Stocks Rally As Techs Lead The Way; Traders Who Sold Or Went Short Yesterday Feel The Pain.

January 4, 2007

What started out as a crazy morning, once again, for stocks, quickly turned into a day of steady advances. The treat of the day and the possible cause to this was another fall in crude oil prices. The fall today, after yesterday, brings the two day total to 8.9%. Besides that, however, there was no other catalyst.

At the close, the Nasdaq led by a healthy margin rallying 1.25%, the SP 600 gained .15%, the SP 500 gained .12%, and lagging was the DJIA with a .05% gain. Leading stocks were up .4%, doing better than all but the Nassy.

Volume was lower than yesterday’s ridiculous levels. However, volume was still WELL ABOVE the 50 day volume average and it is obvious the move today with yesterday’s late day support signals more accumulation by the big boys.

Breadth was even on the NYSE with advancers and decliners and on the Nasdaq leaders beat losers by a 17-to-13 margin. That is pretty tame considering the point gains in the Nasdaq.

The Philadelphia semiconductor index jumped 2% and recaptured its 50-day line. RIMM AAPL GOOG were part of the big tech winners. When these stocks perform with the rest of tech stocks, you know you have a very solid broad rally in tech. When these stocks move like they did today and there is not a lot of breadth, it indicates you have a rally in select large cap issues and that is what appears to be case here in this tech rally. The big caps are moving while the smaller stocks stay pretty tame.

Even with really only the big cap stocks and big cap tech stocks getting the majority of the bidding, the fact is the market is still rallying in the face of all that the bears can throw at it. It was the second straight day of stocks fighting back from a rash of selling.

Every body seems to have mixed opinions on rather falling oil is good or bad for stocks. With the rally off of 2003, we saw oil leading all the way to the May top in 2005. Then oil fell and the markets fell. Well, with oil not leading this time, the markets are still moving higher.

This suggest that instead of the whole market getting weak on the back of oil, the market has instead found a place to rotate into. Periodicals, Airlines, Big Caps, and Big Tech have all been leading and has been the new home of the hot money coming from oil.

Until we start to see hot money move out of these sectors and no new hot sectors rotate back up, I don’t think there is anything to substantially worry about. Especially with the way the market acts on ANY amount of selling.

Granted there are some distribution days on the Nasdaq but did you see the index today? It doesn’t matter yet.

I have also read somewhere that volatility has picked up. Yeah, maybe on the short term if you watch the indexes with a second by second time frame. But if you look at the VIX, it is clearly obvious volatility is still non-existant.

Are we more volatile than we were before? Heck yeah. But it is hard not to when the indexes don’t even move 1% intraday during a holiday short time-frame.

The fact that I have so few 10 baggers shows me that this market is in fact much less volatile than it was even three years ago. Basically since 2004 we stay between the 10 and 20 area. From 1997-2003, the norm was 20-50. Now that is volatility.

The only thing more volatile…one day blowups. For that, you can thank Sarbanes-Oxley. The leaking of info before earnings was almost always apparent with only an occasional one escaping here and there. Now it happens all the time during earnings season.

Bottom line: It still isn’t volatile out there.

We will see what tomorrow has in store for us. It has been a wild short week. Very wild. Stay calm and stay very disciplined and I will see you tomorrow.