Saturday, June 03, 2006

Choppy Day Leaves Stocks Basically Unchanged.

Stock market indexes basically flopped and chopped on Friday, ending the session mixed but basically unchanged. The SP 500 rose .2%, the SP 600 rose .13%, the DJIA rose .11%, and the Nasdaq lagged with a .02% loss. As you can see it was a pretty uneventful day, as long as you were not watching the ticks intraday.

Volume fell across the board, on both the Nasdaq and the NYSE. Breadth was positive on both exchanges, with advancers over decliners 8-to-7 on the NYSE and 2-to-1 on the Nasdaq. This was the second straight up day on the SP 500 with volume coming in lower. Normally, you want to see the opposite after such a nasty selloff.

Stocks were crazy volatile for the week, with the SP 500 finishing up .6% and the Nasdaq up .4%. Friday's quiet session gave a very odd ending to a wild week.

This bounce appears to be pretty strong and it appears some traders are getting quite bullish on this bounce and are embracing the metals again. However, did you notice right after the jobs numbers and Iran news we had a quick selloff. In strong markets, you don't see knee-jerk reactions like that. That is the one thing that seems different this time. Good news isn't causing stocks to go up and bad news causes stocks to go down. It should be the opposite.

I am still in the camp that this particular pullback is very different than ANY other pullback I have seen since the bull market of October 2002 got underway. I would not start buying all your favorite stocks that have pulled back thinking the downside is done, I would not buy gold, silver, and metal stocks thinking that they are now cheap, and at the same time I would not just start shorting willy-nilly if you have never been through a bear market before.

This bounce from the lows has come on very low volume. Much lower than the distribution we saw during this last pullback. This along with all the major resistance stock indexes and past leaders have to work through makes me think this bounce will be met with another pullback in the near-term.

Let's look at some of the resistance we have in the indexes: SP 500 bounced off the 200 dma and is now up against the 50 dma which is now downtrending. The DJIA is against the 50 dma with the moving average now trending down. The SP 600 is near the 50 dma and that key line is trending down. The Nasdaq is the worst of them all with the index well under its downtrending 50 dma and now up against the key 200 dma which is about ready to rollover. If the Nasdaq fails here at the 200 dma and both moving averages rollover, newbies should stay on the sidelines and just wait and watch for a tradeable bounce. This is not the kind of market to try to be a hero in.

I am not sure why newbies feel they have to always put money to work. But if you just chill-out and keep cash heavy and ready to use when a real market rally starts, you will have more money to put in the next big winners that have a MUCH higher risk/reward ratio.

If the indexes keep holding here and I keep getting some nice breakouts in some high quality IBD stocks like I have been, I have confidence a tradeable rally in leading sectors can work out. So far it is going great, if you have been following my recent buys. But as for a real rally...don't hold your breath.

We are day seven into a rally attempt by the major market indexes. However, a follow-through does not guarantee we are all clear. The volume has been lacking, on this rally. When we follow-through we will want to see big gains, preferably 1.7% gains, on a HUGE pickup in volume.

If we do get a follow through and you can not find a lot of leading stocks with beautiful chart pattern, then you will know this rally is not going to end well. In great markets, the best stocks, will setup in nice calm bases before breaking out after a market follow-through. We simply don't have that out there.

The nice charts are all in defensive stocks. Small banks, food, beverage, containers, medical, and other boring industries.

This does not give me confidence that we are going to get a raging bull out of this. But if you look below you will see I have purchased many great longs that have performed quite well in this environment. It won't make you rich. But it will keep the portfolio growing while you wait to get rich from the real bull market. My shorts aren't doing great but they are not killing me either.

Am I off my all-time highs? Yes. Did I outperform the indexes this week? Yes. In time, will my portfolio hit all-time highs while the indexes keep making lower lows? Yes.

Have a great Sunday and I will see you on Monday!!!


New Swing Longs: GEF--for more info on longs/shorts go to Investors Paradise.

***********WSBA was not taken as a new long, due to the breakout above the 50 dma being caused by a completion of a merger with UMPQ.***********

New Swing Shorts: NONE

Longs Outperforming Market-number is % return after purchase: SMDI-136 BGC-101 CBG-115 ICTG-93 WIRE-159 TGC-178 OMNI-117 KNOL-151 CCI-89 CVO-124 HEIA-46 PNRG-58 IHS-42 CXG VTS-32 BWP FSTR MORN EGOV BAM-38 KEYS-33 PKE TTES-48 RSTI-44 KEX-55 PSPT EAGL-66 AOB PCLN KDN GISX SPSX-61 IVAC CXW LYV CBEY AOM SA TGE-38 PMTR-51 FWLT-65 TYL RAE HNZ Q-62 ANEN SBIT PROG

Shorts Outperforming Market: MNST SIVB ELY NVT BPFH DIA EWZ DB AMAT

Cover Short: AMH


Y.Y. said...

congragulations to
MYSELF for my spx short

Joshua_NControl said...

Mazel Tov!!