Saturday, May 19, 2007

M&A Deals Keep The Market Moving As The NYSE and DJIA Hit All-Time Highs On Heavier Volume

It was another M&A filled rally on wall street as the news of mergers and buyouts keep on coming. The SP 600, Nassy, and the NYSE all gained .8%, the SP 500 was up .7%, and the DJIA rallied .6% hitting an all-time high with the NYSE. All indexes closed near their HOD. The best gain came from the IBD 100. The IBD 100 gained 1.2% today, well outpacing the broad market. It is always bullish when leading stocks lead.

All of these gains can be thanked on a series of deals that came about or the rumors that were stirred up on Friday. The big one was MSFT buying AQNT for an insane amount of money–we have heard enough about that. But there were other mergers that helped also. A private equity buyout by Blackstone Group for ADS, GE announcing that it is selling off its plastic division, and Thursday’s WPPGY buy of TFSM show that the market is full of liquidity.

With all of these M&A deals and with Friday being options expiration, volume came in much higher on both the NYSE and the Nasdaq. This gives the markets a clear accumulation day and with the markets hitting new highs that is very bullish. And if you think the higher volume is no good because it was options expiration, you are wrong. It wouldn’t matter if prices did not change much. But the fact that prices were up almost 1% across the board is good enough for me to see today as accumulation. The fact that it was options expiration is just not that important to me when prices are higher or lower by .5%.

The same thing happened this week that happened last week. The Nasdaq underperformed the DJIA by a wide margin again. This week the DJIA was up 1.7% but the Nasdaq was down .1%. That is the second week in a row that the Nasdaq has fallen. For the DJIA, the opposite is true, as that index put in its seventh straight week of gains. The DJIA just will not stop, for now.

The DJIA action is getting a bit crazy but as long as this trend remains there is nothing to do but ride it higher. This is a bullish tape and fighting this is only going to hurt down the road. That is why the greatest traders of all-time never made any trades against the market. I still see some people buying puts on some DJIA stocks. PURE SUICIDE!!

It might be foolish to buy stocks this far extended but it is even more foolish to make bearish bets when the momentum train is at full speed ahead. The smart active investor is riding this trend making sure he buys close to a correct pivot point. If you are doing that you should be making money in this market. Granted, it is not automatic money but it is still a good stock pickers market.

There are a lot of negatives out there, despite these highs, but until these things are confirmed by lower prices these are just noise. Some of that noise though is quite interesting.

We keep having lower volume rallies that are followed by distribution. However, Friday’s gains on higher volume kind of dampens that argument. Since November the amount of stocks making 52-week highs keep contracting on every new all-time high by the NYSE. This is really negative divergence and portends to a very weak market when the market decides to rollover. The other problem is that new 52-week lows keep expanding on every new all-time high by the NYSE. This just confirms the negative divergence with the new highs. This is not bullish in the long-term. But in the short-term it doesn’t matter.

Breadth is also weakening as the markets now hit new highs and the DJ Transportation average is not confirming the DJIA with all-time highs. The fact that the Nasdaq is also lagging so badly is yet another ugly development. But with the weakening breadth you can also make a bullish case as the 10-day adv/dec moving average overbought/oversold oscillator is moving to oversold levels. If the market keeps rising, while we move to oversold, it could produce a very powerful rally as breadth comes back in. On Friday breadth was positive with the gains, something the gains couldn’t accomplish recently.

This market is much more difficult than normal bull markets due to the fact that we are having this run after four years of gains. The rally in 2003, came after two years of non-stop selling. The charts that setup in green pretty bases that then broke out to new highs followed-through immediately and most gave quick 20% plus gains. Nowadays you are lucky if your stock moves higher immediately and we are also very lucky if we can get a 50% gain out of the stock. That is what a lower VIX environment produces with no 10% pullback on the DJIA since 2003.

This market is starting to feel invincible but trust me the gains that it is offering now WILL BE NOTHING compared to the gains that will come after the ensuing bear market happens. If the VIX can get up to near 30, our TRCR 300% gains will be 900% gains. Your 100% gains will be 300% gains. This is what is normal in bull markets. So this market may be a bull market but trust me it is no bull market for active growth investors. This is a slowly dying market. The trend still offers plenty of chances to make money. But I am not going to get filthy rich at this point in the game.

Stocks like TESO AFSI HRZ can make you very wealthy. These are three stocks that I was very adamant about going long. If you went long these you are doing very well. So I am not sure why we complain. But maybe that is the nature of our greedy ways.

Speaking of greedy. Anyone following TNH. That is what a top looks like. Arithmetic daily chart going back to 2001. Take a look at that chart. Study that price and volume action. Notice the extremely wild reversal on the price graph along with a GIANT spike in volume. That is what tops look like. This is the best stock, in the best sector, in the current bull market. Now that this stock has topped it could be hinting at what is in store for the market. We shall see.

One thing we do know is that last year I nailed the ERS top after producing 550% gains in it. I went long ERS took a 500% plus gain and sold it at the top. I have to admit i held on to a little as it came down. But if you go review my commentary from April-May 206, you will see I nailed that top in that leading stock, in the leading sector, in the bull market. If TNH was last years ERS, the top should be soon. I was long TNH for a 250% gain, before this top. So I have sold all in anticipation of this being the top. Just like ERS last year. Study both of those charts. Study the climb, study the volume, and study the ensuing selloff. Same thing, so far.

This is the greatest economic story NEVER told. And it never will be. If Bill Clinton was in office, the biased media wouldn’t shut up over this great market. Instead we get silence and actually get negative spin. What a disgrace the media has become. Disgusting and irresponsible. What a great market!!!!!!! But nobody cares and the media is still bashing it….so there is still plenty of reasons to go higher, even if TNH topped. :)

Aloha and I will see you in the chat room. Where we always are making new all-time highs!!

top holdings - purchase date

TRCR 297% - 1/12
ONT 205% - 12/21
MA 178% - 8/2
OMTR 143% - 9/15
TTEC 137% - 8/25
MEH 120% - 8/30
ULTR 120% - 10/27
CPA 119% - 9/15
SVNT 117% - 8/24
BAM 107% - 11/17/05
KHDH 106% - 5/30
HRZ 99% - 9/27
IGLD 96% - 10/26
EVEP 93% - 11/16
JSDA 93% - 12/20
PRGX 91% - 1/12
HMSY 90% - 6/23
MFW 88% - 1/29
PAE 83% - 3/22
CRY 80% - 1/10
CXW 78% - 5/19
CLRT 77% - 11/30
DECK 72% - 9/13
HURN 70% - 9/13
CNH 69% - 11/2
VDSI 66% - 1/4
TESO 64% - 2/16
LFL 63% - 12/13
APLX 62% - 9/28
IMKTA 50% - 8/28
ETR 50% - 9/27

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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