Saturday, June 30, 2007

A Choppy Week Comes To A Close As Stocks Reverse Earlier Gains And Close Lower; Leaders Are Still Leading

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 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

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