Bullish Intraday Reversal, Helps Stocks Avoid Another Possible Ugly Day; Stock Indexes Close Higher On Lower Volume

March 29, 2007

A bullish Q4 GDP final revision higher to 2.5% from 2.2%, along with jobless claims falling for the fourth week in a row, helped start stocks off on a very bullish foot before the opening bell. But soon after the opening bell, stocks trended lower all day until a strong late afternoon rally sent stocks up into the closing bell with the SP 500 even closing near its HOD. This reversal in the face of rising oil to six-month highs of over $66 a barrel and gasoline future to eight month highs at $2.1355, due to the tension between Iran and the free-world, has to be considered very impressive.

After all the crazy intraday action was over, the NYSE led the way higher, thanks to being loaded with metal, steel, and oil stocks, with a .7% gain. The SP 500 and SP 600 rallied .4%, and the Nasdaq rallied .03%. The good news came in the form of leading stocks as both the IBD 100 and the IBD 85-85 closed higher by .7%. The only troubling part was that many stocks suffered some big hits. But besides the stocks that got whooped, there were plenty of stocks producing enough gains to make up for it.

Volume came in slightly lower on the Nasdaq and the NYSE. While the light volume rally reversal might not be that bullish, it was still a lot better than stocks not rebounding at all and giving up another distribution day. So it is hard to really complain about the action today. The fact that stocks closed higher, even on the light volume, is impressive on a short-term basis.

Advancers beat decliners on both exchanges, with leaders beating losers by a 5-to-3 margin on the NYSE and by a very narrow margin on the Nasdaq. There were 223 new highs to 83 new lows, showing that the majority of stocks are still hitting new highs not new lows. Yes, the breadth of these moves compared to where we were last time is negative but it seems nothing matters to this messed-up market.

The Nasdaq and SP 500 do seem to be finding it tough to fight through their 50 day moving averages. These indexes also have weak RS lines. This signals that maybe with the overbought condition we could expect stocks to go lower. But, once again, there is a slight problem. The put/call ratio is still over 1 at 1.14, signaling that more than likely there is still too much fear in this market and the resistance at the 50 day moving average should turn into a bullish development as prices cross over this line. Another factor supporting that is the IBD 100 and IBD 85-85 having strong RS lines during this most recent month’s action. That, along with 7 of the top 10 industry groups today coming today from the top 17 IBD sectors, shows that the market should be able to continue with its upside bias.

However, I am not sure how this is going to work. And even if it is going to work, how it is going to make us big safe money (there is such a thing, non-CANSLIM-grasping friends). You simply do not see this kind of overall action in positive bullish markets that have nothing wrong with them. The fact that even after the recent gains we have very few stocks breaking out of long nice bases and instead have to buy the leaders as they pullback to 50 day moving averages, that most have ridden since 2003, is just pathetic. Oil, Steel, and Metal stocks are starting to get green again but this time they are doing so after very troublesome downtrends. These type of rallies this late tend to fail more than succeed. Also you don’t see top stocks breakout of bases and then fail like you saw in RECN, MOV, and SIMO. This simply does not happen after a real correction that leads to a new follow-through to a new bull phase. This rally still has that feeling that we are going to see a failure eventually. When? How the hell do I know! My track record is pretty shitty when it comes to calling that China top.

Everyone that I know that trades like me sees pretty much the same thing, so I am for sure that my analysis on this market is DEAD ON. Everyone is also tired and worn out and I can definitely echo that feeling. The other feeling we all share is the fact that CASH IS KING still!! It is much wiser to keep cash heavy here for a higher odds play. The best and greatest traders of all time ALL knew the big money was made in the sitting; not in the acting. Sitting and holding onto your stock as it keeps going higher, instead of selling for quick profits; and sitting on the sidelines waiting for everything to line up so you can go all-in and start making a killing on your new purchases, instead of just trying to trade every day in every single market environment was one of the most important part to all the success of these traders. The most important part is always and will always be to CUT YOUR LOSSES SHORT WHEN YOU ARE WRONG, RIGHT AFTER YOU GO LONG.

I am going in for an MRI tomorrow to check on some nerve damage that I seem to be suffering in my L1 to L5 region. Therefore, I am not sure how much I will be around tomorrow. In case I am not around that much, remember, CASH IS STILL KING! Aloha and I will see you in the chat room.