DJIA And SP 500 Outperform On Strong Volume; Nasdaq Flops Around In A Tight Intraday Range

February 14, 2007

It was a tale of two tapes as the DJIA and SP 500 rallied quite well while the Nassy lagged as big-chips received bids. The reason for the outperformance was due in large part to shares of AA. Reports that BHP or RTP are bidding for the Aluminum giant helped the big-caps rally. Adding to the power behind the big-caps was MMM announcing a big buyback plan to buy $7 bill of its own shares. That, btw, is very bullish for a stock.

At the close, the SP 600 led the way with a .82% gain, the DJIA followed with a .81% gain, the SP 500 finished with a .76% gain, and the Nassy lagged with a .39% gain. The IBD 100 kept pace with the SP 600 and the DJIA, with a .7% gain. However, they did not outperform and have been leading to the downside. So now we are seeing some negative divergence show up in the short-term.

Volume was lower on the Nasdaq and higher on the NYSE. The higher volume on the NYSE confirmed the move in big-caps. AA provided a large jump in volume and helped contribute to the higher volume on the DJIA. But that is a good thing not a bad thing. The SP 500 finding support near the 50 dma and bouncing on strong volume is another positive today.

Breadth was positive on both exchanges. On the NYSE advancers beat decliners by an 8-to-3 margin. On the Nassy advancers beat decliners by a 3-to-2 margin.

Transportation stocks led the way, along with steel-producer stocks. CSX is the nicest chart I see in the Transportation-Rail sector. Other stocks in that sector moving up include RRA GSH KSU FLA and UNP. The DJ Transportation sector rallied 1.5%.

Today’s story belonged to the DJIA as it nears another all-time high. 28 out of the 30 stocks finished with price gains today, making this the strongest index and continuing the theme the past four days of the big-caps outperforming tech stocks. This is not necessarily a sign of a rip roaring bull market. Normally, you like to see leading growth stocks lead. But recently, just like the way this rally began in July/Aug, big-caps are leading small-caps. In the strongest of bull markets leading stocks with top fundamentals will easily outperform the broader market. So with the recent outperformance of the big-caps, it is safe to say that sidelines and small new buys is the best bet until small-caps can retake the lead.

One common theme I ran into today, in my chat room and in monitoring other stock conversation message boards/chat rooms is the pervasive negativity. There are some traders complaining about how rough this market is. Uh, hello boys, this market is very tame. The VIX is at 10 and volatility is much lower than what it used to be. People are panicking after a 1% drop because we have gone almost four years without a 10% drop in the SP or DJIA. I remember back when the indexes moved 3% intraday everyday back in 1998-2001 era. If traders are bitching about how hard the market is now and you have not made money off the August lows, I am afraid you are going to have a hell of a wake up call once a bear market starts.

All of this “easy” money that so many spam and pump and dumpers have been promoting is going to come back to kill these buy the dip guys. Just like traders were slow as hell to correct the mantra of short every rally from the bear market that ended in October 2002, traders are going to fall for the buy every dip mantra since that has been what has worked for the past four years. All I can say is the best will be separated from the rubbish once a real bear market starts.

If you are not making money now and/or if you are making easy money by just buying whatever is moving without checking the fundamentals, trust me, when this ends you will feel some major pain. So just remember this market is tame and not difficult. A difficult market is a market that doesn’t stay above the 50 dma for months and months in a row with a VIX at 10. When the VIX hits 50 again and stocks start moving up 100% left and right in a few days and then fall 50% the next…then I will understand the complaints. But for traders to complain about this market…I am afraid you have nothing to complain about.

Ben will be giving testimony before Congress tomorrow so that should allow for some fireworks. So we have that to look forward to. The long-term trend is still up and I believe I was 4 for 4 with longs yesterday so that is my signal as loud as can be that the long side is still the right side. Until we break that 50 dma on the indexes with some more distribution days I will continue to look for longs.

Aloha and I will see you in the chat room. If you are a gold subscriber and did not read the chat room archives today (yesterday for most of you), please read the archives. The topics I went over today dealt with TONS TONS TONS of psychological dilemmas that traders faced. Many different topics came up and I tried my best to answer them all.

DJIA And SP 500 Outperform On Strong Volume; Nasdaq Flops Around In A Tight Intraday Range

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