Sunday, October 07, 2007

Stocks End A Bullish Week On A Wildly Bullish Day For Equities; NYSE And SP 500 Hit All-Time Highs

Strong Q3 earnings from the heavyweight RIMM and a very strong payroll jobs report helped gap stocks higher in a bullish morning for stocks. The best news was that after that strong gap higher, the bulls worked their magic short-squeezing the bears the rest of the day. There was a bit of a late day pullback but the pullback barely touched the Nasdaq at all but instead hit the less important DJIA (for us anyways). The pullback that barely hit the Nassy helped it close near the highs of the day up 1.7% hitting a seven year high. The SP 500 and NYSE hit all-time highs and the DJIA hit an intraday all-time high but pulled back, like I said, at the end.

What made today’s gains clearly better was the fact that volume jumped 15% on both indexes as stocks climbed higher almost all day and the fact that a couple of top indexes put in better performances than the overall market, clearly indicating that leading and top stocks are in control in this market. The IBD 100 jumped 2.3% and the DJ Transport avg. leaped 3.3% in what was a clear showing of leadership from top stocks. This has been the case since the start of the rally and continued with Friday’s market.

This rally has been in full effect since August 29 when the market officially followed-through from the August 16 lows. Since those five weeks have passed the IBD 100 has produced a 21% gain compared to the SP 500’s 8% and the Nasdaq’s 11% gain. This goes to show you how leading stocks usually act during the bullish phases of the market. It has been a rough ride from early 2006 to August for CANSLIM investors as for the first time in a long time the strategy was not KILLING the market overall. Big caps were doing quite well actually. But now the world has come back into proper alignment and leading stocks are, once again, killing the market.

If you do not think that this was a normal thing then we can go back to May 2, 2003 when the IBD 100 was initiated. The IBD 100 is up 236.5% since then compared to the SP 500’s 65.9% gain during the exact same period. So you tell me which stocks in which index you would like to focus on? Exactly.

The only problem right here, after five weeks of such strong gains, is that most stocks are completely extended from proper buy points and there are a lot less top stocks out there worth buying. Waiting for a pullback in the top stocks to the 50 day moving average is a better play on some of these stocks as you don’t want to buy stocks that haven’t moved while this stock market has been moving.

If your stock is hitting a new high but the RS line is lagging that is probably a good indication that you are not in a leading stock. It is much better to have 10 high priced top stocks than 30 cheap lagging Chinese internet stocks that have gone nowhere. If those stocks are lagging now in such a strong market what makes you think they are going to do any better now? In fact, what do you think is going to happen to those lagging stocks when the market rolls over? Chances are if they are leading to the downside instead of the upside during a bull trend, they are going to lead to the downside during a downtrend. So avoid loading up on a bunch of sub $10 China stocks or lagging stocks.

Back to today’s market, the new highs beat the new lows, on Friday, by 526 to 67. This shows that all the problems with the new highs not being up to the past old high number is still yet nothing but another market indicator that does not have the final say against the overall price and volume action. So if too many people were worried about this indicator, now that you have MISSED the move, you can now stop worrying about your indicator. The new highs have expanded, without you. Sorry Doug Kass(trated) and Barry Ritz(or is it poor)holtz, the bears just don’t have much going for them right now. How do those guys actually make money in the market? I wonder if they really do!!

Well, I guess it really doesn’t matter how they make money. What matters is that you are making money. And if you have been going long the same stocks I have been going long, then there is NO doubt in my mind you have made some and a lot of money. My only concern is that I hope you are learning and/or know how to keep all that money you are making in these stocks.

First off, make sure any stock you have that is not a CANSLIM quality long that makes a 25% move that you take 20% off when it hits this level. What it does after that is up to you and your chart reading skills. But when risky stocks make 25,50, and 100% gains, I would take profits there. On the other hand, if you have a CANSLIM quality make a 20% gain in a few weeks, make sure you hold it for bigger gains. Like the 339% return in OMTR or the 223% return in MA. Or the short-term return of 70% in APPY. As you will see, I took profits on the way up in this one. But it has setup in another base so I am going back in. But the original gains saw me taking profits the whole way up. But for stocks like DRYS that is up 56% for me in a short period of time. Only 25% of it is gone. The rest is being held for potentially bigger gains in this top stock.

For now, all news is good news if you are long. It should continue to be that way until we get a bunch of distribution days signaling the top and we have our leading stocks go off on a rocket and put in a bunch of fireworks before reversing and crashing. When we see this, we will know all news is bad news. But for now the trend is DEFINITELY your friend. And that is the only friends I want: friends that are on my side. The bulls are our friends and until we meet real bears, the bullish trend and bulls shall remain our friend. Aloha and I will see you in the chat room.

top current holdings: ZNH 288% OMTR 339% FSLR 108% MOS 191% VDSI 199% KHD 169% CNH 113% DECK 143% MA 224% IHS 205% WRLS 116% DRYS 56% HURN 98% SFLY 93% GMCR 60% LFL 61% EBIX 54% YGE 66% ASTI 81% CPHD 64%

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