Wild And Choppy Intraday Action Ends With Most Indexes Red; Day Two Of Rally Attempt

March 8, 2007

It was a choppy day today (no surprise here) as stocks opened flat, then fell, the rallied, and then took a last hour nosedive. When it was over, all indexes ended in the red closing near the LOD, except the MidCap 400 index. There was not much in economic news to move the market. The Fed Beige Book showed modest growth in the economy, with 3 out of 12 districts slowing down. This lack of econ news kept the market in a benign trading range that led to a last hour selloff that killed a possible green close.

At the close, there was only one index up, like I said earlier. That was the SP 400 with a .2% gain. The rest of the market finished in the red. The Nasdaq led to the downside with a .4% loss, the SP 500 lost .3%, and the NYSE, SP 600, and DJIA all lost .1%. Not bad but the market was in the green, until a late day selloff. The IBD 100 and IBD 85-85 index were both up .1%, outperforming the broad market. However, like I stated yesterday, this outperformance to the upside is lame compared to how much it led the market to the downside.

Volume was lower across the board; which is normally what you would like to see on a pullback. However, the losses were very small and most of the day the market was in the green (minus the Nassy). So I would call this a lame day of buying that was met, on the big board, with heavier selling in the last hour. That is not constructive action after such a hard selloff. That is the second day in a row stocks have climbed most of the day to then lose those buyers and then be met by sellers.

Breadth was positive on the NYSE by a 9-to-8 margin and positive on the Nasdaq by a 3-to-2 margin. There were 95 new highs to 76 new lows. The new highs now beating the new lows indicates there could still be some more momentum to the upside. However, with the Accumulation/Distribution ratings on the Nasdaq and SP 500 a C and a D respectively, the continued rally will probably be nothing more than a continuation of an oversold short squeezing bounce.

Another negative is that the typical laggards led again today. This laggard, this time, was the Oil & Gas industry. The whole lot rose 1.5% or more in the IBD industry groups. This group saw some nice upside thanks to crude oil rallying 1.9% to $61.82. Leadership in this group and not a brand new exciting group is typical of bounces and not starts of powerful bull markets.

There is another reading that favors more upside in the short-term. The investors intelligence survey came out with bulls dropping to 46% and bears rising to 27%. That indicates there is some fear starting to show up in the newsletter writers. However, until both of these numbers actually cross and are both in the 30-40 range, a really solid bottom normally does not happen in the market. When these numbers cross, they have an uncanny ability to coincide with a market bottom.

Today was day two of an attempted rally that started yesterday. Like I said yesterday, as long as there is no distribution days and/or we don’t undercut the recent lows we have to be prepared for a follow-through. The best follow-throughs happen between day four and seven (4-10 is acceptable). So Friday will be the first possible day that can happen. As long as nothing bad happens tomorrow, it could happen. I know a lot of people are ready to short the hell out of the market. However, if you read your “How to Short Stocks” book, you will know the best time to short is months AFTER a real top has clearly been in place. We are just now starting to selloff so we are still in a very volatile and wild area where anything is possible. No true trend has been established yet.

But my charts ALL say that this is only a bounce. There is nothing really setting up in BEAUTIFUL chart patterns. On ALL previous pullbacks since October 2002, I have had TONS or at least many handfuls of nice charts with a lot of green BOP setting up for breakouts. That is NOT the case this time. I am finding a lot of shorts and those shorts are almost all producing gains immediately (ie, OMG). That tells me that shorting will probably end up being the right game in the not to distant future.

But then there are stocks like TTEC and TRCR. If you went long those two stocks the past two to six months, you have no clue that the market has just gone through a nasty selloff and many traders are confused as can be. That is the beauty of the market; there is always a bull market somewhere.

However, besides a few stocks, like these, this market does not look like the big boys are interested in it right now. The past two days simply have not had that institutional push that you normally see on real bottoms. Such small gains after such big losses is not bullish. The bulls look like they are running out of momentum but if the sellers do not take control soon we simply can not be surprised if we see this bounce last a bit longer. However, everything is setting up for a failure. I could be wrong but for some odd reason I doubt it.

Cash is king!!! Stay patient, don’t chase performance on the upside or downside, and be prepared for more volatility in the upcoming days. There is no way we are done with all the fireworks. There is sure to be more wild and choppy action before any clear trend develops. That trend looks like it will be a downtrend. But the smart play is to stand aside and stay agnostic right now.

Aloha and I will see you in the chat room.