was in. The market moved down 25% and then we started to see the extreme pessimism along with some positive divergences and that's what gave us the bottom call in early 2008.

WW: Any parting shots for people who might want to get started trading with you?

JS: I think it's a question of trusting the market and trusting what you see. We try to play the market as objectively as we can. We never try to force the market either way. We're neither bullish nor bearish at any given point in time based on a belief system that we have to be perma-bulls or perma-bears. What we do is we play the market objectively. If a sell a signal comes in we'll short the market. If a buy signal comes in we'll go long the market. We don't have a favorite way of playing. You just have to trust the message of the market and give it time to play out, and when you're wrong admit that you're wrong and know that you have to move to the correct side.

Jack Steiman is a former columnist for TheStreet.com who is renowned for calling major shifts in the market. President of New York-based Visionary Research Group, Jack consults to individuals and companies on stock market analysis and education. He honed his skills as a trading educator in front of live seminar audiences in his role as chief financial strategist for InvestEd Central, and also previously hosted two daily programs, "Market Close Live with Jack Steiman" and "InvestEd Central with Jack Steiman," on Business Talk National Radio.

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