The weak GDP report was taken as great news and sent stocks soaring on Friday, with all the indexes making significant gains.
The SP 600 led to the upside with a 2% gain, the Nasdaq followed with a 1.9% gain, the SP 500 and Dow Jones Industrial Average finished 1.2% and 1.1% higher respectively.
Volume came in much lower on the Nasdaq and on the NYSE. This low volume clearly shows that institutional investors were not buying stocks. Instead this had the classic look of an EOM markup, short covering, and oversold bounce. Breadth was positive on the NYSE by a 4-to-1 margin and by a 2-to-1 margin on the Nasdaq.
This rally on Friday helped cap off a very bullish week for stocks. For the Dow Jones Industrial Average it was the best weekly gain since November 2004. It sure seemed like a very bullish week, unless you actually look at a lot of charts. If you did that you were certainly confused as to how the market could of possibly been up this week, much less the Dow having the best week in a year and a half.
I have to admit, this market, even with this weeks gains is just all wrong. Two huge rallies on volume lower than the day before clearly shows that the big boys were not playing. The volume was not even above the 50 dma on either of the two day rallies in the Nasdaq. This also came with both indexes each having one very obvious day of distribution during the rally. This is not what you see at the beginning of a raging bull market. This is what you see in oversold bounces in downtrending markets.
And the fact that there are charts breaking down everywhere supports the fact that this market is not in the best of situations. You simply have more charts setting up in calm bases with accumulation days. Instead during this uptrend my short scans are thick and my long scans are producing stocks zooming out of ugly, sloppy, choppy, and bases full of distribution with little accumulation. This is not what you see in the rallies that launch major bull markets. Do you think stocks looked like this in March 2003? Do you even think there was this many ugly charts at the October 2002 bottom? Nope. These charts tell me there is more room to go on the downside or there is more time needed to go sideways before any rally can happen. These charts in the Gold, Steal, Oil, and other commodity sectors also have the look of Internet stocks in March/April 2000 and Sept/Oct 2000.
If you look at the charts of the past leaders of the bull market (commodity stocks), you will see that the past few months have been hell for these stocks. The big money is leaving them and the dumb money is buying all the Gold infomercials, Oil infomercials, and Jim Cramer favorites. The smart money is selling to the mass public and they are moving to cash because there is no clear rotation into any true leaders. I will say it again, Food and Beverage stocks are not bull market leaders. They are defensive safety nets in bear markets.
Don't let these low volume rallies fool you into being suckered in. This market is still being sold. Trust me, the stocks that race out with 100% plus gains will breakout after an uptrend and follow-through days are given. Just look at March 2003. The Nasdaq was up 10% in three days. How many traders do you think said this? "Oh man, I missed the bottom. It is too late now. Dang it." Trust me, a ton did. I remember clearly! What did the Nasdaq do after those three days? How many stocks went up over 100% in less than six months? This is rhetorical. I am sure you know the answers.
This week caught me off-guard but one thing remains true. Everytime I think the market is about to collapse or explode short-term, I invariably taking that position at the exact bottom or top. I am the master of mental capitulation.
We will see if all this good news last for the indexes. The indexes are in better shape than last week and last month but it is still very ugly out there in the land of individual stocks. It still isn't time to go all-in yet.
Have a great Sunday and I will see you on Investors Paradise off and on during the day. Stay positive and diligent. There is always a bull market after a bear market. Always. This isn't 1929!
Portfolio Holdings: Long - 61 stocks Short - 82 stocks.
New Swing Longs: DJO HWAY WTNY ZONS
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