Once again, major market indexes closed in the green, after staging a very nice bullish reversal intraday. After moving down thanks to a poor DELL earnings report and accounting issues with the company, it was nice to see the market reverse that selling and close higher. The higher close shows that the market, for now, wants to go higher. You couldn’t have asked for a better week.
The Dow Jones Industrial Average and the SP 500 both finished with .4% gains, the Nasdaq closed up .3%, and the SP 600 lagged with a .1% gain. This closed a week which saw the Nasdaq rise an extremely impressive 5.2%, the SP 500 gained 2.8%, and the Dow Jones Industrial Average finished the week up 2.6%. For the Nasdaq it was the best week in more than three years!
Volume was lower on both the NYSE and the Nasdaq, as should be expected of a Friday in August. Breadth got better as the day moved on and by the close was positive on the NYSE by a 9-to7 margin and was pretty much even on the Nasdaq.
What more can I say about this week than WOW! If you read my post last Thursday and Friday you will see I made comments about the chances of the market being boring the rest of the month; boy was I wrong. I had no clue the bullish action that we saw this week was coming upon us. There simply was no reason for the move except that the CPI and PPI report let enough bulls take control of a quiet tape. Don’t even try to tell me it was the cease fire in Lebanon. The UN has passed multiple cease fires and resolutions before. They are a joke to Hizbollah, Iran, and Syria. That had NOTHING to do with this weeks action.
Even though I can not explain the move this week, I have to respect the fact that the market has solidified. Every trading day this week, dips were bought. The market got stronger, everyday, as the day went on. The DJIA and SP500 are now back to all being in uptrends on all time frames. The Nasdaq is still in an intermediate downtrend and long-term in a lateral phase but the short-term and sub-intermediate are up. With these trends in place, this is the position I take.
Since we are in solid uptrends and have had a follow-through, does that make me super bullish? Absolutely not. We were very oversold, had too much pessimism in the surveys, had cocky shorts, and too many people ONCE AGAIN thought that Armageddon was here. This made for the perfect recipe for a nice reversal. The biggest thing that bothers me about this rally, however, is the poor leadership. The IBD 100 has lagged the markets everyday of this rally.
The IBD 100 is loaded with oil stocks and that is why it is lagging. However, at the beginning of really strong bull markets that launch gains of 50% or more for the indexes, you have leading stocks leading the market. The IBD 100 was up only 1.9% for the week. If it was up 7%, while the Nassy was up 5%, I would be all over this rally. When the market bottom in March 2003 and more recently October 2005, leading stocks led the rally. The top stocks in the top industries were outperforming the market. Right now that is not happening and that is enough to keep me cautious about this current rally.
Maybe during the next pullback these oil stocks will fall off the list and the those stocks will be replaced by newer more exciting names in innovative fields that show the stock making huge earnings and sales gains. If that happens and the IBD 100 starts leading the market then we will know this market is clear to the upside for a little bit. Until that happens I am skeptical of all rallies in this market environment.
What kind of Industries do I want to see lead? The ones that led this week! If they can keep leading after the next market pullback and have some of those stocks replace the old oil laggards I will be more than happy about this rally. Those sectors include: Internet-Network, Household-Cons Elec, Elec-Semi Mfg, Internet-ISP, Mach-Const, Elec-Semi Equip, Internet-Soft, Transp-Airline, Computer-Man, and Transport-Services. Until then, I remain skeptical.
Next week is supposed to be very quiet on the economic front and that along with it being vacation time in August should present us with a very quiet week. I was wrong last week. I hope I am not wrong this week. I would not mind taking a couple of days off.
I hope this rally this past week did not hurt you that much. If you stayed disciplined and followed cut loss rules you should have done just fine or escaped with minimum losses. If you have not gone long any of the wonderful longs I have taken, you still have time to catch plenty of market winners. If this is a “real” rally there will be plenty of stocks breaking out of great patterns for you to choose from.
Have a great Sunday and I will see you Monday at Investors Paradise!!
New Swing Longs: ALY BW
New Swing Shorts: NONE
Longs Outperforming (non-IBD below avg. volume movers excluded): OMNI-132 CVO-142 AKAM-150 CTCI-64 IHS-54 VLG-49 SYKE-36 CXW-23 TYL-32 MO IMA HMSY CHINA NITE WEBX RNST DDS PT CGX DIGE DJO WNR TRMB STEC PME
Shorts Outperforming (all): USG-49 SWC-35 JOYG-30 GYI-22 MAS PII POOL IYT PDCO HTLD HCBK BPFH GTRC SUPX AME WERN FRC RS CNI X CPF XPRSA AGP DDE FDX TZIX IART BEC CCO RMK STNR CFC CBD EL
Completely Cover Shorts: XNPT TXRH WFSL AHG VOL
Stocks On Radar Screen: NVEC ISSX CPO VSEA CPA HPQ IGT TZOO CNL IIVI VOLC BKD CLUB CUP GHDX TRAC SOFO OPY
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