All Major Indexes Hit 52-Week Highs On Higher Volume, After Early Morning Panic Selling; SP 500 Hits All-Time Record Close

May 31, 2007

Before the market opened on Wednesday, there was a major selloff in China (6.5%) due to a rise in the trader’s tax. This selloff immediately gave way to panic. And I can assure you of that as I monitor a lot of chat rooms. Even in my own room one reader was asking if this was indeed the top. But as usual when panic selling happens early on, in a bull market, stocks found a bottom immediately and rallied higher all day long with all the indexes hitting 52-week highs, all-time highs (except the Nasdaq), and closing at the HOD. How can you be bearish or even want to short when a market acts like that? I am simply floored by the balls and pure stupidity on the part of bears who are shorting this market. It is stunning.

It was a super impressive day of gains with the indexes hitting those highs on that kind of volume, especially after some hawkish FOMC minutes half way through that could have spoiled the party like the FOMC likes to do whenever news surrounds them. The SP 400 and IBD 85-85 both finished up over 1%, showing that leading stocks and mid caps were the days top performers. Advancers beat decliners by a 2-to-1 margin on the NYSE and by an 8-to-7 margin on the Nasdaq. So despite the strong gains, breadth wasn’t that impressive. New 52-week highs were also quite low with only 349 stocks making new 52-week highs, despite the markets hitting all-time highs. This keeps the pattern on negative divergences with new highs and stock prices since November.

Today’s incredible intraday reversal off of the morning gap lower is still impressive to look at on my realtime software intraday charts. All of the bullish candlesticks on the 5 and 60 minute charts, after that gap down are just beautiful. I can stare at these charts all day long and admire the beauty of today’s rally. Especially knowing how many shorts were calling a top this morning in the chat room. I can not remember the last time I heard that many top calls in one day. The last time was probably February 27th. But the market was much different then. The past three months has showed a change in leadership to leading and mid cap stocks that definitely makes this market stronger to pullbacks than before when the DJIA was leading us higher.

The bulls are completely in control in this market and the gains are starting to really rack up in my portfolio despite some of my larger holdings making smaller gains than they were the previous two weeks. This shows me that there is more upside ahead left. When will the upside be finished? When we actually have a pullback. How people can even try to call tops without a real pullback, low volume rally, and then a failure is beyond me. But until we fail the 50 dma on strong volume, those six distribution days on the Nasdaq the past four weeks is nothing more than another talking point.

Speaking of talking points, we have a very busy day tomorrow on the economic front. Second reading of GDP, the price chain deflater, initial claims, the PMI, construction spending, help-wanted index, and crude inventories all await us. This is for sure to add some excitement to the already super-bullish market that we are in the middle of. We also have earnings from CIEN COST TIF DELL PLL BIG HNZ and SHLD. So we will have some action on the macro and the micro to deal with.

I hope everyone is enjoying this market as much as me. I know I love the entertainment. I am even starting to flip to CNBC every once in a while to check up on the action. It is obvious that stories that appear on CNBC are now moving stocks again, just like they did from 1998-2000. I know that this can’t be good in the long-term, but in the short-term this frothy action could set us off into a big climax top. That climax top, with us so very long this market, has a possibility of making us very wealthy. We will cross that bridge if and when we get there.

Aloha and I will see you in the chat room!

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