Stocks ended the week on a light-volume positive note, after a pretty wild and semi-rough week that saw the Nasdaq come under two more days of distribution. However, the constant takeovers, M&A's, and LBO, continues to keep a floor on this market and give short sellers the pain they deserve when they short a rising market (a play only amateurs and ego-driven traders make).
Despite the NAR existing-home sales reporting a drop of 2.6% in April to a four-year low, below estimates, stocks still managed a pre-holiday really. At the close, the Nasdaq, Nasdaq 100, and SP 600 led the way with .8% gains, the NYSE followed with a .7% rise, the SP 500 finished with a .6% gain, and the DJIA ended the day with a .5% gain. Leading stocks, via the IBD 85-85, did even better, gaining 1.5%. For the week, the SP 600 finished .7% higher, as the only index that made gains on the week. The rest of the indexes finished lower, with the Nassy 100 losing .8%, the SP 600 losing .7%, the SP 500 losing .5%, the DJIA losing .4%, the NYSE lost .2%, and the Nasdaq finished lower by .05%. So it wasn't a great week, but by the losses it wasn't a horrible week either. It just was what it was, which looks like a little bit of consolidation of all those recent gains. There really is nothing to takeaway from this week's action.
The only one real obvious week spot Friday and for the week was in the Utilities sector. The top stocks that I was long in that sector (NU EE ETR AYE ITC) took some big hits, causing me to sell some down or out completely, and the DJUA fell 3.9%. The cause of this was due to the rising rates in the bond market. Many of these stocks look toppy, like PNW. The rising rates also put a kibosh on the possibility of a Fed Fund rate cut as the odds fell to less than 50% that rates would be cut this year.
Volume was lower by about 33%, on both the NYSE and the Nasdaq, advancers beat decliners by a 9 to 5 margin on the Nasdaq and by a 12 to 5 margin on the NYSE, new highs came in with only 134 new 52-week highs. This is yet another disturbing trend of new highs coming much lower despite the indexes being near another all-time high. This divergence has been happening since November. However, the put/call ratio is still very high at .93. The high put/call shows people are still shorting stocks and buying puts on the rally. The most interesting internal data I saw on Friday was that the NYSE short interest is at a near five-year high of 7.46%. That along with the put/call ratio indicates a lot of people are making bets this market goes lower. The crowd is normally always wrong.
The lack of losses by the major market indexes can be thanked to all the activity in the buyout markets. The leveraged buyout of AL by AA has been rejected, Kerkorian made a bid for MGM assets, BOL and TOPP received buyout offers, NDAQ buys Nordic exchange OMX, ASN announces it is in buyout talks, and KO bought Glaceau's Energy Brands for its vitamin water. This kind of action is indicative of a market that is in a very bullish stage still. Markets do not bottom with this type of action, but they do top on this action. However, we will have to see a lot more outrageous deals like the one we saw with MSFT buying AQNT for an unbelievable price over the actual revenue.
There have been some distribution days that have made this rally a bit nervous recently but a lot of leading stocks continue to hold well or make good price gains with these indexes near their recent highs. With the indexes still over the 50 dma, it is just too early to jump the gun and call a market top. It didn't serve me well on Feb. 27th and it hasn't done anyone any good since then. It is very hard to me to be a "hater" on this market, even with seven year resistance lining up on the SP 500. That seven year resistance, even though a lot of commentators are talking about it, just is not important for me at all. If there are bagholders in the SPY from 2000, trust me, they are not going to sell and breakeven when the SPY finally hits that mark. This is simply a number I have NO interest in. However, CNBC will, so you can enjoy that if you waste your time on that non-sense.
The only thing I wish I could see change is the financials. It would be nice if the banking indexes were rallying along with the market indexes. Actually, what I have noticed also is that the DJTA is also not making a new high with the index. So now the index is rallying without the DJTA DJUA and the BKX hitting new highs. Just something to be aware of. Until the market's trend changes, it is still just semantics.
It is clearly obvious to me that the wall-of-worry is still alive and well, despite what the II, AAII, and realmoney.com polls suggest. The Investors Intelligence survey came in with bulls rising to 54.3% which is a 2007 high and bears falling to 20.7% a 2007 low. The AAII bulls have increased to 37% and the bears have fallen to 38.5%. The realmoney.com poll shows 47% are bullish and 25% are bearish. However, their money is NOT where their mouth is.
The put/call, as I mentioned, is at .93, NYSE short interest is near 5-yr highs, mutual fund inflows keep slowing to a trickle, and margin debt (normally used for bearish bets) is at an all-time high at $319 billion. That is a YOY gain of 67%. So obviously the bets are being made against the bulls, despite the crowd insisting they are bullish. Very odd indeed, if that is what you were thinking. So basically what I am seeing is that people would rather be long than short but are still shorting the market. Seems to me only the smart money is buying stocks here. The dumb money is selling/shorting.
Another possible scenario for the shorting is that a lot of market particants are making a big deal over gas prices and how it is going to wreck the economy. I have been hearing this damn argument for years now. I am still waiting for it to come to fruition. It is true that gas prices are getting a bit crazy but our net wealth is higher than ever and if our SPOILED BRAT American consumer ways are any indication--we can afford it. So no matter how much they say the gas prices are going to hurt the economy, the fact of the matter is this just creates another wall-of-worry for the markets to climb as traders short the market waiting for this magical correction caused by the consumers pockets drying up. Until it actually dries up, why short the market and lose money?
This uptrend is still not to be messed with. Next week will show us if the distribution days in the Nasdaq are anything that is going to turn into some real selling. If the action in leading stocks is any indication, we are not going to get too much selling off of those distro days. The indexes and leading stocks continue to hold that key 50 day moving average and have good to great accumulation/distribution ratings. Right now the right play seems to be to buy the dips. That is not a method I endorse, unless the dip is on low volume and followed by a heavy volume bounce around a key moving average or support.
The market is getting a little bit oversold according to the 10-week moving average of the advance/decline line oscillator and the index put/call 21-day moving avg. is getting near the 2.00 level where the markets like to try to top out. But there is still room left with it at 1.80. So that along with the former oscillator mentioned tells us that there is more room to rally before we become overbought or have the extreme index put buying that signals a real top. A high put/call is bullish until it stays high for too long and gets to extreme levels. When that happens it actually confirms the market, if a selloff happens.
As it stands, right now, however, there is no selloff, so the only right thing to do now is to follow that trend, until that trend changes. Next week we have non-farm payroll numbers, the second reading of Q1 GDP, consumer confidence numbers, and the FOMC minutes. Along with the economic numbers, we have earnings from DELL COST HNZ HOV SHLD DBRN RL PSS JAS JCG that should create some minor excitement as earnings season comes to a close.
Enjoy your Memorial Day!!! Never forget the sacrifices that our troops make to allow you to read this blog. This blog and all the money making ideas would not be possible without the brave men and women who sacrifice their lives defending this country and making this world a better place to live in for EVERYONE. Not just Americans. EVERYONE deserves freedom. If you lived under a dictatorship, only then could you appreciate how well off we have it. I have a feeling there are many that read this blog that take YOUR freedom for granted. If that is the case, you should really take a minute and think about how the world would be if the USA did not exist. Do you really think you would be trading stocks? Do you really think you would be free?
Aloha and I will see you in the chat room!!!!
top holdings up this week - purchase date
TRCR 306% - 1/12
MA 181% - 8/2
TTEC 140% - 8/25
OMTR 137% - 9/15
SVNT 131% - 8/24
MEH 119% - 8/30
CPA 118% - 9/15
KHDH 108% - 5/30
JSDA 106% - 12/20
HRZ 104% - 9/27
MFW 104% - 1/29
ULTR 101% - 10/27
CRY 94% - 1/10
EVEP 90% - 11/16
CXW 87% - 5/19
IGLD 79% - 10/26
DECK 76% - 9/13
MCZ 74% - 3/27
HURN 70% - 9/13
CNH 65% - 11/2
BMA 64% - 10/24
APLX 62% - 9/28
VDSI 61% - 1/4
ZNH 59% - 12/26
NXST 59% - 3/28
LFL 57% - 12/13
TESO 56% - 2/16
VCLK 55% - 11/14
APFC 55% - 3/5
TTG 52% - 11/30
NSH 52% - 12/19
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
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