Stocks End Slightly Higher, Across The Board, On Low Volume; 3rd Day In-A-Row Stocks Reverse Intraday Selling

April 3, 2007

It was a busy day of economic data and merger & acquisition news, kicking off a week of what is going to be a economic data-filled short week. Stocks got off to a good start, gapping higher, with M & A news all over the headlines. FDC received a bid from Kohlber Karvis Roberts, GISX agreed to a takeover by XRX, and TRB agreed to be bought by Sam Zell.

But soon the ISM manufacturing data came out showing the index falling to 50.9 from 52.3 in February. That number is barely above 50 and now puts the index in a clear downtrend over the past year. The prices paid index jumped to 65.5 from 59 in February, coming in the highest since August. New orders fell to 51.6 from 54.9 and the inventory index rose to 47.5 from 44.6. The job index fell to 48.7, the lowest in two years. Combine the job index falling, prices paid rising, inventory rising, new orders falling, and manufacturing falling and it looks to me like more inflation with no growth; possible stagflation.

But soon afterwards, just like a wild roller-coaster ride, stocks were moving higher again, and after one more dip, stocks found a solid floor and went rallying into the close. At the close, the NYSE led the way with a .47% gain, the SP 600 followed with a .45% gain, the SP 500 gained .26%, the DJIA rose .23%, and the Nasdaq, once again, lagged with a .03% uptick. The good news, on the leading stock side, came from the IBD 85-85 index. The IBD 85-85 managed a .9% gain, well outperforming the NYSE.

The top sectors today, however, leave a bit to wonder about as all of them were historically lagging/defensive groups. The top index, today, was the DJ Utility index. This index is the best index, this year, with an 11.7% gain since January 1st. Other top sectors included the Retail/Wholesale-Office Supply group rallying 4.6% and many defensive group. Food, Oil, Textile, Utility, Energy, Beverage, and Appliances were your other standouts.

Volume was much lower today, typical of a holiday-shortened week, on both exchanges. Volume came in 5% lower on the NYSE and 16% lower on the Nasdaq. Some may say it was because of the upcoming Passover weekend, but don’t forget it was opening day at Yankee Stadium. And I do not know about you, but I was watching baseball all day and I am sure many other traders were also. Especially in this boring index environment.

Market internals were strong with breadth coming in positive on both exchanges. Advancers beat decliners by a 5-t0-3 margin on the NYSE and by a 3-to-2 margin on the Nasdaq. There were 326 new highs to 84 new lows. But the clear leadership in the NYSE is obvious by seeing that there were 185 new highs to 23 new lows; six of those new lows were closed-end funds. The put/call ratio remains over 1, closing today at 1.08. These are all bullish readings on a day where the market was slightly positive.

It was another day of bullish intraday reversals, for the third session in-a-row. This pattern continues to show that the bears can not get much going to the downside. Even when they do get a bit of bearish momentum, the retail dip-buyers are right there to snap up the “bargains.” You can tell it is the retail crowd because there is no big jump in volume. Without the elephants coming in to support stocks, it remains a market with no conviction.

That is why, after four days of tight price action, we still can not get over the 50 day moving average on some of the market indexes. This line is acting as current resistance for the Nassy, SP 500 and SP 600. But the fact they are still holding these lines, are not selling off on volume, and are putting in bullish intraday reversals can be considered positive. Some may say that it is distribution; I disagree, because you normally have very heavy volume, instead of volume below the 50 day moving average. Like I said, a market without conviction.

It was just another day of the same old same old. There were no real CANSLIM quality breakouts on strong volume. But there was one CANSLIM quality stock that brokeout from a nice pattern today. However, it had no volume, EPS is a bit mixed, and fund ownership was falling. A good stock but not the quality that you see from the stock markets greatest winners. Those type of breakouts with strong fundamentals are just not there and don’t appear to be lining up any time soon.

IBD brought up a key point today that should be obvious by looking at your charts. Not only did I give you the hard data of how hard it is to make money right now by showing you that from the July bottom to February 27 only 180 stocks made 100% or more gains–normally there will be 200-500 in a powerful fresh bull market–but now we have clear evidence via the Relative Strength line that growth stocks via the SP 600 and technology stocks via the Nasdaq are lagging.

This shows that it is not a market for growth investors. The SP 600 is still above the highs back in May 2005, yet the Relative Strength line is below the 50% area between the May 2005 highs and the October 2005 Relative Strength lows. Not only is the Nasdaq in the same situation but then there is even a more intermediate term trend noticeable. After the Nasdaq hit a high in November, the next high was in January. That high, however, had RS below the highs of the last set of 52-week highs in November. Then in February, right before the sell-off, the Nasdaq hit new highs again. Yet, once again, RS came in lower than the January high. That was negative divergence one and two.

The last negative divergence is now. The Nasdaq RS is hitting new lows, while the Nasdaq is well above the lows of March 14. This is the third series of negative divergences in this line. Overall, this does not bode well for growth investors. Defensive, Medical, and Big-Cap stocks have the lead.

We have a week full of economic data. So strap on your economic crunching boots as we get ready for the ISM services index and the ever-famous Labor Department’s monthly non-farm payroll data. Aloha and I will see you in the chat room.