Saturday, July 07, 2007

Fourth Of July Holiday-Shortened Week Goes Out With A Bang; Shorts Continue To Feel The Squeezing Pain Of The Bulls

A positive employment report, positive revisions to past reports along with the unemployment rate holding steady at 4.5%, and acquisition news that EYE raised the offer from a previous company to buy BOL for $75 a share helped stock indexes rise steadily higher all day long in a nice stair step fashion. By the closing bell, all indexes ended in the green, with big-cap tech leading. All of this came despite another increase in oil to $72.81 a barrel-highest close since September. This market continues to move higher despite the highs in oil, confirming that this is the greatest market story never told. (this refers to the severely biased media that REFUSES to acknowledge how INCREDIBLE this rally from October 2002 is).

The NYSE led the way, closing at an all-time high, with a .5% gain and the Nasdaq and Nasdaq 100 gained .4%, hitting 6 1/2 year highs. The DJIA and SP 500 closed slightly higher with a .3% gain and the SP 600 gain was even smaller with a .1% gain. The great news, once again, was that leading stocks trumped the general market indexes, with a 1.2% gain. This is the picture perfect action that you want to see in a bull market. When leading stocks are leading the general indexes, there are much larger gains being made in top growth stocks than value stocks.

Volume was lower than the day before, as it appeared traders started the weekend and/or their vacations early. The lower volume does help alleviate fears that if volume on the downside shows up soon that it will not be that heavy. As it stands now, the NYSE has five distribution days (many weak distro days) and the Nasdaq only has one, signaling that the market is still very healthy up here hitting new highs despite the lower volume.

With the lower volume, however, we did get good breadth confirming the gains today. The other positive is that the breadth improved as the rally continued throughout the day. Advancers beat decliners by a 5-to-3 margin on the NYSE and by a 3-to-2 margin on the Nasdaq. New 52-week highs beat new 52-week lows by 527 to 83, clearly showing the strength of this market after four days of strong price action.

For the week, the Nasdaq led the way with a 2.4% gain, the NYSE followed with an impressive 2%, the SP 500 and SP 600 rallied 1.8%, and the DJIA gained a solid 1.5%. The clear obvious winner this week was the IBD 100 index and my account. The IBD 100 rallied 5.2% and my account rallied 7.3%. This week reversed my poor showing from last week and continued the trend of my account well outperforming the market for the past sixteen weeks (the length of this rally from the March lows).

It has been a powerful four days of low volume gains for the market but I would not be surprised if we get a pullback here as it seems we have worked off the oversold condition and turned some bears into bulls the past week. Some of the key numbers comes from the poll this weekend. It shows that those surveyed lean bullish with 70% expecting price gains for the upcoming week. There are only 13% registering as bears. This also comes with the McClellan and other overbought/oversold indicators get overbought after the past week of price gains. The VIX has also worked off its bullish higher volatility from late June, signaling that the easy money has been made.

However, despite this, the NYSE short interest ratio rose again to near all-time highs closing at 7.66 on Friday. That and the put/call ratio is still around the level it was at the beginning of the week with it closing at .76. This clearly states that despite what people say, traders did not make bullish bets and in fact continued to take the opposite side of the clear trend. The other slightly bullish sentiment news is that bullishness from the Investors Intelligence survey fell to 49.4%. But, bearishness fell also to very low levels of 18%.

The other sentiment index that I noticed giving a signal that the market might be tired here is the ISEE Options put/call index. This index hit 186% on Thursday which is a level where the market normally does not do very well in the short-term following this reading. Combine this with some of the events above, the fact that new buys are starting to get a little difficult to find in top stocks, and the new buys that do show up are in low-float small cap stocks with mixed/poor fundamentals and we just shouldn’t be surprised if we get a pullback. Now a severe pullback–that is something I just don’t see in the cards with this much negativity pouring out of our nightly news.

Another clear reason why I don’t see a top happening anytime soon is that leading stocks with top fundamentals are simply not topping. And history shows that the leaders top BEFORE the market tops. So as long as AAPL, RIMM, BIDU, GOOG, and Chemical stocks are making new highs and are not churning, putting in heavy volume selloffs, or cutting their 50 day moving averages, there is absolutely NO reason to even think of trying to call a top. Once you see these four horseman top and reverse and then can look at the major indexes and see a clear downtrend, on heavy distribution, with lower highs and closes below the 50 day moving average then, and only then, will I listen to the bears.

Until then, the bears are just filled with nothing but pure crap and lies. And their opinions are worth the equivalent of the returns you have received as a bear this year: NOTHING! Pure worthless opinions that do NOT agree with the facts on the ground. This is why trend followers will ALWAYS outperform the top and bottom callers. They will NEVER return what the greatest traders of all-time returned by simply following and listening to top stocks and the general direction of the market.

Now, like I have said before, and like I keep listing on my forums, there are a lot of charts starting parabolic runs. But that is just it: they are starting them or in the middle of them. Very few appear to be in the late stages of runs seen in other parabolic runs in stocks like ERS in 2006 and tech stocks in the 2000 market. Even RevShark sees this, confirming what I have been seeing for weeks and weeks now. Still, until they top, there is no reason to predict when the run will end.

There is even evidence, in the Semiconductor index, that many large big-cap tech stocks are ready to run there. Many are at new 52-week highs and a lot of the sub-components of the Semiconductor/Electronics group have made big moves in the IBD 197 industry group list. It is very good to see the Semi’s join the market as this appears to be very bullish and should help turn some of those bears into the bulls camp, since they always say that it isn’t a real bull market unless the Semi’s are moving. Maybe I am stuck in years gone by, with this statement, but I still have heard plenty of people tell me that this rally (FOR THE PAST FOUR YEARS MIND YOU) is not that great of a rally because Semi stocks never led. Uhm, who said they had to lead? It is much better just seeing stocks like INTC, NVEC, NVDA, ADM, etc. making solid consistent gains. And that is what they are doing. The whole sector looks great. Of course, the best looking one recently has been SMTX. Those who subscribe at the gold level are well familiar with that very very pretty chart.

With a lot of the bullish leanings you are reading in this weekends post, you must also realize that I am no idiot. I have been partial selling many stocks that are in climax/parabolic type runs. Many, not all, of the stocks you see listed below have recently had 10-25% sold via the basic trading necessity of locking in profits. Holding your whole load as the stock continues to race up the charts in an exponential matter is not smart as sudden reversals become more and more likely. Small and smart selling based on either new highs with low volume, new highs with little price change and huge volume, or major reversals where the stock is up a lot on the day but then reverses to close lower are clear places to selloff 10%-20% of your big winners. Locking in some gains and then holding on for a possible climax run is just what the smart traders of yesteryear did and the smart traders of today do. One thing we definitely don’t do (not saying I am great, btw. Trust me I am FAR from it) is call tops. And that is one thing you will not see me do as long as we are moving higher and hitting new all-time and six-and-a-half year highs.

We have earnings season officially kicking off on Monday, with AA releasing earnings after the close. During the week we have numbers from stocks like INFY, PBG, DNA, MAR, YUM, and CTAS, and to close the week off we have GE. After that the fireworks really get going when the earnings really start pounding the table. Isn’t it funny how fast this time of the year can sneak up on you? Besides that there are, like always, economic numbers to digest. But nothing this week should impact the market like earnings will.

Aloha and I will see you in the chat room where you can guarantee we are ALWAYS on the right side of the market.

top holdings up this week - purchase date

TRCR 463% - 1/12
MA 223% - 8/2
OMTR 185% - 9/15
IHS 146% - 12/21/05
CPA 133% - 9/15
KHD 130% - 5/30/06
TTEC 128% - 8/25
ULTR 125% - 10/27
DECK 120% - 9/13
CXW 96% - 5/19/06
HURN 95% - 9/13
CNH 94% - 11/2
CRY 90% - 1/10
VDSI 89% - 1/14
EVEP 89% - 11/16
ZNH 84% - 12/26
APLX 84% - 9/28
AFSI 83% - 4/12
CKSW 69% - 10/11
LFL 68% - 12/13
HURC 66% - 12/18
VSNT 64% - 2/5
ATX 62% - 12/12
IMA 61% - 8/2
NAVI 59% - 12/19
TESO 58% - 2/16
XRA 58% - 5/24
KMGB 57% - 6/1
CRNT 54% - 5/21
TTG 54% - 11/30
CCC 53% - 3/26
FSLR 50% - 5/22
NTLS 50% - 1/30

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

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