Dip Buyers Take Advantage Of Yesterday’s Selloff; Volume Comes In Lower Than Yesterday, Dampening The Gains

April 13, 2007

Stocks got off to a weak start off the back of RIMM’s Q4 results that came in below expectations, Q1 profit warnings from some retailers after March same-store-sales were released, and bad news from the unemployment claims showing that they rose for the second straight time and rose larger than anticipated. This started a selloff that seemed to be picking up steam when all of a sudden the dip buyers showed up again bidding stocks higher all day long until the close. That dip buying was given credit to a rise in crude oil prices to $63.85 a barrel and new that Nestle agreed to buy baby food marker Gerber from drug maker NVS.

Closing near their daily highs, the Nasdaq led the way with a .9% gain, the SP 600 and NYSE followed with a .7% gain, and the SP 500 and the DJIA gained .6%. Leading stocks, however, once again, for the third session in a row, lagged the overall market, with the IBD 100 gaining only .5%. This shows that leading stocks are not in favor in this environment right now. Which also means that this bull market is not the type where investors should be invested on full margin. If the best stocks can’t keep up with the old dogs, then something is wrong underneath.

Volume was lighter than yesterday’s levels, with the Nasdaq coming in lower by about 2% and the NYSE volume lower by 5%. The lower volume kind of leaves a bitter-sweet taste after reversing the gains yesterday. After yesterday’s distribution day yesterday, a move like today, without volume, shows that funds were not interested in stepping in and buying shares. The institutional money has still not shown up. However, even though volume was not that great, breadth was much better as advancers beat decliners by little more than a 2-to-1 margin on the NYSE and by a 2-to-1 margin on the Nasdaq.

The one noticeable thing was the new highs and new lows list. There were only 311 new 52-week highs today compared to 309 yesterday. And that was with almost a 1% move on the indexes. There were 89 new-lows compared to 93 yesterday. This is very odd looking to me. There is something really wrong about a market up almost 1% yet the new-highs increase from 309 to only 311? That along with the IBD 100 lagging the market just goes to show you that there is something wrong with this rally. We must ride the trend but, imo, there is more risk to the downside than upside here.

However, that slight bit of caution is apparent in the put/call ratio as it has jumped back over 1 and closed at 1.02 indicating that traders placed their bets on lower stock prices even as the market rallied. This is why we keep going up. The crowd keeps making bearish bets. Even though we have mostly big caps, commodities, defensive, and very speculative stocks moving higher, we must continue to play those stocks in this trend. Until the market flashes two to three more distribution days the next two week, the market is setup for still higher prices; no matter how weak the rally will be, it is still a rally.

This is a rally but for the past five months we are not really going anywhere, unless you are in the Oil&Gas, Steel, or NYSE area. Then you are doing better than the market but I am sure you have churned your account somewhat more frequently than at any other time during the rally, if you are a professional. The best action for most investors, especially newbies, is to keep cash heavy, keep new buys strictly to CANSLIM quality stocks that are very close to their pivot points, cut your losses very fast if the stock does not move up immediately, and stay patient. Remember, the market trends only half of the time. Right now, we are not in a trending market. We are in an oscillating market that is currently in a confirmed uptrend full of distribution. The SP 500 accumulation/distribution rating near all-time highs, right now, is a D+. It should probably be at least a B-. The Nasdaq does have a B-. Still the really poor accumulation/distribution rating up here, after a rally, shows you that this market is being held up by the big-caps and not the leaders. If leading stocks were leading this rally the acc/distro rating would be at least a B- on all indexes.

Eventually this rally will end but obviously it is not ready to end yet. All of the signs are there for the market to be near its last legs. I think upcoming earnings season is going to show us what the direction of the market is going to be. If EPS estimates are lowered all over the place and we see even slower growth, I am sure that eventually that will be reflected in the market. Trying to time when this is going to happen is probably not worth doing. Especially with us in this trading range. Right now, even though there are no institutional buyers buying this market, there is no institutional selling. That is allowing the retail crowd to push stocks higher that forces shorts to cover and leads to higher prices on lower volume. As long as this is happening, fighting it is pointless. I do see more charts with nice patterns than I did even two weeks ago. But these stocks are not leaders or exciting growth stocks. Most are very speculative.

We have the PPI tomorrow, GE earnings, and AAPL is trading down after dealying the release of its new operating system. This should allow for some market action tomorrow. At least the market is getting a bit more active intraday, even with the low volume. That beats the action during the holiday shortened week last-week.

I am very happy that it is hockey playoff season again. For some odd reason, I really enjoy this time of the year. It is probably because baseball season is starting, the NHL playoffs are starting, and the NBA playoffs are starting right after the NCAA tournament ended. I don’t know if anyone saw the Dallas Stars vs. Vancouver Canucks game on Wednesday but that was one of the greatest games I have personally seen. And if you saw the Detroit and Calgary game tonight, you saw the only reason why Calgary is in the playoffs: Kiprusoff. Without him in goal, the final score could have EASILY of been 10-1 Detroit Redwings. Great stuff so far. Can’t wait to see who is in the finals.

Aloha and I will see you in the chat room tomorrow!

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