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
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