Saturday, April 14, 2007

Bulls Fight Off The Bears, Once Again, As Stocks Rally On Lower Volume To Close At Their HOD

Bulls Fight Off The Bears, Once Again, As Stocks Rally On Lower Volume To Close At Their HOD
By MauiTrader

The recent theme of this market has been that all economic news is moving the market. This may be due to the fact that less institutional investors are around to make bets on stocks (the low volume confirms this) but still the fact that the market is so easily moved around shows just how uneasy and unsure investors are. Today was no different.

Early in the morning we received the latest PPI report that showed a 1% jump in March after February’s 1.3% gain. It was the core PPI, however, that had the positive impact on stocks as the core remained flat compared to expectations of a .2% increase. This, along with the earnings from GE, helped get stocks off to a positive start. But those gains were soon eliminated after the University of Michigan’s consumer sentiment survey fell to 85.3 in April from 88.4 in March, below expectations of 87.5, echoing the IBD/TIPP poll released earlier this month.

Proving, though, that the dip-buyers are still in complete control, right after that selloff, stocks found a bottom. Stocks then rallied for the rest of the session closing near or at their intraday highs. The rally picked up steam after comments from Dallas Fed President Richard Fisher made comments about how globalization is helping raise world productivity that in-effect has positive pricing pressure consequences for the USA. That was good enough to bring in the retail crowd. The rally was well along, when a little before 3pm EST the Chief Development/Operating Officer of CSCO said that Cisco’s customers were at the early stages of a new upgrade cycle. That helped give the Nasdaq a huge jolt sending it to its HOD.

At the close, bulls were in control, once again, with the DJIA, Nasdaq, SP 600, and NYSE all up .5%. The SP 500 lagged with a .4% gain. The DJIA got a big boost thanks to an 8% rise in MRK off the back of a positive ruling over Vioxx. Once again, for the fourth session in-a-row, the IBD 100 lagged the broad market with a .4% gain. I hate to tell you this, folks, the best bull markets that have long term staying power ALWAYS have these high quality stocks leading. The fact that they are still lagging this current rally and the overall rally since the July and August lows last year signals that we are on or near the last leg of this bull market that has been going on since March of 2003 without a 10% decline in the DJIA.

Volume was lower by about 5% on both the NYSE and the Nasdaq and once again neither average traded enough shares to even equal its 50 day volume average. Institutional investors are still on the sidelines except when they decide to sell stocks. Then they show up. That is why we have two distribution days with higher volume than the two accumulation days since we followed-through. The good news, today, on the volume, is that the volume picked up as we rallied late-in-the-day off the back of the CSCO news.

Underneath the price gains, the market showed that it is doing well and is not signaling anything drastic after Friday’s session. Breadth was positive on both exchanges, with advancers beating decliners by a 10-to-7 margin on the NYSE and by a 3-to-2 margin on the Nasdaq. There were 459 new 52-week highs and 50 new 52-week lows, with the Chemical-Fertilizer group having 36% of their components hitting that mark. The put/call ratio is still a bit high at .9, which indicates that options traders are still making enough bearish bets that fuel for more price gains.

For the week, the market did very well, with the NYSE leading the way with a 1% gain, the Nasdaq followed with a .8% gain, the SP 600 came in with a .7% increase, the SP 500 was next with a .6% gain, and the DJIA was the laggard with only a .4% gain. Overall it appeared to be a very bullish week but without volume it is hard to definitively say that this market deserves an all-clear signal. My defenses are still up and armed ready for a sudden change should it develop.

My problem is that this light volume rally still gives me the feeling that the retail crowd (dumb money), shorts that are forced to cover their shorts, and daytraders are the ones moving this market. There is a quick visual way to describe what I see: Look at a daily chart of the Nasdaq; now count how many big red bars you see this year compared to big green bars. Do the same thing for the NYSE. Now do this on a weekly chart of both indexes. You will clearly see that the big red bars (distribution) are more frequent than the green bars (distribution). Even though most indexes are overall doing fine in the acc/dist rating, the NYSE has a C and the SP 500 has a D. This despite both being at or very near their all-time highs. This is a bearish development. Now this can be worked off if a ton of accumulation rushes in but for right now that is not happening.

What appears to be happening is that after February 27 the big boys sold stocks, the dumb money came in and starting to buy the dip-since all dips are buys since 2003. When they started to buy the dip, the traders who were for sure the market had topped then started shorting stocks. As the dumb money keeps buying stocks and as the daytraders stay active in bidding up the hot momo stocks (bio and solar), the shorts are then forced to cover their poor trade. This then sends stocks higher and then the big boys dump on them creating another distribution day (April 11) and then we start the whole process all over again. That is why we keep having low volume rallies and we have two distribution days since the market followed-through on March 21st. It is a very smart game the best of the best play. I know this game well. They did it before the 20th century and they will be doing this in the 22nd century.

To go along with what I see in the indexes, I see classic situations of a market near its end. Daytraders are back and are moving stocks, once again. This time the solar stocks, as I have been saying for months now, are the momo monsters. However, another group has joined them after the DNDN announcement: biotech. Biotech stocks are now moving all over the place, with many making very large price gains. I am willing to play these momo monsters but they still must breakout from sound chart patterns. They have to setup like ASTI. Stocks like JASO, TSL, and SPWR are breaking out of sloppy ugly bases. If I was daytrading these bad boys, I am sure I would be doing OK. However, I like to position trade now for the big gains. If the base is ugly, I pass. It is a simple as that. However, the game right now is to daytrade the biotechs, golds, and solar.

Take that speculation now in this market along with all of these low-priced POS that I have flying everywhere and it becomes quite clear to me we are entering a very speculative stage of this market. So, if we are getting a lot of momo stocks in the low-priced, solar, gold, and bio area to prove that it is not speculative all the high priced stocks are moving too right? Wrong. The real leaders in these groups have already made their runs (besides solar) and now the sub-$5 stocks are cooking. Is that a problem? Not at all. In fact at this point this is where we can make a TON of money as long as this trend last. Even if it doesn’t last that long, that is why we cut losses. But if this is the last hurrah, many of the stocks I have recently gone long should produce some big gains.

What else makes me think we are near the end? The fact that the old leaders from the 2003-2006 bull are back again. Oil&Gas, Gold, Steel, Metals, Transports and Commodities are all moving again. This time the leaders are making moves in some and not in others. The old leaders that are not leading again are setting up bases so there could be a lot more upside left in these. But along with these stocks, we don’t have financials, tech, and housing. We have Utilities, Defense, Food, and Medical stocks. The rotation has been out of leading high-tech and high-growth stocks into defensive and safety issues.

Even though I am cautious as can be on this market and have outlined everything I find wrong with this market that I did not find wrong with the market AT ALL in 2003 and 2004, it doesn’t effect my trading. I am long 230 stocks and most are very speculative so are very small. The fact that few CANSLIM quality stocks are breaking out is the reason I am not 200% invested. This market is obviously not acting right to not have me fully invested with it at all-time highs. Trust me, if this market was a rip-roaring raging bull market full of CANSLIM quality charts breaking out left and right, I would be 200% invested. However, since it is all crap I am not looking to become a wealthy rich individual here. I am simple trying to make sure I make a comfortable living so I can pay all my bills on Maui. That is all I want right here. If these stocks FLY!!! then I will get very wealthy. If they don’t, they are breaking out of patterns that should provide some nice gains.

It should be a busy upcoming week, with earnings announcements everywhere and the CPI being released on Tuesday. The CPI is sure to be market moving news but the earnings are sure to make anything off of that meaningless by the end of the week. We have announcements from such tech companies as IBM INTC EMC STX YHOO GOOG. So far the earnings have not been that great and as I have said before Analyst are expecting gains of 3.7% in YOY earnings this quarter. That is down from 8.7% estimates, earlier this year (not a good sign). Also, the expected 3.7% YOY gain will be the first gain in 14 quarters of non-double digit growth. As earnings go, so goes the market. Historically you can watch the trend of the GDP growth and earnings growth of an economy and see that they are the best predictor of what direction the stock market will take. GDP and earnings lead the market.

Take that along with what I see in the indexes and in my charts and it just becomes clear to me that there is not a whole lot left in this rally. Maybe a month to three months. But I can’t imagine by next quarter we will be higher with all the bad numbers, old leaders, and speculative situations I see. We will know it is ending when we get more distribution days in the market. Right now, we have two since the rally followed-through on March 21. Two more next week would raise caution flags everywhere and would definitely make me think about cutting losses much shorter than I normally allow low-priced junk POS stocks. But until I see that distribution, I will continue to ride the trend of the cocky bullish daytraders. Those daytraders are a brazen bunch.

The only other interesting piece of information I saw this weekend was that the Bradley stock market model sees a significant turn date (bearish) on Friday April 20. This is a stock market timing model based off of astrology and has been quite impressive at calling turns. However, sometimes the turn it calls for happens…in the opposite direction. So this model is shaky but it did get the March 13, 2003 bottom right on the money. However, it has a spotty record of tops. But with all the bearish situations I see in a bullish rising market, along with all my longs being so speculative, this is something for me to keep in the back of my mind as we continue on with our overbought speculative low volume old-leader filled bull market.

Aloha and I will see you in the chat room. Have a great Saturday and Sunday!!!

Sidenote: DEATHS DOWN 45% FROM FEB 14 - APR 14 (1586) COMPARED TO TWO PRIOR MONTHS DEC 14 - FEB 14 (2871) IN BAGHDAD. I hate our liberal media. Thank God I know how to read and find information on my own.

Market Commentary At Big Wave Trading Bronze Level One.

Top Holdings Up This Week - Signal Date

KNOL 332% - 1/12/06
AKAM 230% - 9/30/05
TRCR 191% - 1/12
CVO 189% - 8/18/05
TTEC 175% - 8/25
JSDA 164% - 12/20
TNH 141% - 10/26
OMTR 134% - 9/15
CCOI 130% - 9/27
MEH 109% - 8/30
HRZ 105% - 9/27
NEXC 101% - 10/25
CLRT 100% - 11/30
EVEP 97% - 11/16
SLP 94% - 2/5
CPA 91% - 9/15
MFW 89% - 1/29
ONT 85% - 12/21
CHINA 82% - 8/16
IMMU 79% - 12/19
IGLD 77% - 10/26
ULTR 74% - 10/27
MOS 73% - 10/12
ANO 71% - 2/14
PRGX 69% - 1/12
IMKTA 69% - 8/28
HURN 69% - 9/13
IIVI 66% - 8/30
DA 64% - 1/25/06
PERY 64% - 10/4
KHDH 59% - 5/30
CXW 59% - 5/19
EPHC 59% - 12/20
BAM 56% - 11/17/05
DECK 51% - 9/13
ECGI 50% - 10/20
APLX 50% - 9/28

New Swing Longs: Silver Level Two

New Swing Shorts: Silver Level Two

Stocks On My Watchlist: Gold Level Three

Complete Profits/Losses: Gold Level Three

Partial Profits/Losses: Gold Level Three

MauiTrader Forums: Gold Level Three

MauiTrader Chat Room: Gold Level Three

Longs Up On The Day: Gold Level Three

Shorts Up On The Day: Gold Level Three

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