Saturday, May 12, 2007

Stocks End The Week On A Bullish Note, Despite The Lower Volume

Stocks gapped higher on the back of economic data that was taken as more positive than negative and on some more M&A talk. The Labor Department said the wholesale PPI came in with a .7% increase in April. This was in line with estimates and showed that growth in prices at the producer level were flat except gas. Gas cost rose 8.2%.

April retail sales came in .2% lower but was much better than the numbers the same-store sales delivered on Thursday when they reported a 1.8% fall on the back of some of the worst declines WMT has seen in over 20 years.

The last bit of excitement that helped send stocks higher early on came on the announcement that CME has raised its offer for BOT. There is no news of what ICE is going to do but they are reviewing their options.

The markets took this news in stride and managed a nice rally that saw dip buyers come in and buy the “bargains” Thursday’s selloff had left them. After a mid-day low, bulls went to work sending the indexes to their HOD, however on lower volume.

At the close, the SP 600 and the NYSE led the way with 1.2% gains, the Nasdaq followed with a 1.1% gain, the SP 500 gained 1%, and the DJIA rallied .8%. Leading stocks took back control, on Friday, as the IBD 100 rallied 1.7%, well outpacing the broad market. That is just the kind of action you want to see after a day of selling in the markets.

Volume, like I stated, however, was lower, across the board. Volume fell 23% on the Nasdaq and fell 10% on the NYSE, mitigating the power of the gains. But despite the lower volume, the breadth was very good. Advancers beat decliners by a 13-to-4 margin on the NYSE and by a 3-to-1 margin on the Nasdaq. So that was very impressive.

What was not impressive in the breadth department was the new highs. Despite reversing almost all of yesterday’s losses, new highs did not expand at all on the market. New 52-week highs came in at 257 and new 52-week lows came in at 82.

For the week, the DJIA rallied .5% making it the sixth week in a row of gains, the SP 500 followed with a .02% gain, the NYSE lost .06%, the SP 600 lost .3%, and the Nasdaq led to the downside with a .4% loss. The top index, this week, was the IBD 100 with a 1.4% gain. It was very good to see the IBD 100 lead again. This is much better than the DJIA leading.

Some of the best stocks on Friday came from China as China announced they were lifting restrictions on some refined products. GSH CHL SNP and LFC all saw significant gains as most of these blasted out of bases that were not the most perfect bases to be blasting out of. But a breakout is a breakout and they did breakout.

The selloff on Thursday with the Nasdaq having slightly higher volume and the volume on the NYSE lower had only a slight impact on my top stocks in my portfolio and left me only fully selling a bunch of speculative longs. All of my complete sells on Thursday were from the pure speculative arena. The leaders didn’t do so bad and the pullbacks did not have the feel of panic in them. Hence today’s price gains.

The Thursday selloff allowed me to dump those losers or weak stocks so that I can now have more money to put in to better charts that have much better technical patterns. And that is exactly what has now happened. After Friday’s trading, more than a handful of very beautiful and green charts have setup into perfect buy areas. There are a lot of charts bouncing right off the 50 dma or breaking out of longer bases on very strong volume with green charts. The complete sells obviously did not look like these.

This is why pullbacks are good. I can get rid of the crap that is not working and buy pure quality with better charts. If you are a silver or gold member you can see those beautiful charts and then compare them to the sells I made on Thursday and see I have moved money from stocks with broken patterns to stocks that are ready to move. In fact, Friday’s scan has revealed the most what I would consider “near perfect” charts in one day for more speculative stocks since 2007 began. If Thursday’s selloff had not happened, I would have had less money to put into these pretty charts. Instead I now have more money to use on margin in the prettier charts that should do MUCH better than what I have. This is why pullbacks are good: you can sell laggards and move money into cash (which would be better than losing money) or move the money into stocks with better chart patterns.

Without a pullback, you instead hold the laggards and have less money to work in the better patterns. Turnover is good; not bad. Another positive about smaller selloffs are that you don’t have 4% pullbacks like you do in February. Those kind of vicious pullbacks are the result of non-stop markets that never have 1% pullbacks in the DJIA or 2% pullbacks in the Nasdaq. When you don’t have normal pullbacks, you get one day crashes. So these things are good not bad.

The dip buyers are still working and even after the dip buyers are done the retail and sometimes institutional crowd is right there putting money to work. Right now people do not want to be left behind and the best thing to do is stay out of there way, not fight the trend, and to just ride the trend. Right now it is a completely bullish market, despite some complacency (the put/call fell below .7), and doing anything but going long here is the wrong play.

Whatever you do, do NOT chase performance. Demand the stock is bouncing off a key moving average or is breaking out of a base at least five weeks long. If you do this you put yourself in a much better position of avoiding severe one day losses that happen to a lot of stocks during earnings season. But, thankfully, we are out of that crazy season and back to our normal trading pattern off of news and economic events.

I am not sure where the sell in May and go away crowd is. But maybe they will show up this week. However, I truly doubt that is going to happen just yet. We have the CPI on Monday and I hope everyone is having a great weekend. Aloha and I will see you in the chat room!!

Market Commentary At Big Wave Trading Bronze Level One

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

top holdings - purchase date

KNOL 366% - 1/12/06
TRCR 323% - 1/12
PTT 280% - 11/16
TNH 246% - 10/26
MA 180% - 8/2
TTEC 159% - 8/25
ANO 150% - 2/14
IGLD 127% - 10/26
JSDA 125% - 12/20
ULTR 109% - 10/27
MEH 108% - 8/30
HRZ 106% - 9/27
BAM 106% - 11/17/05
CPA 105% - 9/15
SVNT 100% - 8/24
MFW 94% - 1/29
EVEP 93% - 11/16
NEXC 91% - 10/25
CRY 82% - 1/10
KHDH 80% - 5/30
CXW 78% - 5/19
PAE 73% - 3/22
DECK 71% - 9/13
HURN 69% - 9/13
VDSI 67% - 1/4
LFL 65% - 12/13
CNH 64% - 11/2
NSH 62% - 12/19
APLX 61% - 9/28
TESO 57% - 2/16
BMA 57% - 10/24
KALU 55% - 12/6

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