Distribution Day Hits The Indexes As Stocks Selloff Erasing Some Of The Hard Fought Gains Made The Past Four Days

May 8, 2008

There is no other way to spin today’s action other than it was downright ugly. However, after going over my personal holdings and seeing how few stocks needed to be sold and how few actually fell on higher volume, it became clear to me that I am going to have to see more selling to confirm that this short uptrend is dead. The way my leading stocks acted today and seeing how some of the stocks that I purchased large positions in actually made gains today, it just seems smart that it would be wise to not panic here and lose our positions in our leading stocks. This kind of selling is not good but it is normal to see this during uptrends. You can review any uptrend you want and you will see they all have one, two, or three distro days along the way.

Today’s distribution day did come with most indexes losing 1.8% which was a nice chunk lower but the NYSE’s volume was below the 50 day volume average for the 33rd consecutive day. The Nasdaq’s volume was higher than the day before and above the 50 DVA but the volume on the index was still lower than 4/24 and 5/1’s rally on higher volume. The selling was heavy but nothing that smells of SERIOUS distribution. I will need to see further confirmation before I sell stocks that are still holding support. Especially when the majority show either intraday tails or low volume on the selling.

The selling seems to be the result of the weak financials and it is disappointing to see that CSCO just doesn’t have the influence it once used to on the overall market. Nope, what effects the market is oil and oil up another $1.69 to $123.53 is not what the doctor ordered and it is the virus that got this market sick. Even though oil stocks are leading this market higher, especially in the US Expl/Prod which were slightly lower but still had 32% of the stocks in the group hitting new highs and a total of 61 energy stocks hit a new 52-week high intraday. The other oilandgas stocks held firm also, with International integrators and drilling stocks having 22% and 20% of their group hit new 52-week highs. 28% of steel-producers also hit new 52-week highs so let’s not forget about that group either as it held up well in the middle of the selling.

If my math is right we have a few bullish developments during this pullback that make me feel a bit safer that not too much more downside pressure is in the cards. The put/call ratio rallied back to .93 which gets it ever closer to the 1.0 level which shows the crowd has gotten too bearish. The number of stocks hitting NEW 52-week highs beat the number of new lows by 142 to 130, which is an excellent development during a down day and not something I have see in a while. The last but-not-least item is the NYSE short-interest ratio which is just hitting another all-time high of 12.86. It almost takes 13 days to cover the 4% of the NYSE that is short and this kind of fuel that can be added to the fire, IF THE MUTUAL FUNDS WOULD JUST RETURN to buying stocks. That would be beyond nice.

However, until they show up, I will just be biding time taking the best trades I can in a market that is offering me very few to zero perfect charts that are loaded with huge accumulation and max green BOP with great fundamentals. A lot of leaders had a bad day–SOHU GFA GNK PRGO CTRP KWK CBD–but they all are holding there above very key support which makes me, for now, confident that we still have more room to run.

I am starting to nod off on my computer so I will see everyone in the chat room around the same time that I always show up. Aloha and great luck in this low volume to average volume market. ALOOOOHA!!

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