Stocks Rally On Heavier Volume; Great Breakouts Are Still Missing.

After a morning filled with bad news from the existing home sales report and a class-action lawsuit against Tobacco companies, stocks decided to look the other way and rally on heavier volume. The credit for this rally was thrusted upon the same talking Fed-head that always causes these moves—Dick Fisher from Dallas.

At the close the Nasdaq jumped 1.4%, the SP 600 rallied 1.1%, the Dow Jones Industrial Average traded .6% higher, and the SP 500 rallied .9%.

Volume was heavier on both the NYSE and the Nasdaq. This gave both indexes an accumulation day. Breadth was positive by a 2-to-1 ratio on the NYSE and by an 18-11 ratio on the Nasdaq.

The big winners of the day was the Internet-ISP and Networking groups and the Semiconductor Equipment group. All of those indexes rallied 2.2% or better. The SOX index was the best performer today with a 2.5% gain. If this rally is going to work you are going to want to see this index continue to lead the market.

All of this volume that we are having on the SP 500 and the Nasdaq better be leading to new breakouts soon for the indexes. If the indexes do not breakout and rollover, I will officially announce this as the most obvious and WORST case of churning I have EVER seen. If you look at a daily chart going back to 2001, you will see the only more active time for the NYSE was in 2002. Since then we have not seen this kind of activity. And if you look at a longer term chart you will see that we have never seen volume like this EVER on the NYSE. This better breakout to the upside or else this churning is going to lead to some MASSIVE selling.

In saying that above, along with everything I pointed out in my weekend post, you still should not fight the trend. You never should ever argue with the trend and right now the trend is still up on all time frames. Don’t let opinions rule over facts. Fact is the market is up but not exploding to the upside. Therefore, you trade small positions in the charts that you like. But you do not load the boat with margin.

The technicals indicate stocks should move higher. If the markets rollover with all of this volume, you will have my blessing to be as bearish as you want. Until then it is still the wrong play for the general market trend.

I still wish my stocks were acting better. If stocks were breaking out and following through immediately, I would not be worried that this rally might not have the power to give us continuous new highs. But, right now, there is too much random action. Too many are not following through, some are but are then quickly reversed. There is simply too much action in stocks like MO that keep me from loading the boat. At the beginning of the most recent rally that had stocks breaking out from beautiful bases and working—Oct. 2005—many stocks never returned to their buy point. Over half are still doing that now.

The thing we need to keep an eye on now is to see if the bulls follow-through on today’s move. Every time the market looks like it wants to make a run, the bears start selling. We will see if things are different this time. We better hope so. There is so much volume in the indexes that to not follow-through should be very bearish.

Stay calm, patient, and cash heavy in this difficult market. I do not know a lot of professionals that are killing it right now so if you are not doing well either don’t lose any sleep over it. I know I am not. I know another bull with tons of HOT breakouts will be around the corner. They always are. I will see you at Investors Paradise.

New Swing Longs: SIMG CMCSA CLEC TSRA LYG

Adding To Position: SIMO DIOD

New Swing Shorts: NONE

Longs Outperforming (non-IBD low vol excluded): AKAM-207 INPH-35 CVO-134 TYL-38 IHS-70 SYKE-37 BAM-41 MWRK-28 DA-37 AVNC-81 XING WEBX PSPT SIMO PRFT ABCB RSTI NGPS LMT ISYS ROG DIOD HEI TWGP HCSG BMC DKS CPA BEBE NITE ACGL CGX CTCM IMKTA CHINA SEIC AHS ORB INWK EMS OMTR DJO MYE ALSK DECK RAH PLM XNR CPAK

Shorts Outperforming (all): SWC-46 DDE-22 HYDL-19 CPE-21 NGS-17 WTI USU KMP KMR IXC ARLP ASA SM IPS TTI MDG

Cover Shorts Completely: CCO

Stocks On Radar Screen: TST MFC GLDN KBALB UCTT UHS BLSI