Stocks Revert Back To Old Ways; A Day Of Back And Forth Meaningless Trading Ends With Stocks Slightly Higher On Lower Volume

April 5, 2007

Stocks went back to their old ways of not doing much intraday but boring us to death, after a few important economic numbers hit the wires. The ISM service index fell to 52.4 in March from 54.3 in February. Expectations were for 54.7, so obviously this was not good news. The prices paid index rose to 63.3 in March from 53.8 in February, indicating inflation is still very real. Also, according to the Census Bureau’s factory orders, orders fell 1% in February after being down 5.7% in January. These numbers, overall, were very weak and not bullish. However, the market managed to put in more gains despite these poor economic numbers.

At the close, the Nasdaq led the way with a .3% gain, the NYSE and DJIA gained .2%, the SP 500 and SP 400 put rose .1%, and the SP 600 fell .04% basically closing flat. The IBD 85-85 gained .4%, leading the overall market. Unfortunately, once again, there were no fresh breakout from sound bases in this index.

Volume came in much lower today, with the NYSE 10% below and the Nasdaq 13% below yesterday’s levels. And, of course, like yesterday, volume was below the 50 day volume average showing that big institutional investors have no real interest in this market. Breadth was mixed today, with advancers beating decliners by a 6-to-5 margin on the NYSE and decliners beating advancers by an 8-to-7 margin on the Nasdaq. The negative breadth with the positive gains shows negative divergence, and with the Relative Strength line of the Nassy lagging the SP 500, you can see the weakness visually. There were 409 new highs to 46 new lows. So even with the negative divergence in breadth, the amount of new highs shows that there are plenty of stocks making good gains in this weak bull market.

The constant leadership in the Utility, Medical, and Defensive stocks, along with all these laggards moving up the industry group list, shows that even though this market is going higher. It is not the kind of market that rewards growth and momentum investors. Top groups like oil, metals, building, steel, and energy continue to lead. These are old leaders and until we get new leadership I am not going to be happy. However, it is impressive to see the Energy-Other group rally 2.3% today, moving from number 193 to number 10 in the IBD 197 industry groups, during the past six months.

Some interesting data should be brought to your attention via the Nasdaq. If you did not notice what I just wrote, you should now. Decliners beat advancers on the Nasdaq but yet the Nasdaq rallied .3%. How did that happen? Easy. MSFT accounts for 5.9% of the entire Nasdaq (STILL!!!). With MSFT up 2.3% today, even with more stocks down than up, that one stock accounted for all the gains on the index. So today was not as good as it looks by simply looking at the Nasdaq. Underneath it was sort of weak.

Today’s market was nothing special as traders are already starting their Passover weekend early. Good Friday is this Friday so volume should be light tomorrow which will probably mean more of the same as we saw today. Which was just more choppy trading. The sad thing about today’s choppy trading is that, once again, there was no follow-through to big price gains of the day before. It was more quiet consolidation after a day of big gains. That sure isn’t bad but it is not good either. It is even more surprising considering the good news out of Iran with the release of the 15 British soldiers that led to oil falling below $65 to $64.38. But, I guess, this should be expected ahead of a long weekend.

The longer we go without a distribution day the better chance we have of this rally gaining steam. But, without more volume on the upside with price gains, this bull market will not be producing many big winners and it will be setting itself up for a worse possible fall. I am still over here looking for new CANSLIM stocks breaking out of beautiful sound bases in brand new leading industry groups that have a lot of stocks with HUGE EPS and sales growth. I still can not find them; and I can not find them because they do NOT exist. It is more of the same old boring leaders, defensive stocks, and big-caps that are moving this market. Typical of the last stages of a long cyclical bull market.

If you think I am wrong, fine. I don’t care. I am still making money; but my question to you is where were you in March 2003? I was going long TONS of CANSLIM quality stocks breaking out of solid green bases. Those breakouts made 50% plus gains in months, from good risk/reward situations. All I have now are sub-$10 stocks that make good gains but are VERY VERY risky to take in the first place. Like I keep saying, this is a sign of a market on its last legs. Not the beginning of a fresh bull market. Where were you in March 2003? Because I was bullish then. This is the first bullish phase, since 2003, that I have not liked. And I do not like this leg up AT ALL!

This market is still bullish and I would not fight the trend, until the bulls actually give up and the bears actually start gaining some momentum. The possibility of lower prices soon has risen, as the put/call ratio took a dive today to .65. This indicates that the crowd has finally given up on their bearish bets and are starting to make bullish bets as they are now for-sure that the selling is over and stocks just have to keep going up. Hell that is all they have been doing since October 2002 so why shouldn’t they keep going up now is the conventional wisdom. I had the pleasure of speaking with some more dumb money today and this retail fool just KNOWS AAPL is a buy here. It has to go up because of the iPhone. The cycle just repeats itself, it goes on and on. The times have changed but we still have not. We are as stupid and easily manipulated as ever before. Even after the horrible crash of the bubble days of 2000, stupid foolish investors still can not see that they are buying ONCE AGAIN near a top.

The investors intelligence survey also had bulls tick up to 50.6%, today. So that now leaves the realmoney.com, II, and AAII poll with bulls all over 50%. It seems that every dip must be bought, according to the retail crowd. As always, when it appears that stocks can only go up, (as they appear now) that is just the time when they usually stop going up. Everyone I know that does not do this for a living is convinced–CONVINCED I TELL YA–that stocks can only go up, since they were able to fight back from all the selling in late February to early March. If the market can rebound from that, they think, the market can rebound from anything. Very soon, they will be proven wrong. When? I don’t know. All I know is that I have shit sub-$10 stocks to keep making me money on. I am not looking to get rich. I am just looking to pay the bills. And right now there is enough action out there in the hot momo cheap piece-of-shit issues that I can do that.

Don’t draw any conclusions from this market this week. Keep your powder dry and stay patient. Remember, this market is still in a trading range basically from the February highs and the March lows. Until we get more volume on the upside or downside, most traders will just be churning their accounts. So if you must trade make sure you know how to trade already as only the small stuff is moving. There is NO quality out there. Only pretty green charts in pure junk issues.

Please reread the last three daily market analysis post I have posted, if you have not already. The past three days of writing will give you ALL of the information you need to know to know where I stand now.

Aloha and I will see you in the chat room! Happy Easter, Happy Passover, and Happy Good Friday!