Sunday, April 20, 2008

A Bullish Week Comes To A Close As Leading Stocks Lead The Market Higher; Volume Was Finally Over The 50 Day Volume Average On Friday, On The Nasdaq

Friday turned out to be one of the best days without a doubt for the stock market in 2008 as the Nassy led the way with a 2.6% gain. Why Friday? Because this rally came not only on heavier volume but came after the indexes have already had a few up days. This is a confirmation of the follow-through day as volume was sharply higher on both indexes by 20%. Not only did the gains come on higher volume but leading stocks took charge once again as many leading stocks continued to setup in what are now nice looking bases--just a week ago they were not nearly as nice (this is why it is important to ALWAYS follow the market). That is what two very strong accumulation days will do when they are within three days. There are also plenty breaking out to new highs on strong volume and the fact that they are in so many broad sectors is bullish.

Too bad the broad sectors are all commodity related stocks but heck since they are all moving higher that is your tell that the rally is back on. The Nasdaq, NYSE, DJIA, SP 600, SP 500, and IBD indexes are now in short-term and sub-intermediate term uptrends. That means that it is time to start looking to get aggressive with longs. Especially with a lot of technology stocks showing up. They may not be leading but at least they are coming along with the recent gains. This is something that has not happened since the November selloff started. This is very good news.

However, with volume still below the 50 day volume average on the NYSE and with volume just barely over the 50 DVA on the Nasdaq it is clear that funds still have not dove into buying stocks. This has either two implications as they will either return to dump stocks hard or will create the final touches of buying power that could start another leg of the longer-term uptrend since the 2002 lows. I lean on the side of them coming back in buying stocks as I have watched some of the best funds go from 3% cash to 15% to 20% cash the past six months. Quite odd and eventually they are going to have to put that money to work. We will see.

Some out there will complain that the lower volume is bearish and I can agree with them because this was an options expiration and the fact volume was so tiny indicates to me that the bull is not ultra-powerful. However, even with the volume lower, it was still higher than the even LOWER volume on the down days. This rally could prove to be very similar to the August to November 2007 rally where the best stocks only went up like 100%, but go up none-the-less they did, and that is good enough for me as it has not been the easiest market environment to make money in since January for growth investors as no trend up or down equals no lasting profits for us. To make matters worse the VIX fell below 20 intraday which means that the returns in fact will be low.

However, before the VIX could break that level, we did go long HEAVILY a few longs that produced over 10% gains this week. This should ONLY BE THE START of the moves in these stocks, if this market can last in its uptrend for at least six months. I would like a full year but those markets, historically, start with powerful rallies on heavier volume. We do not have heavy volume at all. In fact it is hard to find volume and has been that way for over twenty days now.

That move, so far, looks good as the IBD 100 outperformed the leading Nasdaq index with a 6.5% gain compared to a 4.9% gain, for the week. The SP 500 also rose 4.3%, showing the strength in this leading 100 index. This was the best week of 2008 on a price performance basis as all the index put in a fantastic showing.

And like I said it was the leading stocks that rose to the front. There were six to seven stocks the past two week that have setup in either near-perfect or perfect patterns that we have gone long. They all are showing us gains but two and one of those we have already cut. This has been a good start, especially with two stocks that start with the letter D FLYING the past two days right after we went long. I am not sure if all of you know this but that is how it NORMALLY HAPPENS in bull markets. In fact most of the longs I will go long, if they are going to end up producing a 1000% gain in six months, will normally move higher immediately.

A recent example of this is our G*** long on 4/4. It is up 45% since my purchase and the chart is nearly perfect. I have taken in 20% but expect to ride the rest to AT LEAST a 50% gain. By looking at a weekly this chart should be much higher. As for the stock up 21.5% in the two days since we went long, I am honestly looking for AT LEAST a 100% gain in six months. Anything less from either one of these will be a HUGE disappointment.

There are a lot of past leaders mixed with a few new leaders that are starting to show solid chart patterns and to help guide you into the right direction I am going to list some of the best stocks with strong chart patterns and extremely strong fundamentals that would make good buys if they either setup in a proper base or pulled back on low volume and then moved higher on strong volume. AMZN, AGU, BIDU, TTES, TNH, KWK, BUCY, CAT, GTLS, BMI , HAL, SID, MON, and TITN are all very strong stocks. I am long a few of those names in there and all the stocks I am long in that list are making me money. This market is clearly in the direction that favors the bulls. It is nice to finally see some nice round bases setting up out there. It has been six months since APPY produced a 130% gain, DRYS a 100% gain, MTL a 90% gain, and VMW a 65% gain in a little over one month. Even if it only last a month, I will be happy to finally get something instead of nothing which has basically been the case since January 22nd as the stock market traded in a low volume tight range. Thankfully, that appears over.

Some excellent technicals that I see underneath this market, regarding the indexes, come in the form of the ACC/DIS ratings in the index. About a month ago all the indexes were mired in the D to E range. However, now, they are all at least B's. The Nasdaq is in the best shape with an A rating, the SP 500 has a B+, the NYSE has a B, and the IBD 100 and IBD 85-85 have a B-. This is excellent and shows that, even though the big boys are not loading up on stocks, at least whoever is is buying them and not selling them as an A or B rating is accumulation.

Stocks started shaping up nicely the past few weeks as a few more charts kept showing up each day with a bit more solid pattern than the day before. This finally climaxed on Friday, after GOOG jumped 20% and 89 points helping to send stocks higher everywhere. That for some odd reason was all it has now taken to put most stocks in uptrends. There are still a ton of flaws out there and beside ONE SINGLE STOCK out of 10,000, there is NOTHING setting up in a nice long-term perfect base or has a long-term uptrend with a ton of volume and max green BOP that could setup in a nice perfect base. It appears it will still take at least another month of the max green BOP charts to look right and have enough time pass by to not have the downtrend effect the rise in the stock. Things are looking better but there is still a long way to go. By next month there needs to be AT LEAST 1-3 more stocks that look like that one stock that all subscribers know that I am talking about.

The move the past week is a perfect example of why you never see me take time off from the market. I am always purging my watchlist of weak stocks and replacing them with top stocks that are nearing new highs, under heavy accumulation, and have great fundamentals. If stocks start selling off on heavy volume or somehow get relatively weak compared to the market, they are taken off the list and replaced by new leaders. This keeps me focused on the best stocks in the best sectors which is where I want to be as they produce the best returns. Are any of you watching those bank stocks? Do you see how they are only returning 25% or lower? Compare that to my XIDE, GENC, NEU, MTL, or FEED long. They are all up 32% or more during the same time. Not good bottom fishers. Another lesson for all of those who want to learn how to invest in the market correctly spending the least amount of time per day so that you can ENJOY YOUR LIFE and not sit in front of a computer screen checking quotes all day. Not what I call a great life. I prefer the nice warm sun and ocean, thank you very much.

Speaking of bank stocks. I notice something key that you normally see when selling is washed out. Now, remember, the homebuilder stocks have been rallying on HUGE volume recently making it appear they have bottom. With that, the big banks look similar. One of those is C. C has just put out earnings showing losses of $13 billion, yet the stock rallied 4.5% on the day. This is proof, once again, that the chart knows all as the news was priced into C's stock a long time ago when the stock started breaking down. Now that such a huge loss is accompanied by a 4.5% stock gain, I think it is safe to say the market is washed out a bit here.

I wonder why? Let's see. We have a media that hates this President so much that they are wiling to lie, lie, and lie some more. Instead of telling us the truth about the millions of jobs created, the all-time household net worth and home ownership, and a strong stock market, they focused non-stop on the negatives and only once it got real bad and it was confirmed did they come out in full force. They talk about the mortgage problems, the banks, the bankruptcies, the loan delinquencies, layoffs, slow wage growth, gasoline, natural gas, jobless rate, Iran, Iraq, Afghanistan, China, North Korea, Tibet, and global warming. No wonder the crowd is so bearish.

The crowd is so bearish that almost 50% are bears according to the AAII poll of individual investors. Along with that 38% are bears on the Investors Intelligence survey compared to 37% bulls. Normally bears only cross the bears to the upside near bottoms. With this market slowly starting to turn around, with these kind of bearish sentiment indicators, we have to be on the lookout for higher volume to complete the "all-in" signal.

There are other sentiment polls that line up well too, including the University of Michigan reading that showed the crowd the most pessimistic in 26 years. The IBD/TIP poll came out a day before that confirmed that with the poll coming in under 40 for the first time ever. If that is not a negative reading, considering how bearish it got during the 2001-2002 swoon, I wonder what is. Bottoms normally form with extreme pessimism. I am not sure if this is it with the negativity being at 26 and all-time lows and with bears well over bulls in the two surveys but if I had to take a guess if this was a bottom, I would say it very well could be. All that is missing is more HOT charts and volume. Sentiment, leadership, and a market in an uptrend is all there.

I definitely believe you should be long now (around 60% long, 40% cash is where I stand w/ 1% of those totals in 12 short positions) as I am starting to see some nice charts out there. They are not perfect but there is one that is and there are a few more that could be. Everything just looks real solid and the best part is that the leading stocks in the top 20 industry group continue to rally on strong volume. As long as these leading stocks are taking control, I will play those along to the upside until I can get some near-perfect to perfect stock charts setting up and breaking out. It is safe to be long and trust me if this is a start of a new uptrend, you have NOT missed anything yet.

If you were one of those people long the market after the very first big rally, chances are you were long the entire way down from 2000. Good luck investing like that for a living for a long period of time. I have been doing this since 1998 and KNOW that I will be able to use this exact methodology till the day I die. Stocks like XIDE, NEU, MCF, MA, IHS, EBIX, GENC, MTL, CMP, and MCF prove that!!! If you study the past you will be rewarded in the future. I have done my homework going back to 1880 and I understand that because humans NEVER change and emotions are always the same, for as long as humans have existed. Greed, fear, pain, euphoria, pain, joy, and anger have existed since the dawn of time and will till the end of time.

Speaking of fear. A lot of people are fearful that the dollar is going to be worthless in the future. Maybe that is why so many people are shoring stocks. I would love to see this rally continue for a full year with as many HOT max green BOP heavily accumulated perfect price action charts setting up as did in 1999 and 2003. However, anything can happen. But it does help that the NYSE short-interest ratio is yet AGAIN! AT ANOTHER NEW ALL-TIME HIGH AT 10.95! It is amazing. As the stock market rallies, more and more people are shorting this market.

Everyone, can you imagine, what the rally might be like if all those growth and value mutual funds with strong performance track records come in and start buying the greatest stocks in bulk and that then forces the emotional shorts to start covering. If it took them two full days to cover, thus getting the NYSE short-interest down to 9, and the mutual funds went to work during that time, we could see some incredible gains. And something tells me that they would want to put money to work soon as bonds are starting to look very unattractive at the short-end. But the very bullish slope of the yield-curve should be very bullish for stocks. The slope is about as good as it gets.

Getting to some more internals, I have already told you how I don't like that the VIX is already trading below 20 on an intraday basis. On top of that complacency, even though the uptrend has already started, the put/call has already fallen to .77. But this might have been more related to options expiration than traders overall mood. I will look at the closing figure on Monday to make that decision. New highs are also taking care of new lows (on a 52-week basis) 192 to 65 which is yet another day of gains and another day of new highs beating new lows. This is a major turn as we have not seen two out of three days with gains and with new highs beating new lows in two of the three. Quite impressive. But not nearly as impressive as knowing that 63 of the new highs are in the energy sector and the next closes only has 9 stocks in the group. So there should be no questions about which groups are leading. It is obviously the energy group which is loaded with solar, gas, and oil stocks.

Once again, this was the best week of the year, not only for the indexes but for my leading stocks and my longs. This hopefully is just the start of what should be a profitable uptrend. However, until I see a LOT MORE volume come in on the days when we are up 2% to 5%, there is no way I am going to be a "raging bull." Instead I will enjoy my "mini bull" status and play the few stocks that say "buy me" while I wait for the real buying to start. If it starts. We have the right sentiment, a lot of short sellers, and the uptrends for it to happen. Now all we need to have happen is for "it" to happen.

It was a slow start after the follow-through day but we are starting to build steam. There is nothing that says this has to continue and we could rollover. That is why it will be so important here to watch volume. We need to see more volume above average on the days we move higher. Don't forget everything is not hunky-dory. ISRG lost 17% and was a full sell (total loss 15% on less than 1% of my accounts). This is not a surprise and this is the reason I TOLD YOU TO NOT LOAD UP ON ISRG. I warned of going long "former past big winners" that EVERYONE now sees. BIDU is one I am personally watching to go long because it is Chinese. But RIMM, GRMN, GOOG, YHOO, AMZN, AAPL are all stocks that I really almost have no interest in going long UNLESS they setup and breakout from a pattern like AAPL did in 2004. If they do that, then sure I will go long. But I have a feeling those that I listed are a bit too old to be the "next fresh big winner." FSLR could be and BIDU could be but I truly doubt any other big boy can repeat what they have already done.

As long as the headlines remain negative, I will remain bullish. It is going to take some more volume to the upside or downside before I commit to a side but for now the trend is my friend and on the short and sub-int it is up and I have a few stocks that say it is time to get long. So that is my plan. Be careful, remember to keep a good amount 25% to 50% cash handy for possible new buys of future perfect charts or extremely powerful CANSLIM stocks. There have been a few gems but so far I am left wondering when the rest will show up. They better show up or else we will not last in a rally for too long. Great luck out there and I will see you in the chat room.

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