Stocks started Friday off on a positive note thanks to the PCE deflator coming in at its lowest levels since Q4 2004. However, bomb scares in London (and this weekend in Glasgow) started stocks lower as prices put in another reversal making it 4 of the past 5 and 6 of the past 8 days where stocks have turned gains into losses. The selling really started picking up steam when more subprime worries hit the market but that was too much fear for the market and dip buyers showed up bringing the indexes off their lows into the closing bell.
At the close, the NYSE was the only index higher with a .1% gain, the DJIA was lower by .1%, the Nasdaq and SP 500 lost .2%, the SP 400 was down .3%, and the SP 600 lost .4%. Showing that it pays to be in the right place at the right time, leading stocks in the form of the IBD 100 killed the broad market with a 1.3% gain.
Volume was higher on the Nasdaq and NYSE but the mild price losses and gains doesn’t give us any clues at to how institutions played themselves on Friday with the EOQ repositioning. Friday was the last day of the 2Q and it ended up being the best quarter since Q4 2004. There were 5 advancers for every 4 decliners on the NYSE and there were 9 decliners to ever 7 winners on the Nasdaq. New highs also took care of new lows by 261 to 114. So overall it was a good day, despite the selling.
For the week, the Nasdaq led the way with a .6% gain, the DJIA was next with a .4% gain, the NYSE followed with a .2% gain, the SP 500 rose .1%, and the SP 600 went the other way closing .1% lower. The great news came in the form of leading stocks. The IBD 100 killed the broad market this week with a 1.2% gain. This is very funny because my account took a 2% plus hit this week. This goes to show you that even when the market is doing well, you are going to have bad weeks. I had one of my worst weeks from the market since the week in February when we sold off. It happens.
It appears the bears may be getting a little bit of traction out there with all of the recent intraday positive gains turning into negative closes. However, the fact that those weak reversals do not lead to some all-out horrible distribution can be taken as a slight positive, because if it was really that bad there is no way the market would be holding up this well with leading stocks leading.
RIMM, AAPL, GOOG, and AMZN still show absolutely no signs of topping. That along with those chemical stocks moving higher and higher makes it hard to play top calling here. These things still appear to have plenty of room to run. I mean, seriously, before Friday’s trading everybody was telling me that RIMM was a short. How did that turn out for them? RIMM clearly shows why it is dangerous to be short stocks here. When too many people are short and trying to call tops, you get 20% plus moves in big stocks. The fact that this stock can move 20% in one day should be a wake up call to all the bears. Instead, I doubt it will do anything.
If you want to find an area of the market that is disturbing, you can look at the bank stocks. BSC GS MER MS and C all have real ugly charts and it is normally not good for the market to be moving without them. But as long as the market is moving up, we don’t need these stocks to be involved. Also stocks in the housing and subprime are still week but they have been that way for a long time–AHM. Also there are always a few pockets of strength that disappoint. Recently it has been a ton of my favorite plays and some of my pretty charts like IDSA. It definitely is not April anymore when these stocks fail these beautiful patterns.
But the one thing that should make it clear that we are probably not topping here is that EVRYONE IS LOOKING FOR A TOP. You do NOT get tops in the market when everyone is looking for it. It is when everyone embraces the rally that you have a problem. That certainly is not the case. The put/call ratio even spiked up a bit to .9. So there are still plenty of options players betting on lower prices. They are usually wrong so we shall see how they end up. And the NYSE short-interest ratio is still at a very high 7.25. Even though it is off the all-time highs, there are still plenty of people shorting every move in this market. You do not see this at tops.
In the very short term we have a very touchy market that doesn’t know if it wants to be bullish or bearish. The realmoney.com poll this weekend sums it up: 31% bullish, 34% bearish, 34% neutral. It doesn’t get more even than that. But the 10 day moving average of the ADV/DEC line is making lower highs and lower lows signaling a bit of a bearish tone to the short term. Confirming this is the 30 day moving average of the ADV/DEC line showing that line making a new low while prices stay above new lows. This is negative divergence and indicates weakness in the short term.
So that probably means a little bit of pressure on stocks, since the VIX is also a bit higher than on its previous lows while prices in the indexes are still close to new highs. This is slightly negative divergence. But to then throw another monkey wrench in this is the calendar. We have a typical short holiday week that usually has a bullish bias. With a short week, we could see price gains.
Bottom line: this market is very choppy right now and it is best to stay in an unbiased mode. Don’t be bullish or bearish. Just play your charts. Hold your winners and get rid of your losers. It is a stock picker market. And thank God that is what I am!
Aloha and I will see you in the chat room!!! Have a great rest of the weekend.
top holdings up this week - purchase date
TRCR 393% - 1/12
MA 231% - 8/2
OMTR 206% - 9/15
IHS 134% - 12/21/05
TTEC 125% - 8/25
KHD 124% - 5/30/06
ULTR 120% - 10/27
MEH 114% - 8/30
DECK 113% - 9/13
HURN 89% - 9/13
CXW 87% - 5/19/06
CNH 87% - 11/2
EVEP 86% - 11/16
APLX 84% - 9/28
ZNH 81% - 12/26
VDSI 77% - 1/14
AFSI 74% - 4/12
IGLD 68% - 10/26
NTL 68% - 4/13
NSH 67% - 12/19
LFL 66% - 12/13
IMA 62% - 8/2
VSNT 61% - 2/5
TESO 56% - 2/16
HURC 56% - 12/18
XRA 55% - 5/24
NAVI 53% - 12/19
KMGB 53% - 6/1
ATX 52% - 12/12
NTLS 50% - 1/30
ETE 50% - 10/6
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
Saturday, June 30, 2007
Saturday, June 23, 2007
Stocks End The Week Full Of Red; NYSE And SP 500 Barely Close Below Their 50 Day Moving Averages
A slow but constant selloff hit stocks on a rebalancing day for the Russell indexes, as stocks closed near their session lows, closing lower for the first Friday in sixteen sessions. The losses came despite the debut of private-equity firm Blackstone Group. At the close the DJIA led the way lower with a 1.4% loss, the SP 500 took a 1.3% haircut, the NYSE and Nasdaq lost 1.1%, and the SP 600 held up the best only losing .9%. The blame on the losses were contributed to the subprime problems announced by BSC.
Holding up, along with the small caps, leading stocks in the form of the IBD 100 also lost only .9%. This continues a trend of this index outperforming to the upside and holding up better on the selloffs over the broad market. If this index was leading to the downside on these selloffs, I would be more worried. Instead it looks like normal choppy summer action.
Volume finished over 30% higher on the NYSE and the Nasdaq, due to the Russell rebalance. The key to today’s trading was knowing the facts of the intraday volume action. Volume was trending lower all day long, signaling that institutions were not dumping stocks, until the last hour of the day. That is when volume exploded. But it wasn’t due to selling by big funds. It was due to mutual funds having to reposition their index funds for the stocks that are entering and exiting the Russell index. Therefore, the higher volume with the losses do not signal a distribution day. Investors Business Daily confirms my thinking on this subject.
Breadth was decisively negative with decliners beating advancers on the NYSE by a 3-to-1 ratio and on the Nasdaq by a 2-to-1 ratio. Another nasty number, along with breadth, is that the new lows are trying to expand again, despite the indexes only being 2% or so off of their highs. New 52-week highs only came in with 171, compared to the new 52-week lows registering 144. That is a lot of new lows for a market near new highs. I am not sure how to interpret this.
For the week, the SP 500 and the DJIA led the way lower losing 2%, the NYSE and SP 600 lost 1.7%, and the Nasdaq was lower by 1.4%. Showing investors how leading stocks are supposed to act, even in a poor market, the IBD 100 managed a .1% gain for the week. This is why leading stocks outperform in the long run. The IBD 100 is now up 19% for the year, while most indexes are up around 10%. This goes to prove, ONCE AGAIN, that the big money is made by buying leading stocks, breaking out of sound bases with top fundamentals, in a bull market.
And that brings me to my own portfolio. Most of my longs are all holding key support and are still showing excellent price and volume action. Some stocks, obviously, have been cut this past week with the week market. But that is a good thing. Rough markets give you the chance to weed out the poor performing stocks and move more money into better performing stocks. This is why downtrends are good in a bull market. Constant uptrends make it hard for me to cut stocks that are holding support but not going very far. If I cut them too early, they end up taking off. Then the new stock I buy gives me a quick cut loss. But with markets that have normal pullbacks, I am allowed to separate the weak from the strong.
The only bad part is when one of those weak end up being a large position. Usually it does not happen, but it has happened a couple times recently which indicates to me I need to be more selective and careful with which stocks I pick to load up on. Besides stocks like MTRX and TTG, everything, pretty much, is acting just like it should be acting. Stocks moving higher, holding key support, and moving higher again. As long as top stocks, my stocks, and leading sector stocks keep acting like this it is silly to be calling market tops here. Especially with the NYSE short-interest ratio hitting ANOTHER all-time high at 7.82. Wow! They keep shorting this market despite the near new highs. Brave, I must say. Stupid, I must say.
I hear some people mention that there are too many bulls in the investors intelligence survey at 53% and too few bulls at 19% so we have to be near a top. What these people must not understand is that this survey is HORRIBLE at calling tops. It is ONLY useful at bottoms where normally bulls and bears cross around the 40-45% area. This happens to be good at correlating bottom with price in the indexes. As for tops? Are you kidding me. I guess anything to help there argument.
It doesn’t matter because I can come right back and say, “have you seen the realmoney.com poll this weekend?” So far, bears have 44% of the vote and bulls have only 31%. Last time I checked that doesn’t mean the crowd is bullish. Also have you seen the UBS sentiment index? It is NO WHERE NEAR euphoria levels. That index has a good track of indicating possible tops when the line hits the euphoria zone. It is not even close. The AAII is even close with 43% bullish and 33% bearish.
I hate to tell you this, bears. This is NOT what you see at tops. You do not see pessimism in the media and polls showing 70% of the public thinking we are in a recession, with NYSE short-interest at all-time highs and euphoria levels so absent from this market. Do you know what else is not out there, besides stocks in the Chemical-Fert group? Stocks in CLEAR end stages of climax runs. I can see some stocks in the middle of runs all over the place and I can clearly see that TNH and CF have gone nuts. But calling a top in these is not smart. These stocks still do not look like they are near a top, much less ready to rollover.
The action of GOOG, AAPL, CROX, RIMM, and other leading stocks are still rocking and are not in major climax runs. So it just seems hard for me to want to call a top when the leaders are still leading and some of them are almost closing near their highs on a day like today. If anything, JDSU in 2000 should be the case study for everyone. After that stock topped, it took SIX MONTHS before the big fall. Trust me, calling tops is a game of ignorance and pure idiocy. The right play is going with the trend. Something a TON of people reading this blog probably are NOT doing. You will see a MAJOR difference if you just learn how to do what the best traders of all-time did.
Are there reasons to pullback? Yes. We are getting overbought on all the oscillators I follow: ARMS index, 10-day moving average of the advance/decline line, and the McClellan. But at the same time I see that only 62% of all stocks in the market are above their 200 day moving average. I am not sure if that is bullish and means there is a lot of stocks waiting to join the run or if this index is confirming the overbought market. But I thought I would still give that fact, considering that in February 86% of all stocks were above the 200 dma. That market was overbought. This market might be overbought short-term but the 62% may signal that there is a lot of energy waiting to join the run.
If that is the case, that would be fine with me, only because I see the VIX ticking up a little. It would be nice to back and fill here, if it causes the VIX to rally over 20. That would help me make a lot more money on my longs that decide to follow-through. A 10% drop would even be better as a chance of VIX hitting 25 would definitely give me more volatility to make more money on stocks that are moving. Remember, a higher VIX gives you more potential for gains in stocks. This persistent low VIX does not allow for many stocks to make 200%-1000% runs in six to twelve months. A low VIX like we have now makes 100% winners spectacular. This is why a choppy market or an uptrend with some more 5% pullbacks would be nice. But with all the bearishness I have mentioned, LOL, along with another number I have left out–put/call is at .94–I doubt I am ever going to get my pullback.
Chances are when this market ends, it is going to unleash a horrible bear market. That would be OK also. That would allow me to short all the old leaders like TNH that have made 1000% plus gains since the rally started. Then after making some nice cash on shorts in the bear market, we will eventually get another bull market WITH A MUCH HIGHER VIX that will then give us a real great bull market to work with. The best time to make money is in markets like March 2003-January 2004. Those bull markets, after severe bear markets are what makes some traders careers.
Before I rap this up, I want to go over one more key component of this rally: the Semiconductor Index (SOX). Everyone always says that they don’t think bull markets are real bull markets unless the Semis are moving. The theory goes is that this is where the “hot” and “speculative” money goes for big returns in a bull market; when the semis are moving, the market is moving. Well now we have the Semis hitting new highs and the only question I have to ask is that: does it mean that the market is bullish now?
This scenario, after giving more thought to it, could run a two-way street. At first all I could think about is how bullish this is and now the perma-bears will have to figure out a crafty excuse to pooh-pooh this move in the Semis. Well they gave me a great argument on Friday. I took notice of the Relative Strength line of the Semiconductor index (SOX) and notice a very negative divergence developing. As price has continued to make a stairstep pattern of higher highs and lower lows, the RS line has actually failed to make new highs during any of the important moves in the SOX this year. Since the high in November, the index hit a series of highs in Jan, Feb, April, May, and Thursday. The problem if you look at your chart is that every RS high is lower.
So we can take this in, in two ways. One is that the market will continue to rally here, and now that the lagging SOX has caught up, the market will make a real more exponential move into new high ground. Or the SOX could be the sector that convinces the bears that this market is going to move higher and we suffer a fakeout-breakout. This would turn enough bears bullish to actually put in a possible top. Somehow, I think scenario one is correct, by simply looking at all my charts and the current situation of the market and leading stocks. But scenario two could happen also. We must NEVER rule ANY scenario out. That is smart trading.
On that note, enjoy your weekend and I will see you in the chat room. ALOHA!
top holdings up this week - purchase date
TRCR 432% - 1/12
MA 239% - 8/2
OMTR 162% - 9/15
IHS 136% - 12/21/05
TTEC 125% - 8/25
FTEK 123% - 10/6
MOS 121% - 10/12
MEH 114% - 8/30
CPA 114% - 9/15
MFW 111% - 1/29
HRZ 107% - 9/27
MCZ 106% - 3/27
DECK 101% - 9/13
CXW 93% - 5/19/06
PRGX 91% - 1/12
HURN 90% - 9/13
CNH 89% - 11/2
EVEP 85% - 11/16
ZNH 84% - 12/26
NTL 83% - 4/13
APLX 82% - 9/28
MVIS 80% - 12/21
VDSI 71% - 1/4
AFSI 69% - 4/12
LFL 66% - 12/13
VSNT 63% - 2/5
LTS 61% - 1/11
TESO 59% - 2/16
BMA 52% - 10/24
ETE 50% - 10/6
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
Holding up, along with the small caps, leading stocks in the form of the IBD 100 also lost only .9%. This continues a trend of this index outperforming to the upside and holding up better on the selloffs over the broad market. If this index was leading to the downside on these selloffs, I would be more worried. Instead it looks like normal choppy summer action.
Volume finished over 30% higher on the NYSE and the Nasdaq, due to the Russell rebalance. The key to today’s trading was knowing the facts of the intraday volume action. Volume was trending lower all day long, signaling that institutions were not dumping stocks, until the last hour of the day. That is when volume exploded. But it wasn’t due to selling by big funds. It was due to mutual funds having to reposition their index funds for the stocks that are entering and exiting the Russell index. Therefore, the higher volume with the losses do not signal a distribution day. Investors Business Daily confirms my thinking on this subject.
Breadth was decisively negative with decliners beating advancers on the NYSE by a 3-to-1 ratio and on the Nasdaq by a 2-to-1 ratio. Another nasty number, along with breadth, is that the new lows are trying to expand again, despite the indexes only being 2% or so off of their highs. New 52-week highs only came in with 171, compared to the new 52-week lows registering 144. That is a lot of new lows for a market near new highs. I am not sure how to interpret this.
For the week, the SP 500 and the DJIA led the way lower losing 2%, the NYSE and SP 600 lost 1.7%, and the Nasdaq was lower by 1.4%. Showing investors how leading stocks are supposed to act, even in a poor market, the IBD 100 managed a .1% gain for the week. This is why leading stocks outperform in the long run. The IBD 100 is now up 19% for the year, while most indexes are up around 10%. This goes to prove, ONCE AGAIN, that the big money is made by buying leading stocks, breaking out of sound bases with top fundamentals, in a bull market.
And that brings me to my own portfolio. Most of my longs are all holding key support and are still showing excellent price and volume action. Some stocks, obviously, have been cut this past week with the week market. But that is a good thing. Rough markets give you the chance to weed out the poor performing stocks and move more money into better performing stocks. This is why downtrends are good in a bull market. Constant uptrends make it hard for me to cut stocks that are holding support but not going very far. If I cut them too early, they end up taking off. Then the new stock I buy gives me a quick cut loss. But with markets that have normal pullbacks, I am allowed to separate the weak from the strong.
The only bad part is when one of those weak end up being a large position. Usually it does not happen, but it has happened a couple times recently which indicates to me I need to be more selective and careful with which stocks I pick to load up on. Besides stocks like MTRX and TTG, everything, pretty much, is acting just like it should be acting. Stocks moving higher, holding key support, and moving higher again. As long as top stocks, my stocks, and leading sector stocks keep acting like this it is silly to be calling market tops here. Especially with the NYSE short-interest ratio hitting ANOTHER all-time high at 7.82. Wow! They keep shorting this market despite the near new highs. Brave, I must say. Stupid, I must say.
I hear some people mention that there are too many bulls in the investors intelligence survey at 53% and too few bulls at 19% so we have to be near a top. What these people must not understand is that this survey is HORRIBLE at calling tops. It is ONLY useful at bottoms where normally bulls and bears cross around the 40-45% area. This happens to be good at correlating bottom with price in the indexes. As for tops? Are you kidding me. I guess anything to help there argument.
It doesn’t matter because I can come right back and say, “have you seen the realmoney.com poll this weekend?” So far, bears have 44% of the vote and bulls have only 31%. Last time I checked that doesn’t mean the crowd is bullish. Also have you seen the UBS sentiment index? It is NO WHERE NEAR euphoria levels. That index has a good track of indicating possible tops when the line hits the euphoria zone. It is not even close. The AAII is even close with 43% bullish and 33% bearish.
I hate to tell you this, bears. This is NOT what you see at tops. You do not see pessimism in the media and polls showing 70% of the public thinking we are in a recession, with NYSE short-interest at all-time highs and euphoria levels so absent from this market. Do you know what else is not out there, besides stocks in the Chemical-Fert group? Stocks in CLEAR end stages of climax runs. I can see some stocks in the middle of runs all over the place and I can clearly see that TNH and CF have gone nuts. But calling a top in these is not smart. These stocks still do not look like they are near a top, much less ready to rollover.
The action of GOOG, AAPL, CROX, RIMM, and other leading stocks are still rocking and are not in major climax runs. So it just seems hard for me to want to call a top when the leaders are still leading and some of them are almost closing near their highs on a day like today. If anything, JDSU in 2000 should be the case study for everyone. After that stock topped, it took SIX MONTHS before the big fall. Trust me, calling tops is a game of ignorance and pure idiocy. The right play is going with the trend. Something a TON of people reading this blog probably are NOT doing. You will see a MAJOR difference if you just learn how to do what the best traders of all-time did.
Are there reasons to pullback? Yes. We are getting overbought on all the oscillators I follow: ARMS index, 10-day moving average of the advance/decline line, and the McClellan. But at the same time I see that only 62% of all stocks in the market are above their 200 day moving average. I am not sure if that is bullish and means there is a lot of stocks waiting to join the run or if this index is confirming the overbought market. But I thought I would still give that fact, considering that in February 86% of all stocks were above the 200 dma. That market was overbought. This market might be overbought short-term but the 62% may signal that there is a lot of energy waiting to join the run.
If that is the case, that would be fine with me, only because I see the VIX ticking up a little. It would be nice to back and fill here, if it causes the VIX to rally over 20. That would help me make a lot more money on my longs that decide to follow-through. A 10% drop would even be better as a chance of VIX hitting 25 would definitely give me more volatility to make more money on stocks that are moving. Remember, a higher VIX gives you more potential for gains in stocks. This persistent low VIX does not allow for many stocks to make 200%-1000% runs in six to twelve months. A low VIX like we have now makes 100% winners spectacular. This is why a choppy market or an uptrend with some more 5% pullbacks would be nice. But with all the bearishness I have mentioned, LOL, along with another number I have left out–put/call is at .94–I doubt I am ever going to get my pullback.
Chances are when this market ends, it is going to unleash a horrible bear market. That would be OK also. That would allow me to short all the old leaders like TNH that have made 1000% plus gains since the rally started. Then after making some nice cash on shorts in the bear market, we will eventually get another bull market WITH A MUCH HIGHER VIX that will then give us a real great bull market to work with. The best time to make money is in markets like March 2003-January 2004. Those bull markets, after severe bear markets are what makes some traders careers.
Before I rap this up, I want to go over one more key component of this rally: the Semiconductor Index (SOX). Everyone always says that they don’t think bull markets are real bull markets unless the Semis are moving. The theory goes is that this is where the “hot” and “speculative” money goes for big returns in a bull market; when the semis are moving, the market is moving. Well now we have the Semis hitting new highs and the only question I have to ask is that: does it mean that the market is bullish now?
This scenario, after giving more thought to it, could run a two-way street. At first all I could think about is how bullish this is and now the perma-bears will have to figure out a crafty excuse to pooh-pooh this move in the Semis. Well they gave me a great argument on Friday. I took notice of the Relative Strength line of the Semiconductor index (SOX) and notice a very negative divergence developing. As price has continued to make a stairstep pattern of higher highs and lower lows, the RS line has actually failed to make new highs during any of the important moves in the SOX this year. Since the high in November, the index hit a series of highs in Jan, Feb, April, May, and Thursday. The problem if you look at your chart is that every RS high is lower.
So we can take this in, in two ways. One is that the market will continue to rally here, and now that the lagging SOX has caught up, the market will make a real more exponential move into new high ground. Or the SOX could be the sector that convinces the bears that this market is going to move higher and we suffer a fakeout-breakout. This would turn enough bears bullish to actually put in a possible top. Somehow, I think scenario one is correct, by simply looking at all my charts and the current situation of the market and leading stocks. But scenario two could happen also. We must NEVER rule ANY scenario out. That is smart trading.
On that note, enjoy your weekend and I will see you in the chat room. ALOHA!
top holdings up this week - purchase date
TRCR 432% - 1/12
MA 239% - 8/2
OMTR 162% - 9/15
IHS 136% - 12/21/05
TTEC 125% - 8/25
FTEK 123% - 10/6
MOS 121% - 10/12
MEH 114% - 8/30
CPA 114% - 9/15
MFW 111% - 1/29
HRZ 107% - 9/27
MCZ 106% - 3/27
DECK 101% - 9/13
CXW 93% - 5/19/06
PRGX 91% - 1/12
HURN 90% - 9/13
CNH 89% - 11/2
EVEP 85% - 11/16
ZNH 84% - 12/26
NTL 83% - 4/13
APLX 82% - 9/28
MVIS 80% - 12/21
VDSI 71% - 1/4
AFSI 69% - 4/12
LFL 66% - 12/13
VSNT 63% - 2/5
LTS 61% - 1/11
TESO 59% - 2/16
BMA 52% - 10/24
ETE 50% - 10/6
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
Saturday, June 16, 2007
Tame Core CPI Data Traps The Bears As Stocks Rally On Heavier Volume; The Incompetent Short Sellers Just Don't Get It
Stocks started Friday off just right as stocks gapped higher thanks to a tame core CPI. The CPI moved up .7% in May–the biggest since September 2005–but the core CPI was up only .1%. That was less than the .2% expected by economist. That also lowered the YOY core CPI to 2.2% which was the smallest in 14 months. The CPI data clearly gave investors the hope that the Fed will scrap its bias to raise rates as the recent economic numbers suggest steady economic growth with mild inflation. A sign that rates and economic growth are starting to come in-line can be seen in the yield curve. It has corrected itself and now has a very positive bullish slope to it compared to where it was just three months ago when the curve was inverted.
Other solid news from the economy came from the Labor Department’s production numbers. Industrial production was flat in May, better than the prior two readings of negative growth. Manufacturing production was up .1%, besting the recent levels. And capacity utilization was down showing a lot of capacity which has inflation easing pressure.
These reports were strong enough to get buyers hungry for stocks. And when you combine that with options expiration you had the perfect mix for big stock gains on big volume. When all was said-and-done, stocks climbed across the board, with the SP 600 up 1.2%, the Nasdaq rose 1.1% to six-year highs, the NYSE higher by .9%, the SP 500 was up .7%, and the DJIA rose .6%. This sent all stock indexes near all-time highs and gave the indexes their fifteenth straight positive Friday close. For the third day in-a-row the IBD 100 led the market, with a 1.5% gain. That can only be described as perfect action in a market making strong gains despite all the bearishness.
Volume was higher on both exchanges. On the NYSE volume was 41% higher and 27% higher on the Nasdaq. Despite the higher volume coming on the back of quadruple witching, the fact that volume was so much higher on the NYSE is a clear confirmation of the rally after last weeks and Tuesday’s selling.
As for the internals, they were rather strong, with advancers beating decliners on the NYSE by a 13-to-3 ratio and on the Nasdaq by a 2-to-1 ratio. The really strong reversal to the bullish side was the new highs and new lows. The amount of 52-week highs exploded to 609 and new 52-week lows were only 70, finally sending an end to the mixed message of this statistic.
A rough start to the week was quickly corrected as we came up to the positive retail sales report on Wednesday. For the week, the Nasdaq led the way higher with a 2.1% gain, the NYSE rose 1.9%, the SP 600, the SP 500 gained 1.7%, and the DJIA rose 1.6%. However, when comparing those gains to leading stocks, you can tell that the action was where it is supposed to be in strong markets. The IBD 100 rallied 4% for the week. When you have leading stocks leading a rally, there is NO reason to be looking for a top. I could understand the bearishness before when this index was not keeping up. But being bearish now shows just a complete lack of respect for history.
Leading stocks never really got whacked (unlike the Sopranos finally–what a load of crap) when the market pulled back. The action in those leading stocks was a clear signal that there were not real problems with this market. Granted, it could have gotten a lot worse, but those stocks normally break down well before a stock market is about to top. The fact that those current leading stocks held was proof enough to me that this was not the right time to be calling a top. AAPL and GOOG, besides the current leading stocks, are your tell. As long as these stocks are holding their 50 dma’s, there is NO reason to get bearish just because everyone else is. Crowd mentality is a disease and last time I checked you are supposed to stay away from diseases. Remember: going with the crowd (after you get out of HS) is what morons do. People that can not think for themselves go with the crowd. Those people do NOT make money in the stock market year in and year out. Stay away from this thinking.
The other clear obvious reason that nobody should have gotten full-on-bearish was that all the indexes rested right at their 50 day moving averages. After touching those averages, the indexes have done nothing but rally higher. This is exactly how you want to see strong markets act. They, seriously, don’t get much better than this.
The Nasdaq’s accumulation/distribution rating has risen to a C+ from a D- on Thursday. This is an amazing jump and also should confirm the rallies strength off the 50 dma. And when you take that with the NYSE short interest ratio being near an all-time high at 7.58, you have a clear scenario where you can see the smart money buying stocks (acc/dist rating) and the dumb money (hedge funds/retail) shorting stocks. The shorts are the ones who are wrong here. The price gains prove that. The one group of traders that have been right about this rally since it started–which happens to be where the bulls and bears crossed in the investors intelligence survey–has been the newsletter writers according to the investors intelligence survey. These guys have been bullish and continue to be bullish since they crossed in June. The current reading shows 56.7% are bulls; the five-year high is 62.9%.
What could be better? Volatility. The constant gains since March 2003 without a 10% decline on the DJIA is the reason why my top stocks only have so many up 100%. In normal bull markets, that start after a downtrend, where the VIX rises to above 25, I will be able to produce at least 5 stocks up over 300% and over 20 stocks up over 100% within six months. That clearly has not been the case with this rally as the VIX has not been over 20 since early 2004 and has not seen 30 since March 2003. This is why, in 2003, everything you touched went up 100% within months using the style I have. Right now, as you can see, 50% gains are like the 100% gains and the 100% gains are like the old 200% gains. Until this market sells off there is not going to be a “sh*t-load” of money to be made, unless you are quick with trading the China or solar stocks.
However, if you just stayed with leading stocks and have been long stocks in the Chemical-Fertilizer sector you would be sitting on a HUGE gain. These stocks have been leaders for the past six months and YTD they are up 91% blowing away another other sector when it comes to performance. This goes to show, once again, that leading stocks lead the market by a LONG shot. This compares to 10% gains in the NYSE and SP 600 or the 14% gain in the IBD 100 YTD. However, either way you look at it, investing in leading stocks is where the money is.
Where the money is not is in shorting this market. With that high NYSE short interest ratio and the market near all-time highs a further short-squeeze has to be expected at this point. The perma-bear traders like TraderTim, whom if you study about will find out is a depressed near-sadistic individual, are the perfect fuel this fire needs to keep burning. The hardest thing for most it seems is to actually believe the FACTS that are appearing right in front of your face with the indexes up near these all-time highs. Most people seem to want to believe the rants of delusional egotistical arrogant self-absorbed liars. If that is the game you want to play, be my guest. I will deal with the facts of the current market and continue to play the trend to the upside and make money.
Before I end this, there is one more thing that should be known that most traders don’t seem to understand. This market is a bit oversold with the 10-day moving average of the advance/decline line well under the zero level where this oscillator judges overbought and oversold. With that in mind, the amount of stocks above the 200-dma is only at 68% compared with 86% back in February and 84% back in April. Yet, here we are with the NYSE .5% away from an all time high and the Nasdaq already at a new 52-week high, yet the market has 20% less stocks above the 200-dma. That clearly shows that we have a lot of stocks that can join the rally, that can send the indexes even higher than they are now. Some may say that this is a sign of weakness. To that I only have to say really? Then why is the Nasdaq at a new 52-week high and why are the indexes only less than 1% away from an all-time high?
Facts are facts, folks. We have a stock market hitting new 52-week highs, on near all-time short interest, with a record setting economy, and a lot of bearish headlines on your late night biased-news networks. This can only mean one thing: stocks are going to move higher.
top holdings up this week - purchase date
TRCR 466% - 1/12
PTT 341% - 11/16
MA 218% - 8/2
OMTR 155% - 9/15
CCOI 135% - 9/27
KHDH 131% - 5/30/06
TTEC 131% - 8/25
AOI 127% - 11/9
ULTR 126% - 10/27
IHS 121% - 12/21/05
MFW 116% - 1/29
MOS 116% - 10/12
SVNT 112% - 8/24
MEH 112% - 8/30
CPA 108% - 9/15
HRZ 105% - 9/27
DECK 98% - 9/13
CRY 95% - 1/10
PRGX 92% - 1/12
CXW 92% - 5/19/06
EVEP 90% - 11/16
CNH 88% - 11/2
APLX 80% - 9/28
IGLD 80% - 10/26
HURN 78% - 9/13
VDSI 73% - 1/4
NTL 71% - 4/13
LTS 67% - 1/11
XRA 66% - 5/24
ZNH 65% - 12/26
MCZ 64% - 3/27
LFL 63% - 12/13
VSNT 61% - 2/5
NSH 58% - 12/19
TESO 56% - 2/16
AFSI 55% - 4/12
BMA 52% - 10/24
TSYS 50% - 1/26
TTG 50% - 11/30
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
Other solid news from the economy came from the Labor Department’s production numbers. Industrial production was flat in May, better than the prior two readings of negative growth. Manufacturing production was up .1%, besting the recent levels. And capacity utilization was down showing a lot of capacity which has inflation easing pressure.
These reports were strong enough to get buyers hungry for stocks. And when you combine that with options expiration you had the perfect mix for big stock gains on big volume. When all was said-and-done, stocks climbed across the board, with the SP 600 up 1.2%, the Nasdaq rose 1.1% to six-year highs, the NYSE higher by .9%, the SP 500 was up .7%, and the DJIA rose .6%. This sent all stock indexes near all-time highs and gave the indexes their fifteenth straight positive Friday close. For the third day in-a-row the IBD 100 led the market, with a 1.5% gain. That can only be described as perfect action in a market making strong gains despite all the bearishness.
Volume was higher on both exchanges. On the NYSE volume was 41% higher and 27% higher on the Nasdaq. Despite the higher volume coming on the back of quadruple witching, the fact that volume was so much higher on the NYSE is a clear confirmation of the rally after last weeks and Tuesday’s selling.
As for the internals, they were rather strong, with advancers beating decliners on the NYSE by a 13-to-3 ratio and on the Nasdaq by a 2-to-1 ratio. The really strong reversal to the bullish side was the new highs and new lows. The amount of 52-week highs exploded to 609 and new 52-week lows were only 70, finally sending an end to the mixed message of this statistic.
A rough start to the week was quickly corrected as we came up to the positive retail sales report on Wednesday. For the week, the Nasdaq led the way higher with a 2.1% gain, the NYSE rose 1.9%, the SP 600, the SP 500 gained 1.7%, and the DJIA rose 1.6%. However, when comparing those gains to leading stocks, you can tell that the action was where it is supposed to be in strong markets. The IBD 100 rallied 4% for the week. When you have leading stocks leading a rally, there is NO reason to be looking for a top. I could understand the bearishness before when this index was not keeping up. But being bearish now shows just a complete lack of respect for history.
Leading stocks never really got whacked (unlike the Sopranos finally–what a load of crap) when the market pulled back. The action in those leading stocks was a clear signal that there were not real problems with this market. Granted, it could have gotten a lot worse, but those stocks normally break down well before a stock market is about to top. The fact that those current leading stocks held was proof enough to me that this was not the right time to be calling a top. AAPL and GOOG, besides the current leading stocks, are your tell. As long as these stocks are holding their 50 dma’s, there is NO reason to get bearish just because everyone else is. Crowd mentality is a disease and last time I checked you are supposed to stay away from diseases. Remember: going with the crowd (after you get out of HS) is what morons do. People that can not think for themselves go with the crowd. Those people do NOT make money in the stock market year in and year out. Stay away from this thinking.
The other clear obvious reason that nobody should have gotten full-on-bearish was that all the indexes rested right at their 50 day moving averages. After touching those averages, the indexes have done nothing but rally higher. This is exactly how you want to see strong markets act. They, seriously, don’t get much better than this.
The Nasdaq’s accumulation/distribution rating has risen to a C+ from a D- on Thursday. This is an amazing jump and also should confirm the rallies strength off the 50 dma. And when you take that with the NYSE short interest ratio being near an all-time high at 7.58, you have a clear scenario where you can see the smart money buying stocks (acc/dist rating) and the dumb money (hedge funds/retail) shorting stocks. The shorts are the ones who are wrong here. The price gains prove that. The one group of traders that have been right about this rally since it started–which happens to be where the bulls and bears crossed in the investors intelligence survey–has been the newsletter writers according to the investors intelligence survey. These guys have been bullish and continue to be bullish since they crossed in June. The current reading shows 56.7% are bulls; the five-year high is 62.9%.
What could be better? Volatility. The constant gains since March 2003 without a 10% decline on the DJIA is the reason why my top stocks only have so many up 100%. In normal bull markets, that start after a downtrend, where the VIX rises to above 25, I will be able to produce at least 5 stocks up over 300% and over 20 stocks up over 100% within six months. That clearly has not been the case with this rally as the VIX has not been over 20 since early 2004 and has not seen 30 since March 2003. This is why, in 2003, everything you touched went up 100% within months using the style I have. Right now, as you can see, 50% gains are like the 100% gains and the 100% gains are like the old 200% gains. Until this market sells off there is not going to be a “sh*t-load” of money to be made, unless you are quick with trading the China or solar stocks.
However, if you just stayed with leading stocks and have been long stocks in the Chemical-Fertilizer sector you would be sitting on a HUGE gain. These stocks have been leaders for the past six months and YTD they are up 91% blowing away another other sector when it comes to performance. This goes to show, once again, that leading stocks lead the market by a LONG shot. This compares to 10% gains in the NYSE and SP 600 or the 14% gain in the IBD 100 YTD. However, either way you look at it, investing in leading stocks is where the money is.
Where the money is not is in shorting this market. With that high NYSE short interest ratio and the market near all-time highs a further short-squeeze has to be expected at this point. The perma-bear traders like TraderTim, whom if you study about will find out is a depressed near-sadistic individual, are the perfect fuel this fire needs to keep burning. The hardest thing for most it seems is to actually believe the FACTS that are appearing right in front of your face with the indexes up near these all-time highs. Most people seem to want to believe the rants of delusional egotistical arrogant self-absorbed liars. If that is the game you want to play, be my guest. I will deal with the facts of the current market and continue to play the trend to the upside and make money.
Before I end this, there is one more thing that should be known that most traders don’t seem to understand. This market is a bit oversold with the 10-day moving average of the advance/decline line well under the zero level where this oscillator judges overbought and oversold. With that in mind, the amount of stocks above the 200-dma is only at 68% compared with 86% back in February and 84% back in April. Yet, here we are with the NYSE .5% away from an all time high and the Nasdaq already at a new 52-week high, yet the market has 20% less stocks above the 200-dma. That clearly shows that we have a lot of stocks that can join the rally, that can send the indexes even higher than they are now. Some may say that this is a sign of weakness. To that I only have to say really? Then why is the Nasdaq at a new 52-week high and why are the indexes only less than 1% away from an all-time high?
Facts are facts, folks. We have a stock market hitting new 52-week highs, on near all-time short interest, with a record setting economy, and a lot of bearish headlines on your late night biased-news networks. This can only mean one thing: stocks are going to move higher.
top holdings up this week - purchase date
TRCR 466% - 1/12
PTT 341% - 11/16
MA 218% - 8/2
OMTR 155% - 9/15
CCOI 135% - 9/27
KHDH 131% - 5/30/06
TTEC 131% - 8/25
AOI 127% - 11/9
ULTR 126% - 10/27
IHS 121% - 12/21/05
MFW 116% - 1/29
MOS 116% - 10/12
SVNT 112% - 8/24
MEH 112% - 8/30
CPA 108% - 9/15
HRZ 105% - 9/27
DECK 98% - 9/13
CRY 95% - 1/10
PRGX 92% - 1/12
CXW 92% - 5/19/06
EVEP 90% - 11/16
CNH 88% - 11/2
APLX 80% - 9/28
IGLD 80% - 10/26
HURN 78% - 9/13
VDSI 73% - 1/4
NTL 71% - 4/13
LTS 67% - 1/11
XRA 66% - 5/24
ZNH 65% - 12/26
MCZ 64% - 3/27
LFL 63% - 12/13
VSNT 61% - 2/5
NSH 58% - 12/19
TESO 56% - 2/16
AFSI 55% - 4/12
BMA 52% - 10/24
TSYS 50% - 1/26
TTG 50% - 11/30
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
Saturday, June 09, 2007
Stocks Bounce Back From Thursday's Selloff On Lower Volume; Indexes Still Holding Their 50 Day Moving Average
THIS WAS THE COMMENTARY FROM THURSDAY'S SESSION THAT WAS POSTED BEFORE THE OPENING BELL ON FRIDAY FOR PAID SUBSCRIBERS:
Inflation Worries Send Stocks Lower, Closing At Their LOD, On Heavy Volume; Caution Is Best Advised Here
By MauiTrader
Dip buyers were severely punished today as stocks sold off hard after bonds fell and yields rose. During the trading day, bond yields on the 10 and 30 year note crossed 5% for the first time in eleven months to close at 5.12% and 5.22%. This led Bill Gross to go bearish on bonds for the first time twenty-five years. And if that wasn’t bad enough for inflation angst, crude oil rose to near $67 a barrel on a bad refinery report from the EIA. This was enough to spooks traders, all day long, and convince some traders that Ben might have to hike rates this year. That is a quick turnabout off the hopes of a rate cut later this year.
There was some good news out there, with the jobless claims coming in at its lowest level in three weeks, lower by 1,000 to 309,000. Also retailers reported a strong month of sales for May and April merchandise wholesale sells rose faster than inventories. However, obviously, this did not matter with the fears of higher inflation.
At the close, stocks fell across the board and almost all of the indexes closed at their LOD. The SP 400 led the way lower collapsing 2.1%, the SP 600 followed with a 1.9% whack, the NYSE, Nasdaq, and SP 500 fell 1.8%, and the DJIA fell 1.5%. There were two clear rough spots today: transports and leading stocks. The DJ Transportation Average, which started lagging the DJIA well before today’s fall, swooned 2.4%. The IBD 100 faired even worse, as leading stocks fell off a cliff with a 2.8% loss.
Volume was higher on the Nasdaq and much higher on the NYSE, giving these indexes another distribution day. This was the third one in-a-row for the NYSE. During the past four weeks the SP 500 and DJIA have four distribution days, the NYSE has five, and the Nasdaq has an extremely high seven. It is amazing with that many distribution days that the Nasdaq is actually still above the 50 dma.
The way the indexes look right now, it appears that they are rolling over. However, the breadth of this selling seemed climatic and panicky today. So we could find support here at the 50 dma. There were only four out of 197 industry groups that were up today–and 150 of those fell 1% or more. A similar number was put in yesterday for total breadth amongst the industry groups. Also, breadth today was extremely extreme today on the NYSE with decliners beating advancers by a 10-to-1 margin. That seems almost impossible. Breadth was better on the Nasdaq but still a tad extreme with decliners beating advancers by a 4-to-1 margin. On the DJIA decliners beat advancers by a 30-to-0 ratio. It has been a long time since I have seen every DJIA stock fall on the same day.
Another indication that the selling might have been a bit panicky was the put/call ratio rising to 1.12. If this wasn’t panic selling and people were buying the dips, this ratio would be lower. At the same time, to show you how key this point of the market is, the amount of new 52-week lows is now higher than the 52-week highs. This, to me, is near shocking. We are around 3% to 4% off the all-time highs, yet we had 143 new 52-week lows!!! and only 90 new 52-week highs. This reading here tells me that this market, when it does turn, is going to be rough for a while. That put/call might be good on the short-term but longer-term this kind of internal reading is bearish. I just wish I could remember the last time the market was doing so well but the new lows were higher than the new highs.
I think it is safe to say that this rally is under pressure now, as the rest of the world also looks to be weakening, following the lead of China. Even though the indexes are not below the 50 dma yet it is still time to get cautious with all the distribution days mounting up on top of today’s selloff.
I have been advising to keep new buys small since Friday, after maxing out my personal account after Wednesday’s market. The markets have a history of topping out after I get all of my money completely invested. The bulk of my gains are made in the beginning but near the end after selling weak stocks to strong stocks you eventually max out. And that is normally when the markets slow down. That with the poor quality of the longs since Friday (not the charts, but the fundamentals and liquidity of the stocks) and the distribution days were our tell that something was about to happen.
However, do NOT panic sell. If you have nothing wrong with your stock and your holdings or some of them are acting like everything is OK with the market, you want to hold them. This could be the end of the selling or just the start. If it is the start, you should be sitting on some nice gains that a confirmation of a pullback will not kill you. If it is not the start of a pullback you can hold your longs for more gains. Remember, you NEVER want to be scared out of a position. Sell the weak stocks that are moving lower or not acting right and keep the winners that are either still moving up or are pulling back in a normal low volume fashion. There were only 20 complete sells and out of those only two were high quality stocks. Another 40 stocks got a haircut. I have been very busy today. But it will pay off in the long-run. It always does.
After being up eight of nine weeks, the market was getting overbought and needed this pullback. I hope this isn’t a top because I would hate to sell off some of my bigger beautiful longs but anything can happen tomorrow that could change all those nice charts in one fell swoop and that is why I have to prepare myself mentally for anything and everything. I want higher prices and most of my charts are holding up very well but at the same time the market would be a lot more healthy and more rewarding for me if I could get a pullback, go to cash, and then wait for the next time to go all-in on margin to the long side (hopefully with VIX around 30 or so). Markets that rally AFTER a big pullback will always produce stocks that will move 100%-500% in short periods of time. If we bounce here, trust me, we still will not be having any of that.
Here, also, may be another key tell for a market top: the leaders of this bull as far back as 2003 are still running. GOOG, AAPL, RIMM, CROX, etc… As long as these stocks keep hitting new highs it is hard to think the market could actually top. Also none of these stocks are in climax runs which means they could have a lot of room to keep running. In fact I can’t find any climax looking charts.
There is absolutely one thing you must NOT do. Do NOT buy the dips. Do not buy stocks when the market is falling. You are only supposed to be going long stocks in top sectors in markets that are trending up. I obviously can maneuver a bit differently. But most traders should stay very disciplined and play by the rules until they are making consistent money the right way by buying top stocks moving higher in top sectors in markets moving up. I heard some subscribers and other participants in other rooms talk of buying the dip. I would wait for breakouts, if I were you. Look for charts like TTG CRNT and KHDH. Not charts like IMR.
We have the Commerce Department report on the April trade deficit and we have weakness in most Pacific/Asia markets so that will be on the minds of traders. That and of course the worry of what the market is going to do after yesterday’s selloff. But I don’t need that in my life. I have enough things to worry about. And the stock market will never be one of those things I will ever have to worry about. When you have rules, discipline, and sound strategy that you have tested and used to make a good living off of, you don’t have to.
Aloha and I will see you in the chat room!! It’s Aloha Friday, No Work Till Monday……dee dee de de de…..
top holdings up this week - purchase date
TRCR 430% - 1/12
PTT 303% - 11/16
MA 187% - 8/2
CCOI 144% - 9/27
OMTR 134% -
TTEC 130% - 8/25
ULTR 116% - 10/27
MEH 113% - 8/30
MOS 109% - 10/12
MFW 108% - 1/29
KHDH 107% - 5/30/06
DECK 97% - 9/13
CPA 97% - 9/15
CXW 91% - 5/19/06
IGLD 87% - 10/26
EVEP 86% - 11/16
MVIS 86% - 12/21
APLX 83% - 9/28
VDSI 79% - 1/4
HURN 77% - 9/13
MCZ 74% - 3/27
CLRT 73% - 11/30
CNH 72% - 11/2
TTG 63% - 11/30
TESO 60% - 2/16
LFL 57% - 12/13
NSH 57% - 12/19
AFSI 56% - 4/12
VSNT 54% - 2/5
APFC 52% - 3/5
XOMA 51% - 1/12
HURC 50% - 12/18
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
Inflation Worries Send Stocks Lower, Closing At Their LOD, On Heavy Volume; Caution Is Best Advised Here
By MauiTrader
Dip buyers were severely punished today as stocks sold off hard after bonds fell and yields rose. During the trading day, bond yields on the 10 and 30 year note crossed 5% for the first time in eleven months to close at 5.12% and 5.22%. This led Bill Gross to go bearish on bonds for the first time twenty-five years. And if that wasn’t bad enough for inflation angst, crude oil rose to near $67 a barrel on a bad refinery report from the EIA. This was enough to spooks traders, all day long, and convince some traders that Ben might have to hike rates this year. That is a quick turnabout off the hopes of a rate cut later this year.
There was some good news out there, with the jobless claims coming in at its lowest level in three weeks, lower by 1,000 to 309,000. Also retailers reported a strong month of sales for May and April merchandise wholesale sells rose faster than inventories. However, obviously, this did not matter with the fears of higher inflation.
At the close, stocks fell across the board and almost all of the indexes closed at their LOD. The SP 400 led the way lower collapsing 2.1%, the SP 600 followed with a 1.9% whack, the NYSE, Nasdaq, and SP 500 fell 1.8%, and the DJIA fell 1.5%. There were two clear rough spots today: transports and leading stocks. The DJ Transportation Average, which started lagging the DJIA well before today’s fall, swooned 2.4%. The IBD 100 faired even worse, as leading stocks fell off a cliff with a 2.8% loss.
Volume was higher on the Nasdaq and much higher on the NYSE, giving these indexes another distribution day. This was the third one in-a-row for the NYSE. During the past four weeks the SP 500 and DJIA have four distribution days, the NYSE has five, and the Nasdaq has an extremely high seven. It is amazing with that many distribution days that the Nasdaq is actually still above the 50 dma.
The way the indexes look right now, it appears that they are rolling over. However, the breadth of this selling seemed climatic and panicky today. So we could find support here at the 50 dma. There were only four out of 197 industry groups that were up today–and 150 of those fell 1% or more. A similar number was put in yesterday for total breadth amongst the industry groups. Also, breadth today was extremely extreme today on the NYSE with decliners beating advancers by a 10-to-1 margin. That seems almost impossible. Breadth was better on the Nasdaq but still a tad extreme with decliners beating advancers by a 4-to-1 margin. On the DJIA decliners beat advancers by a 30-to-0 ratio. It has been a long time since I have seen every DJIA stock fall on the same day.
Another indication that the selling might have been a bit panicky was the put/call ratio rising to 1.12. If this wasn’t panic selling and people were buying the dips, this ratio would be lower. At the same time, to show you how key this point of the market is, the amount of new 52-week lows is now higher than the 52-week highs. This, to me, is near shocking. We are around 3% to 4% off the all-time highs, yet we had 143 new 52-week lows!!! and only 90 new 52-week highs. This reading here tells me that this market, when it does turn, is going to be rough for a while. That put/call might be good on the short-term but longer-term this kind of internal reading is bearish. I just wish I could remember the last time the market was doing so well but the new lows were higher than the new highs.
I think it is safe to say that this rally is under pressure now, as the rest of the world also looks to be weakening, following the lead of China. Even though the indexes are not below the 50 dma yet it is still time to get cautious with all the distribution days mounting up on top of today’s selloff.
I have been advising to keep new buys small since Friday, after maxing out my personal account after Wednesday’s market. The markets have a history of topping out after I get all of my money completely invested. The bulk of my gains are made in the beginning but near the end after selling weak stocks to strong stocks you eventually max out. And that is normally when the markets slow down. That with the poor quality of the longs since Friday (not the charts, but the fundamentals and liquidity of the stocks) and the distribution days were our tell that something was about to happen.
However, do NOT panic sell. If you have nothing wrong with your stock and your holdings or some of them are acting like everything is OK with the market, you want to hold them. This could be the end of the selling or just the start. If it is the start, you should be sitting on some nice gains that a confirmation of a pullback will not kill you. If it is not the start of a pullback you can hold your longs for more gains. Remember, you NEVER want to be scared out of a position. Sell the weak stocks that are moving lower or not acting right and keep the winners that are either still moving up or are pulling back in a normal low volume fashion. There were only 20 complete sells and out of those only two were high quality stocks. Another 40 stocks got a haircut. I have been very busy today. But it will pay off in the long-run. It always does.
After being up eight of nine weeks, the market was getting overbought and needed this pullback. I hope this isn’t a top because I would hate to sell off some of my bigger beautiful longs but anything can happen tomorrow that could change all those nice charts in one fell swoop and that is why I have to prepare myself mentally for anything and everything. I want higher prices and most of my charts are holding up very well but at the same time the market would be a lot more healthy and more rewarding for me if I could get a pullback, go to cash, and then wait for the next time to go all-in on margin to the long side (hopefully with VIX around 30 or so). Markets that rally AFTER a big pullback will always produce stocks that will move 100%-500% in short periods of time. If we bounce here, trust me, we still will not be having any of that.
Here, also, may be another key tell for a market top: the leaders of this bull as far back as 2003 are still running. GOOG, AAPL, RIMM, CROX, etc… As long as these stocks keep hitting new highs it is hard to think the market could actually top. Also none of these stocks are in climax runs which means they could have a lot of room to keep running. In fact I can’t find any climax looking charts.
There is absolutely one thing you must NOT do. Do NOT buy the dips. Do not buy stocks when the market is falling. You are only supposed to be going long stocks in top sectors in markets that are trending up. I obviously can maneuver a bit differently. But most traders should stay very disciplined and play by the rules until they are making consistent money the right way by buying top stocks moving higher in top sectors in markets moving up. I heard some subscribers and other participants in other rooms talk of buying the dip. I would wait for breakouts, if I were you. Look for charts like TTG CRNT and KHDH. Not charts like IMR.
We have the Commerce Department report on the April trade deficit and we have weakness in most Pacific/Asia markets so that will be on the minds of traders. That and of course the worry of what the market is going to do after yesterday’s selloff. But I don’t need that in my life. I have enough things to worry about. And the stock market will never be one of those things I will ever have to worry about. When you have rules, discipline, and sound strategy that you have tested and used to make a good living off of, you don’t have to.
Aloha and I will see you in the chat room!! It’s Aloha Friday, No Work Till Monday……dee dee de de de…..
top holdings up this week - purchase date
TRCR 430% - 1/12
PTT 303% - 11/16
MA 187% - 8/2
CCOI 144% - 9/27
OMTR 134% -
TTEC 130% - 8/25
ULTR 116% - 10/27
MEH 113% - 8/30
MOS 109% - 10/12
MFW 108% - 1/29
KHDH 107% - 5/30/06
DECK 97% - 9/13
CPA 97% - 9/15
CXW 91% - 5/19/06
IGLD 87% - 10/26
EVEP 86% - 11/16
MVIS 86% - 12/21
APLX 83% - 9/28
VDSI 79% - 1/4
HURN 77% - 9/13
MCZ 74% - 3/27
CLRT 73% - 11/30
CNH 72% - 11/2
TTG 63% - 11/30
TESO 60% - 2/16
LFL 57% - 12/13
NSH 57% - 12/19
AFSI 56% - 4/12
VSNT 54% - 2/5
APFC 52% - 3/5
XOMA 51% - 1/12
HURC 50% - 12/18
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
Saturday, June 02, 2007
Leading Stocks Lead The Way As A Very Bullish Week Comes To A Close; NYSE Short Interest At Five-Year Highs
A lot of strong economic data helped stocks finish higher, on Friday, but they were off from their early morning highs. However, the closes were still impressive and the DJIA even had a very strong final hour, even with the Shanghai market falling another 2.7% (still up 50% this year). At the close the SP 600 hit an all-time high rallying .8%, the NYSE hit an all time high rallying .6%, the SP 500 hit an all-time closing high rallying .4%, the Nasdaq hit 6 1/2 year highs rallying .4%, and the DJIA rallied .3% hitting another all-time high.
The most important action, came in the form of leading stocks. The IBD 100 gained 1%, marking the fifth session in a row that the IBD 100 has outperformed the broad market. Leading stocks leading the market tells you that this rally is strong and should have some real legs behind it. It has taken a long time for these stocks to establish a dominate role in this market, since the March 2003 - May 2006 period, but now they are taking the lead from the DJIA. Let’s hope this continues.
Volume was 19% lower on the Nasdaq and 11% lower on the NYSE, which kind of puts a damper on the gains. But the figures for the week confirm the markets strength. The SP 600 was the strongest performer with a 2.8% gain, the Nasdaq followed with a 2.2% gain, the NYSE gained 1.7%, the SP 500 rallied 1.4%, and the DJIA gained 1.2%. The IBD 100 blew away the competition, with a 3.9% gain. This is what you want to see. This is something we really have not seen since the bottom last July/August. Welcome back leading stocks!
There were two advancers for every stock that declined on the NYSE and there were three winners for every two losers on the Nasdaq. New highs finally picked up, with an impressive 799 new 52-week highs. This kind of expansion should give the doubters of this rally some reason to turn a bit more bullish. If that doesn’t work, they have the put/call ratio still up there around the .75 area. That is not high but it is not low either. The most important and telling internal is the amount of short sellers out there.
The NYSE short interest ratio is at its highest level in more than five years at 7.74. This shows major pessimism amongst short sellers and this should keep the market bullish. It is not a given but the high short interest ratio with a higher put/call ratio shows that the crowd is still on the wrong side, despite some surveys.
The AAII survey has come out with 45% bears and only 33% bulls, confirming that the retail crowd is shorting the upticks. One of the most dangerous, arrogant, and ego-driven trade you can possibly make in such a strong tape. Most of these traders are trying to “outsmart” the market. A play that has a very low success rate.
Other surveys, however, show the opposite. The Investors Intelligence survey still shows a very high amount of bulls and the realmoney.com most recent weekend poll is showing 57% of the readers bullish. However, by looking at the post on Rev Shark’s blog, it doesn’t seem that many are bullish on this tape. A lot of the realmoney.com readers leave much to the imagination, anyways. I don’t see too much talent around there.
The other clear fact that the actual trading is not bullish for the retail crowd is the fact that equity ETF’s saw outflows this week. You don’t see that at tops. You see extreme inflows into mutual funds and ETF’s. This shows that the crowd is skeptical on the current rise. Being emotional in the market and betting against the trend is an even worse double whammy that is sure to keep you from beating the market in the long run. If I wasn’t on margin I wouldn’t be beating the market this year. That tells me exactly how rough the current uptrend really is. It is not as easy as it looks–unless you are a daytrader, then I assume it is safe to say “it is easy.” Let’s see how long that last.
What does seem to not be lasting is the weak economy. On one of the busiest weeks I can remember this year, economic data came rolling in confirming what I have been saying all year long–this economy is on FIRE!!! Yes, GDP did come in at its lowest level in five years but it appears to be a short-term thing as the numbers this week confirmed that everything appears to be fine with the economy. That is confirmed by the banks finally getting a bid this week.
The strong economic data on Friday came from the payroll figures as jobs grew 157,000 in May above expectations. The core inflation reading came in at only .1% which was below expectations also. Overall a good report. Then the ISM manufacturing index climbed to 55 in May, showing expansion from April. A reading over 50 is bullish. These kind of economic numbers is why this market never goes down. The DJIA and SP 500 are now up 8 out of the last 9 weeks. An unbelievable run, to say the least.
This unbelievable run is allowing for a TON TON TON of breakouts. Everywhere I scan, I can find breakouts. So that confirms in my mind that this bull still has room to run. If we do reverse now, I can tell you it would be very significant because this many stocks breaking out of fresh bases should mean that the market is going to run. A reversal would be a fakeout breakout and would trap many longs. If I could, and if I was a billionaire or even a millionaire (I am still young and live on Maui, don’t forget that), I would be long 500 stocks right now. There are just that many nice charts. They are not all green and pretty but they are still there. Stocks like TLVT are easily passed with all the nice charts out there. However, a gain of 15% in three days shows that every breakout seems to be working here.
This market does require a lot of work to keep up with the gains in the NYSE, compared to other bull markets. This is in direct correlation with the VIX. Remember, a low VIX, means lower volatility and when stocks rise they will not go up as much when the VIX is at 12 than if the VIX was at 32. All the stocks you see up 100% would be up 300%, if this rally came right after a horrible bear market like the March 2003 was. Even though the gains aren’t as much, the duration is a lot longer. This makes it hard work and can really put a drain on you. I know it is me. I really want a pullback, I really need a pullback, and I just want some time to relax. I doubt I am going to get that.
What also confirms that I doubt I am going to get that? Well after eight out of nine weeks of gains, why should I expect anything else. And the 10-year yield is now confirming what I have been saying all year. The 10-year is now at its highest level in nine months, at 4.94%. The odds of a Fed cut this year fell to 16% from 100% a month ago. Remember, in the world of stocks it is the opposite of what you would think would work. A Fed raising rates tells us that the economy is on fire and they need to slow it down. A Fed cutting rates tells us the economy is in trouble and they need to fill it with cash. With the odds increasing of no rate cut, you can rest assure that this economy is doing just fine. This should be bullish for stocks.
To finish this weekends analysis off I want to state that I don’t think the USA is in a bubble AT ALL. China may be in a bubble but if anyone has IBD and can remember the chart comparing the seven year run-up to the DJIA 29 and Nassy 00 top, you can clearly see China could have a long way to run. Especially since the Nasdaq had a P/E over 200. I believe China is around 45-50.
I did see some bubble action in a lot of stocks last month. But they have either fallen and that money moved into other leaders or they are still holding up. Two personal longs that I saw go into OBVIOUS climax runs (TNH and ONT) were both sold and since then the move has looked like the correct one. TNH is still holding but ONT looks done. Either way those charts had climax runs. There aren’t too many out there like that. Heck, I can’t even find stocks to sell. I only had two partial sales and zero complete sells out of 240 longs (70 are major holdings, the rest are for rent money and fun). The day before there were also no complete sales. Stunning. Normally, even in bull markets, there is always one or two that needs to be cut. Not in this market.
Enjoy the rest of your weekend. Go Anaheim!!! Go Cleveland!!! Aloha and I will see you in the chat room.
http://mauitrader.blogspot.com
top holdings up this week - purchase date
KNOL 365% - 1/12/06
TRCR 350% - 1/12
PTT 240% - 11/16
MA 202% - 8/2
CCOI 152% - 9/27
TTEC 146% - 8/25
ULTR 122% - 10/27
HRZ 115% - 9/27
MFW 115% - 1/29
MEH 113% - 8/30
KHDH 108% - 5/30/06
IHS 106% - 12/21/05
CPA 104% - 9/15
MOS 104% - 10/12
CRY 103% - 1/10
NEXC 101% - 10/25
PRGX 96% - 1/12
CXW 92% - 5/19/06
IGLD 91% - 10/26
DECK 86% - 9/13
EVEP 83% - 11/16
JSDA 80% - 12/20
CNH 79% - 11/2
VDSI 78% - 1/4
APLX 77% - 9/28
HURN 77% - 9/13
MVIS 76% - 12/21
MCZ 74% - 3/27
IMMU 73% - 12/19
FTEK 67% - 10/6
TTG 64% - 11/30
NSH 61% - 12/19
LFL 61% - 12/13
BMA 56% - 10/24
TESO 54% - 2/16
NTL 50% - 4/13
SCI 50% - 10/10
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
The most important action, came in the form of leading stocks. The IBD 100 gained 1%, marking the fifth session in a row that the IBD 100 has outperformed the broad market. Leading stocks leading the market tells you that this rally is strong and should have some real legs behind it. It has taken a long time for these stocks to establish a dominate role in this market, since the March 2003 - May 2006 period, but now they are taking the lead from the DJIA. Let’s hope this continues.
Volume was 19% lower on the Nasdaq and 11% lower on the NYSE, which kind of puts a damper on the gains. But the figures for the week confirm the markets strength. The SP 600 was the strongest performer with a 2.8% gain, the Nasdaq followed with a 2.2% gain, the NYSE gained 1.7%, the SP 500 rallied 1.4%, and the DJIA gained 1.2%. The IBD 100 blew away the competition, with a 3.9% gain. This is what you want to see. This is something we really have not seen since the bottom last July/August. Welcome back leading stocks!
There were two advancers for every stock that declined on the NYSE and there were three winners for every two losers on the Nasdaq. New highs finally picked up, with an impressive 799 new 52-week highs. This kind of expansion should give the doubters of this rally some reason to turn a bit more bullish. If that doesn’t work, they have the put/call ratio still up there around the .75 area. That is not high but it is not low either. The most important and telling internal is the amount of short sellers out there.
The NYSE short interest ratio is at its highest level in more than five years at 7.74. This shows major pessimism amongst short sellers and this should keep the market bullish. It is not a given but the high short interest ratio with a higher put/call ratio shows that the crowd is still on the wrong side, despite some surveys.
The AAII survey has come out with 45% bears and only 33% bulls, confirming that the retail crowd is shorting the upticks. One of the most dangerous, arrogant, and ego-driven trade you can possibly make in such a strong tape. Most of these traders are trying to “outsmart” the market. A play that has a very low success rate.
Other surveys, however, show the opposite. The Investors Intelligence survey still shows a very high amount of bulls and the realmoney.com most recent weekend poll is showing 57% of the readers bullish. However, by looking at the post on Rev Shark’s blog, it doesn’t seem that many are bullish on this tape. A lot of the realmoney.com readers leave much to the imagination, anyways. I don’t see too much talent around there.
The other clear fact that the actual trading is not bullish for the retail crowd is the fact that equity ETF’s saw outflows this week. You don’t see that at tops. You see extreme inflows into mutual funds and ETF’s. This shows that the crowd is skeptical on the current rise. Being emotional in the market and betting against the trend is an even worse double whammy that is sure to keep you from beating the market in the long run. If I wasn’t on margin I wouldn’t be beating the market this year. That tells me exactly how rough the current uptrend really is. It is not as easy as it looks–unless you are a daytrader, then I assume it is safe to say “it is easy.” Let’s see how long that last.
What does seem to not be lasting is the weak economy. On one of the busiest weeks I can remember this year, economic data came rolling in confirming what I have been saying all year long–this economy is on FIRE!!! Yes, GDP did come in at its lowest level in five years but it appears to be a short-term thing as the numbers this week confirmed that everything appears to be fine with the economy. That is confirmed by the banks finally getting a bid this week.
The strong economic data on Friday came from the payroll figures as jobs grew 157,000 in May above expectations. The core inflation reading came in at only .1% which was below expectations also. Overall a good report. Then the ISM manufacturing index climbed to 55 in May, showing expansion from April. A reading over 50 is bullish. These kind of economic numbers is why this market never goes down. The DJIA and SP 500 are now up 8 out of the last 9 weeks. An unbelievable run, to say the least.
This unbelievable run is allowing for a TON TON TON of breakouts. Everywhere I scan, I can find breakouts. So that confirms in my mind that this bull still has room to run. If we do reverse now, I can tell you it would be very significant because this many stocks breaking out of fresh bases should mean that the market is going to run. A reversal would be a fakeout breakout and would trap many longs. If I could, and if I was a billionaire or even a millionaire (I am still young and live on Maui, don’t forget that), I would be long 500 stocks right now. There are just that many nice charts. They are not all green and pretty but they are still there. Stocks like TLVT are easily passed with all the nice charts out there. However, a gain of 15% in three days shows that every breakout seems to be working here.
This market does require a lot of work to keep up with the gains in the NYSE, compared to other bull markets. This is in direct correlation with the VIX. Remember, a low VIX, means lower volatility and when stocks rise they will not go up as much when the VIX is at 12 than if the VIX was at 32. All the stocks you see up 100% would be up 300%, if this rally came right after a horrible bear market like the March 2003 was. Even though the gains aren’t as much, the duration is a lot longer. This makes it hard work and can really put a drain on you. I know it is me. I really want a pullback, I really need a pullback, and I just want some time to relax. I doubt I am going to get that.
What also confirms that I doubt I am going to get that? Well after eight out of nine weeks of gains, why should I expect anything else. And the 10-year yield is now confirming what I have been saying all year. The 10-year is now at its highest level in nine months, at 4.94%. The odds of a Fed cut this year fell to 16% from 100% a month ago. Remember, in the world of stocks it is the opposite of what you would think would work. A Fed raising rates tells us that the economy is on fire and they need to slow it down. A Fed cutting rates tells us the economy is in trouble and they need to fill it with cash. With the odds increasing of no rate cut, you can rest assure that this economy is doing just fine. This should be bullish for stocks.
To finish this weekends analysis off I want to state that I don’t think the USA is in a bubble AT ALL. China may be in a bubble but if anyone has IBD and can remember the chart comparing the seven year run-up to the DJIA 29 and Nassy 00 top, you can clearly see China could have a long way to run. Especially since the Nasdaq had a P/E over 200. I believe China is around 45-50.
I did see some bubble action in a lot of stocks last month. But they have either fallen and that money moved into other leaders or they are still holding up. Two personal longs that I saw go into OBVIOUS climax runs (TNH and ONT) were both sold and since then the move has looked like the correct one. TNH is still holding but ONT looks done. Either way those charts had climax runs. There aren’t too many out there like that. Heck, I can’t even find stocks to sell. I only had two partial sales and zero complete sells out of 240 longs (70 are major holdings, the rest are for rent money and fun). The day before there were also no complete sales. Stunning. Normally, even in bull markets, there is always one or two that needs to be cut. Not in this market.
Enjoy the rest of your weekend. Go Anaheim!!! Go Cleveland!!! Aloha and I will see you in the chat room.
http://mauitrader.blogspot.com
top holdings up this week - purchase date
KNOL 365% - 1/12/06
TRCR 350% - 1/12
PTT 240% - 11/16
MA 202% - 8/2
CCOI 152% - 9/27
TTEC 146% - 8/25
ULTR 122% - 10/27
HRZ 115% - 9/27
MFW 115% - 1/29
MEH 113% - 8/30
KHDH 108% - 5/30/06
IHS 106% - 12/21/05
CPA 104% - 9/15
MOS 104% - 10/12
CRY 103% - 1/10
NEXC 101% - 10/25
PRGX 96% - 1/12
CXW 92% - 5/19/06
IGLD 91% - 10/26
DECK 86% - 9/13
EVEP 83% - 11/16
JSDA 80% - 12/20
CNH 79% - 11/2
VDSI 78% - 1/4
APLX 77% - 9/28
HURN 77% - 9/13
MVIS 76% - 12/21
MCZ 74% - 3/27
IMMU 73% - 12/19
FTEK 67% - 10/6
TTG 64% - 11/30
NSH 61% - 12/19
LFL 61% - 12/13
BMA 56% - 10/24
TESO 54% - 2/16
NTL 50% - 4/13
SCI 50% - 10/10
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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