Saturday, May 05, 2007

A Very Eventful And Green Week Comes To A Close With Stocks Up Across The Board On Mixed Volume

Stocks started the day off on a very positive note thanks to a couple of big merger rumors and more positive earnings from top stocks that outweighed the poor jobs report. Reports that MSFT wants to buy the search engine YHOO (around a $50 billion transaction) and that RTRSY is being offered takeover bids possibly by Thomson Financial definitely put a fire to a market that is just flush with M&A activity. Great earnings from CROX FSLR UEIC PCLN and RIO did not hurt either.

Good news from the micro could not be found in the macro today. The April jobs report showed only 88,000 jobs were added this month. This was below the 100,000 expected by pundits and was the smallest increase in two years. This is another sign that the economy is starting to slow down. Unemployment ticked up to 4.5% and average hourly earnings rose .2% below expectations of .3%. This can be taken as slightly positive since it does not show rapid inflation in wages.

The good start gave way to a midday reversal that was quickly supported by the dip-buyers, possibly thanks to another fall in oil, and they proceeded to abid stocks up in a choppy fashion into the close. Oil fell $1.26 to $61.93 ending a week where crude oil fell a total of 6.8%. That obviously is good news for consumers.

At the closing bell the SP 600 led the way hitting an all-time high with a .5% gain, the NYSE followed also hitting an all-time high with a .4% gain, the Nasdaq neared 7-year highs closing with a .3% gain, and the DJIA hit an all-time high and the SP 500 came near a 7-year high gaining .2%. Growth investors had a lot to be thankful for today as the IBD 100 led for the third session in-a-row with a .8% gain.

Volume was slightly higher on the Nasdaq by about 2% and for the second day in-a-row the NYSE’s volume came in lower. That is a slight negative divergence with the NYSE hitting all-time highs the past two sessions on lighter volume. However, breadth was very positive which does put a slight positive spin on the lower volume. Advancers beat decliners by a 3-to-2 margin on the NYSE and by an 8-to-7 margin on the Nasdaq. There were a healthy amount of new 52-week highs with 609 and even though there were 66 new 52-week lows the fact that they didn’t expand on an up day is good enough.

For the week the DJIA led the way higher with a 1.1% gain, the NYSE followed with a .9% gain, the SP 500 and the SP 600 rose .8%, and the Nasdaq lagged with a .6% gain. The IBD 100 finally did something two weeks in a row that it has not done for months–lead the market. The IBD 100 gained 1.2% for the week, outpacing the DJIA by a tiny amount. However, that is not nearly as impressive as the fact that the DJIA is up 23 out of the past 26 sessions (I have not checked but I think I got that wrong yesterday) and has hit record highs in seven of the last eight sessions. The current streak of 23 up days out of 26 is one short of the record set in 1927 when it was 24 for 27. Get your “24 for 27″ rally hats on (not really–there is no need to cheer).

I have to admit, last week was one of the more exciting weeks I have been a part of in a while. I am not sure why but I believe it has to deal with the fact how confused everyone seems to be about this market. I have to admit I am not a genius to know why we are rallying. But I am smart enough to know that that is all I really need to know. While I continue to go long stocks, I still see a lot of people hesitant to buy stocks here.

I have to admit, I am, in my IRA. But in my regular accounts I am not afraid at all. There were only two stocks that I am going to have to completely sell-off yesterday due to breakdowns. One was E** (4% loss) and the other was I*** (8% loss). I scaled into INXI so that position did not hurt me and then EDS was bought so close to the 50 dma that that did not hurt me. It is hard for me to be bearish on that. But what I can take away as bearish is the fact that both of these stocks had BEAUTIFUL charts and had strong fundamentals. I have not seen such pretty charts with strong fundies breakdown like that since late February.

So how does that prove the crowd is bearish? It doesn’t. This does: The AAII survey came in with 55% bears this week which was the number seen at the July lows. There were only 29% bulls in the survey. Even though this survey is very fickle it still shows how bearish the crowd is still. If that doesn’t convince you the crowd is bearish let’s take a look at their actions.

The put/call ratio is still above the .6 area at .75. Until the number is below .6 it is hard to say that the crowd is not making bearish bets. And the biggest piece of interesting figures I could find on how investors are actually investing came from AMG. They report that mutual funds had outflows of $5.41 billion for the week ending on May 2. First quarter mutual fund inflows are down 30% from last year!! You do NOT see mutual fund outflows at the top of a market. So when people remind you that this market feels like 1999–it may in fact feel that way, but in 1999 mutual fund inflows were pouring in. It wasn’t until well after the market top that the trend reversed.

Rolling with this theme it also becomes clear that many market pundits are nervous with the rally (I am slightly in the boat–but I still go with the trend). Don Hays, Al Goldman, David Peroni, Dick Arms, James DePorre, Cody Willard, and a few others are issuing either cautious outlooks and in a few cases are starting short positions and/or taking longs off the table. This along with Seeking Alpha’s data showing that sell-side analyst have SP 500 stocks as buys at the lowest level in over ten years!!! Did you get that. The sell-siders are not telling you to buy stocks yet. When they start issuing buys and strong buys, then we probably should be worried. For now it seems everyone is doing the worrying for us.

The other incredibly bullish working thesis this market has going for it is earnings. Earnings are now coming in at a 12% YOY increase, KILLING estimates of 3.2%. This was supposed to be the first quarter in fourteen quarters that earnings grew under 10%. Well have now erased that possibility and now it is 15 quarters in-a-row of stocks showing 10% or higher YOY EPS gains. This is the greatest economic story ever and it gets absolutely NO attention paid to it by the biased media. It is shameful and disturbing that people do not even understand how incredible it is that we are about ready to have 10% gains 15 quarters in-a-row. One more quarter like this and it would be a full four years of 10% gains. INCREDIBLE to say the least.

There can be no doubt about it, last week was an eventful wild week. What a week it was with all the M&A announcements and speculations, great earnings reports, record high closes, and economic data. Of course the big story of the week was the NWS bid for DJ. That clearly showed the bears that this market is for bulls only. Anyone short any stock should take a look at a giant stock like DJ, see how it acted on the news, and then reevaluate why you are short.

A pullback would be very nice here to help setup some nice proper green bases so that stocks can blast out of them when the rally starts again. But if there is no pullback, still demand that you buy stocks coming out of great bases or are bouncing right off of the 50 dma on big volume. The longer we go without a pullback the harder it is to find a lot of perfect stocks setting up in perfect bases.

The one thing you must not do here, unless you are very experienced, is to chase momentum. That game is for the daytraders who can use leverage and get in and out of positions at lightning speed and still make a ton of money. Unless you have mastered the smooth style of a CANSLIM based system, I doubt it is worthwhile for you to try daytrading the highflyers. And the absolute thing you MUST NOT do is short the market or go short stocks in uptrends. AMZN, DNDN, DJ, and RTRSY are all good reason to not short this market.

Have a great weekend. Let’s hope that next week isn’t as jam packed with so much market moving news. I need a break. Aloha and enjoy your weekend! I will see you in the chat room. Aloha!!

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 - Date Of Purchase

KNOL 393% - 1/12/06
TRCR 282% - 1/12
PTT 282% - 11/16
TNH 178% - 10/26
MA 171% - 8/2
TTEC 167% - 8/25
JSDA 136% - 12/20
IGLD 123% - 10/26
ANO 116% - 2/14
ULTR 111% - 10/27
HRZ 108% - 9/27
CPA 104% - 9/15
MFW 103% - 1/29
ONT 102% - 12/21
PAE 101% - 3/22
EVEP 99% - 11/16
BAM 99% - 11/17/05
HURN 79% - 9/13
KHDH 77% - 5/30
CXW 77% - 5/19
DECK 71% - 9/13
IMMU 69% - 12/19
VDSI 66% - 1/4
CNH 64% - 11/2
IMKTA 54% - 8/28
CLRT 54% - 11/30
NSH 54% - 12/19
CKSW 53% - 10/11
MNTG 52% - 11/9
LFL 52% - 12/13

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