Small Caps Lead But Nasdaq Almost Completes A Nasty Round Trip.

January 23, 2007

Stocks were looking very strong today until an afternoon selloff wiped away almost all of the gains. The sell-off started after news that President Bush stated that he would try to double the Strategic Petroleum Reserve as a hedge to supply disruptions. I interpret this to mean that a conflict with Iran will mean a disruption in supply. However, by the close all indexes escaped with positive closes.

At the close, the SP 600 led with a 1.06% gain retaking its 50 dma, the DJIA followed with a .45% gain, the SP 500 rallied .35%, and the Nasdaq almost completely round-tripped but managed to close higher with a .01% gain. Clearly the top index of the day was the SP 600; the SP 400 and NYSE also gained .8%. The NYSE ended at another all-time high. Leading stocks also did well, with the IBD 100 rallying 1%.

Volume was higher on both the NYSE and the Nasdaq. However, though both indexes were up, one was bad the other was good. The NYSE hitting all-time highs on higher volume is as good as it gets. But the Nasdaq at one point today was able to get over the 50 dma only to be slapped right back down below the key moving average. This nasty intraday reversal with the higher volume is a sign of churning at the 50 dma. More downside needs to confirm this but it is important to recognize that closing below this line after crossing above it does not appear to be bullish in the short term.

Breadth was positive on the Nasdaq by a 3-to-2 margin and positive on the NYSE by a 2-to-1 margin.

Gains in Energy, Oil, and Mining and losses in Airlines came due to a 4.7% spike in oil. The jump in oil was caused by news that Pres Bush wants to double the SPR. This along with the two giant fleets sent to the Persian Gulf recently clearly signify something is going to happen sooner rather than later. And that is fine with me. The last thing this world needs is Ahmednejad with a nuclear weapon. Let the bombs of Israel destroy Iran, if the Iranians do not overthrow him before it happens. This man is Hitler ALL OVER AGAIN. Once again, as the world stands by, the USA and this time Israel will have to save the world from its own folly. History repeats itself AGAIN.

Will this be bearish for the market. It could be but if the SP 600 is any indication probably not. It was impressive to see the SP 600 retake the 50 dma but for the move to have any real significance it will need to follow-through on this move. One positive sign that it might is that I had over 700 stocks in my long scans tonight. Considering that volume was not astronomical, that is a lot of individual stocks.

However, to flip it on everyone, I was not able to find one new long that I REAAAALLLLYYYY wanted. All of them were mediocre quality. Only stocks that I was already long were of any interest to me. That is really good in itself as it proves that the chart patterns are working and giving another buy signal normally is bullish. But the lack of new longs makes me scratch my head and remind everyone of what I posted last night in my commentary.

So it is good to see the small caps taking the lead from the NYSE but where are the new longs? I can not find them and I will not buy mediocre charts. This could be due to the fact that the SP 600 has been lagging recently and there is more selling than buying. That would make low volume rallies in the charts with sloppier patterns show up on my scans though they are not quality. So we shall see how this turns out.

I remain long but cautious of new buys. The charts have to be very pretty and very sound with less risk than before for me to take a new position. Until these stocks show up again, I will continue to sell laggards and keep new buys small to none at all. And until the trend actually is in a clear downtrend, I do not want to be shorting and get caught in a nasty short-squeeze. Trust me caution is the right approach here. You are supposed to be buying a ton of stocks coming off of bottoms that are followed by the classic follow-through days in the market with a resumption of an uptrend.

We are four years into a bull market and have gone almost straight up since August. It is to be expected that we need to go sideways for a while or even go down. Unless you are the NYSE; then you just keep going up.

Continue to enjoy earnings season and trust me it is smart to keep cash on hold right now. This is a tricky market to say the least right now and until there is more clarity I know I am giving the correct advice.

Have a great night and I will see you in the Chat Room. ALOHA!

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