Powerful Rally Gives Stock Market Averages A Follow Through; Covering Most Of My Shorts And Looking For Longs.

Stocks exploded to the upside on Thursday as dovish talk from the Fed's policy statement helped stocks stage a rally. The Nasdaq rallied a whopping 2.96%, the SP 500 rallied 2.16%, and the Dow Jones Industrial Average rallied 1.98%. The big winner was the SP 600. That index rallied 3.42%! Very nice.

Volume was much higher than the day before and well over the 50 day volume average. That gave us a resounding follow through on the market. Before all my charts were updated I was worried volume was not high enough and that this might be weak because it was day 12 of the rally. But volume was in fact fine. Breadth was over 4-to-1 positive on both exchanges.

There has been plenty of talk about this rally and the Fed's dovish statements after hiking rates again for the 17th straight time to 5.25%. I am more interested in this rally for the lack of HOT sectors leading. The usual bear market leaders are leading in this rally and that is not very positive to me. Now, if the nice charts that I see out there spend more time building right sides and then breaking out I will be happier. Until then I still feel that this rally is just a typical late summer rally that will not have legs. However, I understand how bearish the AAII numbers and II numbers got. It got very bearish out there, quickly.

The rally we have now confirmed today has produced a lot of good charts but back in March 2003 when we started this whole thing I had a TON of charts with very sound and early stage bases. These stocks appearing on my scans are well extended from previous runs and are in late stage bases. The medical, transportation, food stocks are not. But those stocks are not leaders that change the world with their products.

Even back in October 2005 you will remember I was bullish during the downtrend. Why? Because there were not that many charts breaking down. This downturn there were a lot and now those broken down former leaders and denfenisive sectors are rallying the most in this rally. That just doesn't seem long term bullish for me.

However, for the short term, we have NO CHOICE but to be bullish. So I have put on my horns, paired back over 85% of my shorts that were still on and placed a lot of buy orders in stocks with nice charts. Still though I am disappointed there are not more sound chart patterns with no to few flaws. Most of these charts have flaws.

No market rally has ever started without a follow through day like we got today. But this does not guarantee a long rally. Look at all the rallies we got from 2000-2002. There were plenty. This has the feel of one of those rallies.

I hope I am wrong and this proves to be another start of the further excellent economy that the Bush Presidency has produced since his tax cuts in 2003. If I see more charts in the Semiconductor, Internet, Telecomunication, Software, and Hardware stocks rally then I will completely embrace this rally. But for now I am bullish because I have to be via my charts. I don't like the leaders in this follow-through. Old leaders and defensive issues. Not my kind of rally that I fall in love with.

Hopefully, the technology and innovative issues will continue to build nice right side of their bases and then breakout. If they do I will be more than happy, I repeat. If they do not show up and we can't make much progress on HEAVY volume in the indexes I will go back to looking for shorts in the old leading sectors of the 2003-2006 rally.

Next up earnings season. Great luck out there!



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Adding To Current Holdings: UARM FORR

New Swing Shorts: CLMT

Longs Outperforming: GPIC-29 IHS-48 HSR-71 UARM CTXS-51 PAY-38 SYKE CTCI-58 VLG-35 TSCM-159 LRCX-38 PCLN SKIL EGOV OMNI-177 NWS ABI DDS DGX CXW LYV SABA AKAM-124 GMST ACTG-119 FORR SMSI-95 IDEV HGR BMRN EYE WMG Q-73 TMG FSII RNST GMTC SBIT

Shorts Outperforming Market: BPFH

Stocks On Radar: AEHR LVS KNXA SBUX KOMG WBD BOT EEFT MENT VCP ARDI HIW DRI AMN MRK