Stocks Follow-Through on The Follow-Through, On Heavier Volume.

Stocks continued their winning streak, closing higher for the third day in a row. Today was a nice confirmation day on yesterday's follow-through. The gains were due to a low number in the CPI report, giving investors confidence that the Fed may be done with its rate hiking cycle. After today's numbers Fed Funds Futures fell to around 10-20% (depending on where you get your data from) for a hike in the upcoming September FOMC meeting.

By the close the Nasdaq led the way with a 1.6% gain, the SP 600 gained 1.5%, the Dow Jones Industrial Average ticked up .9%, and the SP 500 lagged with a .8% gain. The most impressive move of the day was in the Semiconductor Index with a 4.3% gain.

Volume was higher on both the NYSE and the Nasdaq. Volume came in well above the 50 day volume average on the Nasdaq, giving an impressive signal that this rally probably will have some trading legs to it. Advancers beat decliners by a 3-to-1 margin on the NYSE and by a 2-to-1 margin on the Nasdaq.

Now, on the above paragraph, you will see I said "trading legs" and not a bull market. I say this because there are some problems with this rally. Besides, volume still being suspect, and a lot of ugly charts still littering the battlefield, leading stocks are lagging on this uptrend. The IBD 100 lagged the market again today with only a .8% gain. This is not what you like to see with the Nasdaq up 1.6%. If the Nasdaq was up that much and the IBD 100 was up 2.2% or something like that, I would be totally excited about this rally. However, this rally is still very suspect and should be taken with a grain of salt. Don't over-do-it to the long side.

In saying that I don't think it is wise to short this rally either. We had a follow-through day signaling that the trend is up. Fighting that trend is a stupid play, period. Until this rally fails, going short, is the wrong play. As the shorts who did not take profits and/or did not cover their shorts at proper cut loss points know, being on the wrong side of a short is extremely painful.

The indexes are all in much better shape, after the last two days. All indexes now sit above key resistance levels that are now support levels; old resistance becomes new support. If the markets hold these levels and keep rising, you can bet there will be plenty of nice trades to take in the coming days. As you can see, tonight, there are some nice ones. The two longs yesterday worked well, which is a change of character for breakouts from the recent market. This isn't "the rally" but it is still shaping up to be a nice tradeable rally.

I don't know what is going to happen tomorrow and you can be sure NO ONE knows either. We know the sub-intermediate trend and short-term trend is up now on all indexes and shorting is the wrong play right now. Until we fail (if we fail) I would not try shorting the rallies.

Stay alert and on your toes. Anything is possible in a market like this. I don't doubt this rally will fail but you NEVER know how long a "trading" rally can last. Three months, two months, or one month....heck who knows maybe this is another leg in a bull market that started in 2003. Somehow, though, I really doubt it.

Great luck out there. I will see you at Investors Paradise.

New Swing Longs: WEBX TRMB PT CHINA AVCI

Adding To Longs: TWTC

New Swing Shorts: NONE

Longs Outperforming (low vol. non-IBD stocks excluded): OMNI-141 CVO-140 TWTC-158 KNOL-143 CXW-25 CTCI-64 BWP-25 SYKE-37 BAM-37 TYL-27 VLG-49 AVNC-40 HSR JTX GES DIGE HMSY SEIC TRMA HWAY CGX DJO LMT ISYS RNST DGX OMRI BRR IDEV FORR ALSK ZONS

Shorts Outperforming (all): EL CBD ATPG GKIS KG STNR BEC HSY AHG CPF AGP EXBD DDE WTI

Completely Cover Shorts: AMAT MAFB VXF WTFC MAR LDSH CAT

Stocks On Radar Screen: CPA ALY STP MOLX IIVI BRS EMS CNXS CRA BID ILE LSCC UCTT PME TRAC