Major Stock Market Indexes Rise Across The Boards, With Leading Stocks Leading; Afternoon Selloff May Be A Tip-Off Of Impending Trend Change

February 8, 2007

Stocks started the day off on the right foot, thanks to a good earnings report from CSCO and fantastic news that US productivity grew 3% in the most recent quarter. However, those steady gains were completely wiped out on the DJIA and the SP 500 in the afternoon. And even though the indexes clawed back to close green, that action was a bit troublesome. There was no news or reason for the selling. Some blamed oil, but the Nasdaq fell more on a percent basis and if oil was the reason the NYSE and SP 500 would have fallen by a larger percentage.

At the close, the Nasdaq, thanks to CSCO, led the way with a .77% gain, the SP 600 followed, closing at its HOD, with a .63% rally, the SP 500 followed with a .14% gain, and the DJIA finished flat but higher by .56. The great news, once again, was leading stocks. The IBD 100 gained .9% and the IBD 85-85 gained .8% to lead the broad market. Many stocks in these indexes made significant gains today, despite the scary action in today’s overall trading in the broad market.

Volume inched up on both the NYSE and the Nasdaq. That would normally be considered a good thing but if you break down the hour by hour volume, you can see that the largest jump in volume came during the 2-3pm hour as volume surged while prices collapsed.

Still at the end with the higher close, breadth was positive on both exchanges. On the NYSE advancers beat decliners by a 9-to-7 margin and on the Nasdaq advancers beat the decliners by a 3-to-2 margin. That helps alleviate the worry over the prices collapsing during the volume surge. Had we closed higher with negative breadth I think it would be something more to worry about.

But we did have positive breadth and that does help me not get too convinced of my upcoming argument. Stocks seem to be getting a bit frothy here as I am seeing a lot more bullishness in the chat rooms that I am monitoring and the message boards I am reading. Couple that along with the overbought oscillators out there that technicians like Arms, Oliensis, and Meisler use and a pullback here would not be surprising. The possible tip-off might have been the selling today.

That price swoon on no news is about as convincing as it can be. If those prices would have fallen based on a comment by a Fed head or a rumor I would be more nonchalant about it. But the price swoon with volume rising on no news is as clear indication to me that big money was moving out of a commitment in a hurry. Even though I only had one stock to completely sell it sure is scary to think that if one large selling order can do that to the market imagine what a bunch of very large sell orders at once could do to a market that has been rising month after month after month without a 5% pullback.

If you are a gold subscriber you have noticed many stocks have been giving profit taking signals on the way up the past couple of weeks. That coupled with the rash of speculative buys compared to CANSLIM quality buys signals that we are getting a bit overbought. Still, though, that is not enough to think the major trend is going to change. There still are NO climax runs out there and there are not a lot of stocks just failing breakouts and collapsing immediately. So the fact that those two things are not happening yet indicate that in fact the run is not over. However, for the short term, some signs are lining up for a pullback.

Still, that has not been the smart play for God knows how long. Betting and trying to pick a top is senseless and not profitable. Even though I am seeing these things and warning against them, until the trend actually confirms the theories that I am presenting, it is only smart to continue to work from the long side with markets like the SP 600 hitting all-time highs.

Remember, before we can even consider about abandoning our long positions that continue to make great progress left and right, we have to have all the sell signals line up. That includes the major indexes going through 4 to 5 distribution days in a few weeks time, the averages trading under their 50 dmas along with that average trending down and getting close to crossing the 200 dma (known as the death cross), and seeing leading stocks break down below key support left and right on strong volume. When all of that lines up THEN and ONLY THEN will it be right to start looking for shorts to operate on the bear side. With all of this lining up, more than likely most stocks will offer final sell signals along the way.

The stocks that do not break down below key support and/or rise during a bear market, obviously should be held because if the market gets its footing those stocks will end up being your big winners. If it is a major bear market, remember, there is always a bull market somewhere. There are always stocks in sectors that rise during bear markets. Medical stocks come to mind. Food and beverage stocks also come to mind.

But all of that is just food for thought. The facts remain that the bulls are right and the correct side is the long side. It is also the profitable side. I personally do not know anyone who is finding the sheer number of consistent winning stocks that I am finding left and right in this market. The fact that over 25% of the longs I am long are up over 50% should be just amazing to people. I have to toot my horn since nobody else does. I look at my returns and look at how many winners I am nailing compared to the small and few losers I come across and I am just amazed that some people in some rooms that I monitor can look at my returns and yet continue to trade the way they do. Stunning and dumb.

For those who are not gold members, my one sell today was INO. What percent loss did I take? 12%. I took gains on three stocks, today, up a good amount. What were the percent gains in those three stocks where I took 20% off the table? 18% 53% and 143%.

Yet there I am reading RevShark’s realmoney blog and what does he say: “If you want to play you have to do it on the long side BUT MOST OF THE INDIVIDUAL STOCKS I AM LOOKING AT ARE NOT ACTING NEARLY AS WELL AS THE INDICES.” Really, rev? Then why I am I having no problem finding HUGE winners left and right in short amounts of time?

Never let opinions blind you from the facts. Great luck and I will see you in the Chat Room. Aloha!