Thursday, August 17, 2006

Four Days In A Row Of Gains; Hard Afternoon Reversal Leaves Room For Some Concern.

As the title says, stocks were up again for the fourth straight session. Helped by a good HPQ quarter, stocks rallied up nicely into the afternoon. However, two horrible rulings against MRK sent the indexes down fast erasing most of the gains.

By the close the Nasdaq was up .4%, the SP 500 and 600 were up .2%, and the Dow Jones Industrial Average eked out a .1% gain.

Volume came in lower on both the NYSE and the Nasdaq, signaling momentum might be running out on the upside in the very short-term. Breadth was positive by a 6-to-5 margin on the NYSE and by a 3-to-2 margin on the Nasdaq.

Though the market continues to offer gains, and this rally continues to perform better than the June rally try, there are some things that are bothering me. First off, almost all of my longs are poor quality cheap merchandise. The second and most troubling thing is the IBD 100. This index has lagged the markets, once again, falling .7% today. This is the fourth day in a row of underperformance. As I said last night, on my blog, normally at the start of powerful bull markets leading stocks lead the indexes. This is not happening.

These late follow-throughs have continued to work in the past but I am not sure about leading stocks not leading whenever the markets of 1935, 1943, 1960, and 1978 followed-through. I have studied the bottoms of the late follow-through day rallies and did notice the late follow-through days that had a HUGE surge in volume lasted longer and were way more smooth than the late follow-through days on lower volume.

So even though there are worries right now to be aware of, we still have to recognize that we are in an uptrending market and the path of least resistance is to the upside. While that is going on, I am going to be doing my best to make money on the long side. I wouldn't short this market until it fails--if it fails--so you can have the odds on your side. Three out of four stocks follow the trend of the market.

The only thing I can for sure recommend in this environment is to book some profits of at least 25% when you have them. You don't want to give back a 25% gain in a tough market like this. And there have been a lot of gains evaporated quickly in this environment by the not-so-swift-of-foot traders.

Stay flexible in this environment, don't marry your long positions, don't marry your short positions, stay positive, keep your watch list updated, and I will see you at Investors Paradise.



New Swing Longs: NITE UTK PME STEC APN ILE VC

New Swing Shorts: NONE

Longs Outperforming (low volume non-IBD stocks excluded): TWTC-160 IHS-52 TYL-27 BWP-25 WEBX HMSY DIGE SEIC GPIC HWAY CTCM IMA JTX TRMB DGX MO BRR OMRI CHINA ALSK IDEV FORR RMR

Shorts Outperforming (all): USG-49 EL JOYG RES PII IYT AME HCBK WTI WERN RS X STLD EXBD DDE HYDL SIGI GSF NC KG KMR CEN KMP

Completely Cover Shorts: RCNI BLK RRGB

Stocks On Radar Screen: CPA HPQ ALY CSL NVEC NUVO BW

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