Afternoon Rally Sends Stocks Higher As The Nasdaq Closes Near Session Highs; The Bears, Since August 16th, Continue To Look Like Fools

October 19, 2007

Today’s action has to, once again, be taken as a win for the bulls, after early morning weakness from BAC and EBAY missing Q3 earnings sent all the indexes to the negative column. The selling was bad but the fact that it did not pick up at all as the day went on was the first clue that the bears might not be able to hold onto the gains. The one negative that can be taken away from the positive turn of events is that, unlike yesterday, volume did not pick up as stocks turned around and rallied higher.

Still, I am not sure that I would be too worried about that, at this moment. The amount of top quality longs and strong speculative longs that are making very good sized gains in this low VIX environment is the clear signal that the market is bullish and that being short is just not the right play. When you have this many longs making these kind of gains that I have had it is just simply foolish and damn right wrong to even think of jumping off the bullish trend just because some people are talking about the market “just has to” make a top.

I did see somewhere today that someone has a model that has never seen the Nasdaq 100 hit a new cycle high yet have over 100 new 52-week lows like we had today–we had over 200, by the way. That along with the fact that the Investors Intelligence shows 62% of newsletter writers are bullish to 19% is bearish is very extreme. However, that is just opinions. That does not actually judge what they are doing with their money.

If we look at the put/call ratio, it does look very complacent as the put/call ratio has not spiked above 1 in a very long time. Currently it rest at .75 which is not bullish but it is not bearish either. But the other ratio I track that tells us what the market players are actually doing says that NYSE short interest is near/at another all time high of 8.97 (8.98 is the all-time high-yesterday). That is as clear as anything that somebody, and somebody with a lot of money, is shorting the market as it moves higher and higher. I hate to tell you this folks, but that has the potential to be even more bullish. And it wouldn’t surprise me if the market turned out to squeeze shorts hard. It is simply amazing that people can be shorting into this rally.

I keep telling you, over and over, that shorting a rising market is stupid and a play that the greatest traders of all-time NEVER did. So why do I see people EVERYWHERE doing it? It just amazes me. Look at these returns: TRCR 327% DRYS 99% GMCR 66% EXM 59% KOP 54% LFL 62% MOS 252% DECK 136% KHD 208% IMA 86% CCC 83% TTG 87% OMTR 346% CRNT 100% FSLR 116% ICOC 104% IHS 224% PRGN 56% HURN 101% SFLY 90% YGE 75% ASTI 109% ANO 264% OIIM 62% BIIB 51% APPY 125% ZNH 303% BCSI 136% RVBD 57% SXE 55% CNH 122% VMW 51% WG 59% PSMT 55% APFC 64%. Do you think there is anybody on this planet who is shorting stocks that are getting these returns? Then why do they do it? Better yet, why do they get paid a lot of money to tell you to do it?

I am begging every one of you to please write Kristin Bentz at realmoney.com and get me on there so I can write for this stupid website. Their contributors are just horrible now. I simply am disgusted by the mumbo-jumbo it-doesn’t-mean-shit fundamental trash that is discussed all day ad naseum. PLEASE WRITE HER AND GET ME ON THERE. I want to bring back the Gary B. Smith style of daily articles. Those were the best and there has been NOTHING that even compares to as great as those articles were. They need that “chartman” series to return. And I want to be that person. So, please, if you read realmoney.com, send Kristin an email and tell her about me. For some odd reason, they just wont make a move. You would think the returns would have spoken for themselves.

Anyways, back to the market. This market has been one resilient beast and I for one have enjoyed all the very nice charts it has presented me. This rally has been void of perfect charts. That is something I am not used to. Normally, during a rally like this we get one or two charts that are near perfect. The only one that was close was APPY and the fundamentals were not that great. We are about a year removed from HRZ. They don’t get much better than that. No sir, they sure do not. But they still do get great and when stocks like AIRM, DRYS, and VMW do what they do, we have no room to complain. The gains have been good and they continue to be good.

Heck, I forgot to mention that the IBD 100 even rallied 1.2% today. That along with my 2.8% move makes it clear that the long side is the right side and that the bears are still wrong until the downtrend is actually underway. I want everyone to remember that perma-bears like Doug Kass were going all-in and pounding the table to short the high-flyers on August 16 officially announcing the death of this bull market. The only thing dying is any respect he will ever get from me. I still find it amazing that Kudlow calls his blog the best on the web. How can this guy make money, in a market this bullish? Sorry to be so fixated on that. But I know a lot of guys that invest a lot of money based on advice from this guy and that just pushes my buttons. I am a fan of the truth and I just don’t see the truth with that guy.

Google reported numbers and they were slightly ahead of estimates. The numbers are OK, but not blowout and it had a positive effect on the stock at first. But, once again, the early gains have turned into losses as I type this and the Nassy futures are off around 10 points, indicating a weaker open. In bull markets, weak opens are bullish as buyers will step in and buy the bargains. The most bullish action is a gap higher followed by gains all day like October 5 but at this point in the rally a gap higher would actually make me nervous as the extended gains might want to be sold so traders can lock in overnight “windfall” profits.

So let’s hope the weak futures hold up and that, once again, buyers come back in and buy up the bargains. With me being long this many great looking stocks, nailing big gains, and still finding two handfuls of stocks to go long tomorrow, you better believe there is no way we should be bearish here. If this market was about to turn to bloody hell, trust me, we wouldn’t have seven new long candidates with five being of CANSLIM or near-CANSLIM quality. The trend is your friend!

Aloha and I will see you in the chat room!

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Posted by Joshua Hayes | Filed Under Market Commentary

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1 Comment »

Comment by MauiTrader

2007-10-19 14:12:13

As I watch the market selloff intraday, I realized I forgot to write about the bearish scenario if it happens.

If volume comes in light and your stocks are still above key cut loss areas, everything in the pullback, I am sure, will be all right.

But if key support gets busted then we have a problem as strong markets that finally gap lower and are followed by selling all day like this one has, so far, is definitely not bullish and in fact is a hinting that the short-term trend could be reversing.