It was another overall boring session to end the week but despite the overall boring tone to Friday's session it was still a bullish session underneath as many stocks had solid sessions and many stocks that I was long had a very positive session. Overall, profit taking was quite mild in the AM and the strong mid-day rally into the close shows the bears are still not in control.
This kind of action on a do nothing day is just what I like to see in a market that refuses to do much. If there would have been a lot of blowups and negative action today, then I would have been a lot less enthusiastic about the non-event that Friday was.
By the close, the NYSE was up .6%, the SP 500 was up .3%, and the DJIA was flat. The Nasdaq finished lower but the intraday support and positive action by the close is something that has to be considered positive overall. I mean obviously if this market was real weak they would have sold them into the close.
One of the bright spots on Friday's trading came via the IBD indexes. The IBD 85-85 index added 1.1% on Friday which was much better than the NYSE's .60% gain which shows that leading stocks are still slowly making a rotation into stronger leaders.
The odd thing though is it does not show up in the accumulation/distribution ratings of the indexes in Investors Business Daily. The Nasdaq is the best index with an A rating for acc/dis, the SP 500 has a B+, the NYSE sports a strong B rating for acc/dis, and the IBD 85-85 has that C+ rating that I have already mentioned.
This C+ rating is probably going to go away soon as the rotation from past leading ag, oil, steel, and metal stocks moves into retail, technology, and financial stocks. When this rotation is over and the new leaders are ready to run the acc/dis rating will rise and that will confirm that it is a powerful new bull market.
Remember, we are rallying on lower volume on both indexes. It is only recently that the Nasdaq has seen volume start to come in above average on that index. For the NYSE, however, I believe it is now 30 days (a full month) in a row that the NYSE has closed on below average volume.
Now, while there is nothing wrong with making a good amount of money in a low volume general market rally, as long as the stocks we are going long are moving up on higher volume, we still have to be careful about marrying the market's bias here until we start to see some heavy volume return.
It is very obvious that the crowd has turned bullish recently, via the 55% bullish reading on the AAII survey, but that amount of bullishness has not translated into the crowd acting upon that. In the other survey, which I find MUCH MORE IMPORTANT, bulls are beating bears 40.9% to 31.8% but the bears were beating bulls for almost a full month. That was the first time since late 2005 that bears crossed bulls and was the first time that I can remember since 2002/2003 where the bears beat the bulls for more than a week. So the crowd is turning a little bullish by what they say but how are they acting?
Mutual funds are still hoarding cash as the levels rise in a lot of funds (like I have said before, I have not seen this much cash since 2001-2002 in leading growth funds). Along with mutual funds still yet to get back to work, we have the retail crowd still buying puts and shorting stocks. That can be seen by watching our put/call ratio. This ratio barely EVER goes under .80 anymore. This is a byproduct of the dumb money constantly seeing every rally as a chance to short. That can be seen in the most recent data as the put/call ratio jumped from .81 to .88 after a huge Thursday rally in the Nassy. It fell slightly this weekend to .84 but it is still above that .80 level. While a reading of 1 or higher is a reading of a crowd that is bearish, being at .80 is no bullish matter either. A reading around .80 to 1.6 can be considered bullish for stocks as a contrarian.
On top of this investment vehicle showing that the crowd still has a slight "let's short this market" bias is the recently important NYSE short-interest ratio. This key indicator of how the dumb money is investing is showing that the crowd continue to believe shorting this market is the right play as we must be in a recession. Considering a recession is back to back quarters of negative GDP growth, it is clearly obvious to me that a reading of positive .6% is not a negative number. So for all of those for sure we are in a recession I have a bit of a newsflash. You are going to be waiting a long time. There is not a recession out there. There is simply a slowdown. Yet here people are shorting stocks like it is the right play. This has caused the ratio to hit YET ANOTHER ALL-TIME high after Friday's session of 12.58. It now takes almost a full 13 days of average NYSE volume to clean out the shorts.
This might be why we are seeing the market rally for such a long time on low volume. As long as the dumb money is out there buying puts (that they have no business buying), selling stocks shorts, or selling stocks rising higher, then you can be sure this low volume rally, along with the way momentum works, will lead us to a market that should continue to see solid gains. A market, who's rally is not believed, can be a market that rises on low volume for a very long time. As long as the crowd wants to short stocks into a rising market, you can be sure there will be shorts from lower levels that will be squeezed and forced to cover their shorts as they sell them at higher and higher prices. As these past shorts are then forced to cover stock that can't be found the stock will be forced to rise until more sellers come out to sell the stock. If those sellers are short-sellers, then later on they will be squeezed and this game can continue on and on, until volume to the downside finally returns. But most of the time the heavy volume selling does not follow a low volume rally that has lasted this long.
Normally, a low volume rally that has lasted at least a month, historically, turns into a rally that rises on heavy volume. But once most players realize their shorting of a low volume rally has turned into a runaway bull market and they now see that THEY MUST BUY and get long, that is usually when the rally is dead and the heavy volume selling returns. Right now, in this market, the way charts are setting up in sound bases all over the place, it appears that a further continuation of this rally would be what the good doctor ordered.
There are multiple other signs that indicate that the worst may be behind us in the market via the way the sector leadership and rotation seems to be playing out. The CRB index, to me, appears to be making a very short term almost tweezer like double top. The first week's selloff was a nasty 10% hit and this weeks hit was almost 5% until Friday's rise. That, after the slow rise, seemed to be very bearish. Watching an index slowly take its time hitting new highs and then seeing it reverse HARD right afterwards always makes me nervous as historically it has signaled tops.
On my weekly CRB index chart, I have negative divergence in the TSV, moneystream, and RS line, as they are all making lower highs, while price makes higher highs. The new high was barely a new high but considering all these indicators could not keep up with price is a huge hint that momentum is waining. The strength in these stocks was obviously the reason why the best stocks of the rally were ag, oil, steel, cyclicals, and gold stocks. However, with the selloff in these stocks , along with the CRB looking like it is, it is possible there could be a rotation of these stocks into the stocks that are showing VERY bullish chart action by either setting up bases, putting in what does look like REAL HEAVY volume bottoms, or breaking out of well formed patterns. Those charts are all over the place but are MOST obvious to me in the financials, retail, and technology stocks.
These stocks are setting up everywhere with green to max green BOP charts. Even though I still do not have anything perfect out there setting up in a perfect base with a perfect price, volume, and BOP setup, I still see stocks all over the place that are in early stages of a base building period or are racing up the right side of the charts that with one more base building area would in fact possibly be great charts. I have my eye on quite a few but every day more and more pop up which is a clearly healthy development for this market. This action was NOT seen during any other period since the November top where the big-cap tech stocks all started their journey lower.
I guess you can say oil, gas, and steel stocks are still the leaders. But in the past week we have seen six new industry groups enter the top 20 of all industry groups in IBD. I focus on this list the most when I am looking for future potential longs in bull markets as 37% of a stocks move is completely correlated to its industry group. You may find one or two gems in a weak industry group but normally, unless the stock is extremely powerful and strong, you are simply not going to find stocks that can move with such certainty and ease as a leading issue. The groups that are starting to climb higher that are not in the top 20 yet are also key areas of interest and I see a lot of technology related groups climbing which makes me excited.
However, remember, just because a group makes the list does not mean it is for certain to be a leader. Good thing for us, because if you remember, at the start of the year, medical stocks made up 10 of top 20 industry groups. How many are there now? One. Medical-Hospitals. And while there is not a lot of high tech in this group YET the new groups in this list still are loaded with leaders. Especially the transportation groups which make up three of top 12 industry groups after Friday's close. This should be no surprise for those of us that follow the leaders. These stocks have been showing up in my dynamic price/volume scans for about three months now, which proves they were starting to show leadership even before the whole group was. Leaders like CHRW, AAWW, and GWR clearly stand out in my scans. Also the DJ Transportation average is the leading index since January 1, 2008 is up 16% which is only one of two industry indexes higher since 1/1/2008. The other is the Consumer Index which is up 1.7%. Clearly it is all about Transportation stocks.
That is why 45% of the Transportation-Railroad stocks hit brand new 52-week highs on Friday. The Transportation-Trucking index has risen from #183 six months ago to #12 which can only be outdone by the Building-Res/Comm group which has moved from the worst spot at #197 five months ago to #5.
Sticking with the theme of strength, some of the other great industry groups on Friday came from groups already near the top. The top Oil&Gas-US Expl/Prod remains on top and gained 1.8% but within the top 20 Steel-Producers rose 2.4%, Energy-Other rose 2.8%, Chemical-Fertilizers rose 2.2%, Machinery-Construction/Man. rose 2.4%, the Metal Ore group rose 3.1%, and the Oil&Gas-Drilling stocks powered ahead an impressive 3.8% gain. This was a good showing amongst top stocks even though SOME of these groups (like chem-fert) appear to be topping and rotating into new tech related stocks. On the other end of the spectrum more good news can be said about the bottom 20 groups as six of the 10 worst groups on Friday were in the bottom 20. This is a good market that is rewarding leaders and punishing laggards. This is how it is supposed to be. It has been about a LONG TIME since the market has acted appropriately.
Even though we did make good money in 2006 and 2007, the low VIX along with the lame action of the overall market made it very hard to rack up huge gains. The constant choppiness of the overall uptrend and lack of any big moves made it tough. There is and was no doubt about that. Before this month, the past six months were the hardest period for yours truly to make big money. I simply had never gone through such an odd period where EVERY LARGE purchase/short made by me either failed or barely worked and EVERY!!!! marginal long/short would end up being GREAT trades. That helped lead me to a 2% gain to an 8% loss (which STILL kept me within the top 5% of all mutual funds which is ALWAYS my goal in bear markets; in bull markets I want to be within the top 2% of all funds!!!!!!!!!!!!!!!!!!!!!!!!!!!!!--I have been around too long now to want to just be in the top 5%) on 5 different accounts that I run during that time. The overall return was a gain of 2%. But April came in and went out with a bang And so far May is starting itself out on the right foot as Thursday and Friday were very good to my portfolio.
The biggest problem I had with my portfolio from November to January was the fact EVERY short I loaded up on did not do that well while EVERY short I took small positions on DID WONDERFUL! That along with longs that did show not doing well, made it a rough period. Remember, in January 10 NEW industry groups entered the top 20 groups. THEY WERE ALL MEDICAL. To me that means that medical stocks are about to become your NEXT BIG WINNERS during the market downtrend. Since medical stocks lead in bear markets, I naturally assumed the way things were going that the downtrend would stay.
But come 1/22 and 1/23 the downtrend ran into Fed liquidity pressure and the selling was done. Not only that but the defensive stocks then reversed and the leading medical stocks started breaking down. However, while waiting for more shorts to setup, it became clear cash was king and cash remained king for a few months. So the right play turned out to be cash. Thankfully I did that, instead of forcing shorts, as that allowed me to take that cash and IMMEDIATELY convert it into new long positions once hot charts like HA started showing up. Obviously, staying nimble in this market is a must.
For now the leaders look great and on Friday for the first time during any market session where the action was mixed, new highs still comfortably beat new lows. There were 137 new 52-week highs to 83 new 52-week lows. This clearly tells me that the overall action UNDERNEATH the market has FINALLY turned bullish. Like I just said, this is the first mixed session, that STARTED weak, and ended up with a mixed close that saw new highs kill new lows. This is a very good thing and continues a SLOW rotation from a weak market to a strong market.
Some of our new leadership is now becoming more clear and if some of you do not know where that is I am going to list some groups that could continue to outshine in this market and some stocks that could be monster stocks with more accumulation and mutual fund support. The new batch of leaders are coming out of the Banks (18 new highs on Friday)-ITU, BBD, UBB, CIB, BAP, UMBF, and RBCAA. The Medical group (14)-LSR, ICLR, AMED, BABY, PRGO, and GILD. The Energy group (14)-SPN SM PQ. The Transportation group-TGH, BNI, GWR, CHRW, AAWW, CSX, and KSU. The Electronics (7)-TTMI, DRS, CLS, GLW, APH, and AXYS. Utility (6)-NFG, CPL, and LG. Business Services (6)-WW, UNF, WWIN, and VISN. Savings&loans (5)-LABC, OCFC, and HCBK. Machinery (5)-GHM, JST, BMI, and CIR. Food/Beverage (5)-SDA, FLO, and OME. Retail (5)-CBD ARO. Internet-SOHU, NTES, and ELNK.
If this trend of stocks continue to show up in our new high list, I am sure it will not be too much longer until EVER day higher on the Nasdaq and NYSE is on above average daily volume. The YHOO and MSFT deal has fallen apart and if that ends up helping MSFT which makes up almost 7% of the Nasdaq, I have a feeling tomorrow could be a great confirmation day follow-through for the current rally. However, if it just ends up being a low volume rally on Monday, and I still get plenty of GENC and HA type of action, I will be more than happy to take that. We will see where tomorrow brings us but so far it is a possible trip to "MONSTER STOCK RETURN" land. I hope that is the case! I have been waiting a VERY LONG TIME for a chance to make some VERY BIG MONEY. Since the November top, it has been like pulling teeth. Hopefully, we are through with that low follow-through stage.
Aloha and I will see you in the chat room where stock picks turn into stock winners as long as you buy the best, cut your losses on your worst, and learn when to sell near the top when you get it really right. We have a lot of chat room member but a LOT OF YOU OLD TIMERS WITH EXPERIENCE WHO ARE STILL WITH US HAVE NOT BEEN SHOWING UP NEARLY AS MUCH AS YOU USED TO. IF THIS MARKET IS TURNING, I SURE WOULD APPRECIATE IT IF YOU GOT YOUR MONEYS WORTH AND MADE AN APPEARANCE IN THE CHAT ROOM SOMETIME BEFORE THE CLOSING BELL. There are a LOT of new guys that need more wisdom, guidance, and experience from regular members. So hopefully more than 20 of you can show up at once. The herd has been small and I hope the experienced guys that are showing up less and less (YOU KNOW WHO YOU ARE AND YES! I AM TALKING ABOUT YOU) are still watching the market as close as they were when the time wasn't right. Now that the time is right to make money, I recommend you get yourself into the game before I start hearing statements like "dang, I missed that one. I should have been paying closer attention but I thought it was OK to go away." Missing the next HRZ (the most recent 'Past Big Winner' posted) is inexcusable.
Great luck and stay disciplined! ALOOOOOOHA!!
No comments:
Post a Comment