A Strong Rally That Started Around 2PM EST Sends Stocks To Another Impressive Close; This Market Continues To Reward Top Stocks!!

October 10, 2007

There is not much else you can say about this market other than it is just an incredible beast. The way this market has been rewarding me, growth investors, CANSLIM investors, and momentum investors has been just as incredible as the constant gains in the face of a biased media. No matter what the bears say or do, it just doesn’t matter to a market that is in this strong of an uptrend with this many different leaders leading this market higher.

The people that have a hard time believing that this rally is going to last are probably suffering from the case of clear underperformance and disbelieve right now. They didn’t think the market could possibly bottom on 8/16, because of the Fed injecting liquidity in the market surrounded by all the subprime problems the media was CLEARLY over-blowing. So now most of these “smart” traders who were for sure the market was topping have seen a market rally hard in their face and now they face the sad fact that their investors are very upset at their lack of foresight to take advantage of these near-incredible gains.

I have heard some say the whole way that this rally would fail because new highs were not expanding to new lows. Well today there were 486 new 52-week highs to 65 new 52-week lows. So I am not sure how that number is holding now to the ones that were denying this rally due to poor internals. Helene Meisler is the one off-hand that I know has been pounding the table that this rally would fail (for the past five weeks) due to these poor numbers.

Another area of concern has been the weak homebuilding stocks. Too bad these people did not look ANYWHERE else as the homebuilders are the only sector of weakness out there. Another clear conviction on this rally.

The only thing that lacks conviction of this rally is the volume. However, you can see in TONS of leading stocks that they are moving higher on HUGE volume. What it is is that the stocks like MSFT CSCO and others that make up a huge portion of the major indexes are not seeing the kind of volume that leading stocks are seeing. So the low volume on the indexes mask all the heavy volume in leading stocks.

And that low volume rally on the index does NOT matter when you simply have so many people shorting this market. Once again, the number of people shorting this market continued to rise as the NYSE short-interest number hit 8.90. Now the put/call ratio did come down today to a .68 close but considering we have rallied so much and have not touched the .5 level yet shows that the market players are still very skittish. We can thank the ever so kind nightly news for that I am sure.

Back to the short ratio. As long as traders keep shorting this market, we will not need to see volume come in to confirm the market’s higher gains. We have already seen two days where we have had major gains on volume. So when the institutional investors due step back in it could be for more gains. But until then we should continue to rally as the bids are raised and shorts are forced to cover their margin calls. God help them if we have a real run. If we ever get up to 2% or higher on any market session in the next couple of months and we continue to run, there will come a time when we FLY due to all these shorts. The top should be spectacular at the rate this run is playing out.

I can’t wait till it ends and I ring the register on all my current gains and then turn right back around and short it to the ground, while everyone finally gets the courage to jump back in the market waters or bottom fish their favorite “dips.” This is surely going to end fun when it ends. It is going to hurt a lot of greedy arrogant fools and will reward a lot of wise prepared and disciplined speculators.

Before I go, I saw something in IBD I would like to post as it goes along wtih an email I just received: Growth stocks have far outperformed the general market since the Aug. 29 follow-through. The IBD 100 index has surged 24% in less than six weeks. By comparison, the S&P 500 has gained 8% and the Nasdaq 12%. Year to date, the IBD 100 has skyrocketed 44% vs. 9% and 16% for the other indexes, respectively.

The IBD 100 does this with 100 holdings every week, proving that it is NEVER about how diversified or how much you hold. It is how much of your holdings are top stocks and are you diversified in ONLY the winners.

Just because you are long 100 stocks does not mean you will underperform someone with 5 by being long so many stocks. If that fool has 5 stocks that all act like SHRP has the past three months and the other person has 100 stocks acting like EXM, he is going to KILL the individual with 5 stocks.

NOW, granted, that is ONLY if he has a low cost commission broker like IB, MBTrading, Tradestation, Zecco, or ThinkOrSwim. If you pay more than .005 per share or .01 per share, you can not be scaling in and out on 100 stocks like me. Also me holding 100 stocks is like you holding 1. If you held 20, that would be like me holding 2000. Could I find 2000 great stocks? HELL NO. Can I find 200 great stocks? HELL YES!!!!

Just do a scan of the 10,000 plus stocks listed on the US exchanges and tell me how the top 500 have done this year. You may never find THE ONE if you can be long only 4 stocks. But give me 50 to be long and I will be long Many THE ONES!!!

I hope this will help some of you understand why I hold so many stocks and why I still kill the market. Low commissions, cutting your losses fast, and being long in only fast moving top stocks is how you can hold many stocks and make a killing. There are markets where sometimes I will only have 20 longs. This is a market where you can have 200 longs and they are all up a lot of money. Always put your big money in top stocks and only play the cheapies. Out of 200 stocks I am long, 8 make up 30% and 80 make up 85% of the account. The other cheap POS stocks that are racing up the charts are all very tiny and that is why 120 stocks equal 15% of the port, while 80 represent 85%.

And don’t forget, in a fresh bull market like October 2002 to March 2003, according to my old records at the end of 2002 I was long 33 stocks and at the end of April I was long over 80 and at the end of 2003 I was long 130. So obviously, there are just a HELL OF A LOT better stocks now that just keep moving up. That is a great thing, not a bad thing.

This has been a question I received in an email recently and I hope this helps explain it. I made the commentary long tonight for you because I did not want everyone to be mad that I kept comments short on the longs. You have to realize the longs are not that great and none of them turn me on so it is best to focus on another subject. Aloha and I will see you in the stock chat room.

PS: Once again, my multiple sclerosis medicine has me feeling funny and I might be a little late showing up in the room. Mahalo for understanding. In about another month and a half, I am hoping I will be fully used to the medicine and will not be effected by it like I have been recently. Aloha and God bless for understanding.

Subscribe To Site: