Afternoon Selloff Sends Stocks Lower As Most Indexes Close Near Their LOD; Nasdaq Finally Outperforms The Big Caps
April 24, 2007
A very tight low-volatile intraday morning, despite some big M&A deals, gave way to an afternoon selloff as higher oil prices and bad news out of GM scared some investors. BCS announced it was acquiring ABN and AZN announced it was acquiring MEDI. However, this failed to inspire stocks at all. But later in the day oil jumped 2.8% to $65.89 and GM’s Vice Chariman Bob Lutz said mortgage ‘meltdown’ was going to hit auto sales. This did inspire stocks and sent them lower, with the big cap indexes closing near their LOD.
When it was all said-and-done, the NYSE led the way lower, even with Steel and Alternative Energy stocks doing well, with a .4% loss, the DJIA followed falling .3%, the SP 500 lost .2%, and the SP 600 and Nasdaq both lost .1%. The SP 400 was the lone index in the plus column, with a .2% gain.
The best news of the day came in the form of leading stocks, as the IBD 85-85 index rallied .7% and the IBD 100 rallied .6%. This was the second day in-a-row that leading stocks have well outperformed the market. If you want to see this rally last this is the kind of action we need to keep on seeing. I guess it is better late than never.
Volume was lower on both exchanges with it 28% lower on the NYSE and 8% lower on the Nasdaq. Volume picked up as the selling picked up on the NYSE. Decliners beat advancers by a 3-to-2 margin on the Nasdaq and by a 9-to-8 margin on the NYSE. There were still 552 new 52-week highs and only 68 new 52-week lows, despite the poor breadth and losses.
To be honest, there is nothing to really take away from today’s trading. It was not a bad day even though we did come back off new highs. I only had two complete sells, even though I did have a lot of partial sales, so it was obvious it was not that bad out there. That along with leading stocks outperforming makes it not that bad of a day at all.
The uptrend is still well intact and the markets keep hitting new highs which means that even though I am nervous on the market it just doesn’t matter. Until we actually have a selloff it is obvious shorting this market is foolish and quite a low reward high risk play. However, the put/call ratio is still high at .79 which means there are still plenty of people who want to short this market or buy puts on this market. Simply, still, the wrong play.
Even though this uptrend seems like it will never end, trust me, it will. Don’t get crazy on the long side right here unless you are operating from a very short-term time frame. Just take what the market gives you and do not chase performance (ie…the solar stocks). Hold your current longs as long as those uptrends are green and holding those moving averages. But like I just said don’t chase performance and just go long anything that is moving because you are not participating in the gains.
Patience is the best play here. You have to realize the best rallies happen after the indexes have a follow-through day after a 10% plus decline and after that downtrend last at least three months. That helps set up the proper chart patterns in leading stocks to breakout of when the market turns. We are so late in this rally that I refuse to get crazy on the long side unless the chart looks like TESO or AFSI did when I went long. Even then I am not making them 20% or more of my portfolio AFTER FOUR YEARS OF NON-STOP GAINS!!
The markets are very overbought here (doesn’t mean it can’t get more overbought or stay overbought for a long time) and I believe the risk for a selloff is very high at these levels. If you read this and come to the conclusion that it is a market that is confused. Trust me, you are right. There is negative divergences EVERYWHERE yet the markets keep going higher. We all know how that normally ends: Not well, when it ends.
AMGN and TXN announced good number and TXN really got moving with a 9% jump after-hours. BSX missed views by a ton and was trading down after-hours by around 3%. So overall things look good. TXN performed the best after-hours, obviously, and if you look at the charts of the three stocks there is no question why it did; AMGN and BSX are two very ugly long-term charts and they sure are not that nice on a short-term basis either. TGT also announced that April sales are going to be weak so that should put pressure on some retailers. But overall it was a good after-hours.
Aloha and I will see you in the chat room!
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