Sunday, November 04, 2007

Stocks Bounce Around But Rally To Close Near Their Highs Of The Session, After Thursday's Selloff; Bears Can't Get Much Going To The Downside

Stocks ended slightly higher, with the Nasdaq leading the way, as stocks pretty much stayed range bound intraday. The boring trading looks rather tame and unreadable at first glance. But when you consider the selloff we had the day before, it has to be taken as a bullish sign that all indexes closed near the top of their intraday range after selling off initially during the day. So, overall, I would think that we have to consider today bullish considering that the selling had no follow-through and the indexes closed higher.

Confirming the strength in the market was the IBD 100 which rallied 1.2% which was much better than the indexes .1% to .6% gains. This also helped the IBD 100 close up for the week by .6% which well outpaced all the indexes which all fell this week between .25% and 1.7%. The weak week can be taken as bearish by most since we saw the NYSE pop up with two distribution days and new lows constantly beat new highs all week. Even on Friday when the indexes closed higher, the new lows beat the new highs on all indexes. On the Nasdaq it was 58 new highs to 251 new lows, on the NYSE it was 90 new highs to 205 new lows, and on the AMEX it was 30 to 35. So even strong days now have more selling than buying underneath the big cap large stocks.

What some don't seem to understand at this point in the rally is how the market can be rising when so many stocks are breaking down or hitting lower lows. It is simply, really. There are seven stocks that make up 25% of the Nasdaq. MSFT, GOOG, CSCO, AAPL, INTC, ORCL, AMOV each represent 2% or more of the Nasdaq individually. So technically you could have every single stock in the Nasdaq selloff and as long as these seven stocks rallied by a very large amount the index would still close higher. This is why GOOG, RIMM, AAPL, and BIDU are holding us up. These leaders are holding the whole market up. When they go, the market will go.

But while we wait for that to happen, we still have a lot of stocks that are moving higher and enjoying this overall uptrend by the stock market. HMSY, SXE, ATRO, and OTEX are just some of the stocks that are still moving much higher while everyone keeps trying to short every uptick. There have been some great shorts out there in the banks, finance, homebuilders, mortgage, and insurance stocks. But these still don't even come close to matching the returns of top stocks in this market. As long as this overall trend of the market is up, no matter how many stocks are moving lower, it still pays to be long top leading stocks with great growth in their fundamentals. These stocks are still moving up and producing bigger gains than most shorts are producing currently. Until the big boys (GOOG RIMM AAPL BIDU) break, I am continuing to fire my bullets on the long side.

I also have sentiment moving in my favor. With oil rising and hitting $96 a barrel on Friday I guess that helped spook investors, along with the intraday drop in the market, because the put/call ratio ROSE from .94 on Thursday to .99 on Friday. For those of you not familiar with this contrarian gauge it usually works best to do the opposite of what these players are doing. Normally when the markets rise, the put/call false as more players buy calls betting on even higher prices. The fact that prices rose YET more people bought bearish puts shows that sentiment is NOT bullish. Especially when over 40% of those polled by the NY Times in October say that we ARE IN a recession!???! Are you kidding me?

The network news and CNN's blatant bias and lies about this economy is helping this stock market rise. They are creating the wall-of-worry that is necessary for stocks to rise. That is why the stock market is near all-time/seven year highs, despite "this economy being a mess due to George Bush's tax cuts." Give me a f****** break. This is the greatest story never told. 3.9% GDP is NOT a recession. Wake up liberals! The facts are waiting for you to discover them. Lower taxes always equals more revenue for the government when you cut capital-gains and income taxes. Saying anything else is a direct attack on good, honest, common sense filled Americans.

Another thing that attacks my common sense is all these market top callers. I am finding top callers everywhere. DRYS - top. China - top. USA - top. I am going to repeat, one more time, do NOT look for tops. Ride the trend higher and when your stocks start going on climax runs where they start making huge price gains in an almost straight up fashion start taking profits. Only after your stock has topped, closed below the 50 dma, and has either failed to rally back above the line or has rallied back above and then failed right back below should you consider selling all of your big winners. The other clear sell area is the 200 day moving average. I almost will never hold a stock that trades below the 200 day moving average. This did get me out of AAPL early. But big deal. I am still holding longs like IHS, MA, and OMTR which are well above their 50 dmas and are still in very strong uptrends. I have taken plenty of profits in these along the way up but in NO WAY would I ever lose my stake until that 200 dma is broken.

In IHS, for instance, I know many who sold all in March 2006 due to the way it was acting. Then it was May 2007 and then August 2007. The fact of the matter is when you have a big winner with great fundamentals you should never sell the whole thing as long as it is above the 200 day moving averages. The best and biggest winners will never go below this line. Or if they do they will rally back quickly, like AAPL did. Even GOOG broke the 200 dma. But if you notice it never sold off on heavier volume ever while it was under the 200 dma. If you look at BIDU you will see that this winner met its 200 dma in August 2006, March 2007, and April 2007 but never broke it. Just another example of the 200 dma supporting the leading stocks. One more is TNH. This is a high-growth chemical leading stock (still is leading). As you will see it bounced right off the 200 dma in August.

Back to the current market, we are still in a solid uptrend off the August 16 lows and our August 29 follow-through with plenty of leaders doing just fine. But we do have to realize that we are very extended with many leading stocks well above their 50 day moving averages. Stocks like DRYS and EXM are over 100% extended and that is pretty far. So some more consolidation here wouldn't be bad for the stock market. Going up everyday is not the healthiest thing for markets. Low volume pullbacks are violent and fast mini-crashes on huge volume are what is needed to help stocks setup in proper bases so that we can get more leading stocks to break out of sound bases. Right now, we have very few great looking charts out there.

The last great looking chart was in a very speculative issue and it has already lost its luster. For those that are not familiar with APPY go back and look at it on your tc2007 software. Study that price, volume, and BOP. This is what we are looking for in all of our longs. FNDT is one of the nicest longs we have had in a while for a CANSLIM candidate but the lack of max green BOP right before this bounce is a bit discouraging. Still we, at least, have some pretty charts out there. We are just completely void of perfect charts. That is probably due to this rally being five years old. Though I remember when FMDAY bounced at the end of 2003 before going on that huge run. That was the end of the 2003 bull. But still. That was just a minor break in this longer bull market in this great market. The greatest story never told. This is truly as Kudlow says "a Goldilocks economy."

Until this market rolls over and the leading stocks all breakdown like GRMN (which STILL hasn't OFFICIALLY topped yet--it could easily rally back to new highs and run to $150) there is no way I am jumping off the bull train. I will poke a short here and there and hope I get more FAF, SHOO, COH, and CLP type of stocks. But will not look to go for broke on the bear side until those leading horseman die. Until they die, the longs are where the big money is at. You don't believe that to be the case? Well how do you explain what is below? I know. It is a very bullish market and leading stocks are getting rewarded in a very lucrative way.

Aloha and I will see you in the chat room where you can guarantee that I will be there and in control no matter how rough or big the waves get...this, however, is unlike my real-world surfing skills. Have a wonderful weekend.

top current holdings: SXE 74% WG 94% IMA 100% IHS 232% MTL 60% NTLS 65% DECK 188% KOP 52% PTEC 51% ANO 332% OMTR 345% BCSI 76% BPHX 58% CNH 139% MOS 287% HURN 78% DSX 56% LFL 56% ICOC 80% MA 282% SXC 59% EBIX 82% PRGN 53% RICK 50% AUXL 54% APPY 116%

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