Early Morning Selling Gives Way To More Dip-Buying; Stocks Finish Higher On Higher Volume, After FOMC Meeting

May 10, 2007

Stock started off on the wrong foot, for the second day in-a-row, thanks to some weak guidance out of CSCO. The weak guidance weighed on the Nasdaq especially as CSCO fell 6% before the opening bell. This carried more weight than the 1.6% gain overnight in the Shanghai index.

However, stocks did not stay down long. It could have been all the strong earnings reports from FWLT RIMM SNHY and PCR that got the market excited, but whatever it was the fact that the dip buyers showed up again was all the market needed to rally. The bullish reversal did run into a rough spot around 215pm EST when the Fed announced their decision on interest rates.

For the seventh meeting in-a-row the Fed held pact with 5.25%. The only thing that really changed was the wording that growth “slowed,” instead of saying that it was “mixed.” That sent stocks sharply lower within seconds. Yesterday, I posted that the Fed was irrelevant and today I was proven right as stocks were quickly picked up and bid higher into the final hour. You can’t stop these bulls. The Fed is irrelevant.

At the close the DJIA and the NYSE led the way, amongst the major averages, hitting all-time highs, with .4% gains. The Nasdaq gained .3% and the SP 500 gained .2%. Midcaps and smallcaps did better, with the SP 400 gaining .7% and the SP 600 gaining .5%. The best part of today’s rally, though, was in leading stocks. The IBD 100 gained 1.4% and the IBD 85-85 gained 1%, well outpacing the broad market. This is yet another day of outperformance by leading stocks in the past two weeks.

The most impressive index, in my opinion, right now, is the Philadelphia Semiconductor Index. The SOX gained 1.7% today and stocks like NVEC LLTC VSEA ALTR TXN INTC SMDI XLNX NVDA PMCS MCHP and NSM are either setting up excellent bases or are already breaking out and moving higher out of good bases. Everyone says that they like to see the semiconductors moving to like a rally. Well, the SOX broke out past the April highs yesterday and I saw NO ONE talk about it. As far as I am concerned I am the only one who sees this.

Volume was higher on both indexes, with volume higher by 3% on the NYSE and 9% higher on the Nasdaq. Two positives from today’s volume is the fact that after hitting some all-time and new-highs the past two weeks on lower volume, it was nice to see volume pick up as the indexes hit new highs. The other positive is that volume picked up after the Fed announcement as stocks rallied. This shows institutions are buying stocks up here, despite the market looking “frothy” to some.

Breadth was positive also but not by a significant amount that indicates everyone was piling into anything and everything. Advancers beat decliners by a 2-to-1 margin on the NYSE and by a 3-to-2 margin on the Nasdaq. There was another slight problem with the new highs as there were 545 new 52-week highs to 74 new 52-week lows. This is yet another all-time high in the indexes without an expansion in the number of new highs. This signals that this is still a very narrow rally led by bigcaps.

This market is getting much harder to buy up here and it is starting to feel like the market is overbought. But without an end to the uptrend, my feelings are just not worth anything. The uptrend can stay more overbought and momentum can get crazier. Have you seen the daily arithmetic chart of the Shanghai index the past three years? Trust me it can always get crazier. Until the trend changes why try to be smart and miss out on possible large gains.

If I have to join the crowd of people complaining I guess another area I can find a problem with is that the further this market goes without a pullback the worse the ensuing selloff is going to be. But right now it feels like buyers are more worried about missing out on more gains than losing money by not going long. That is now obvious in the put/call as it has fallen to the .65 level. This is the second reading here in the past three sessions. This shows that the crowd is finally relaxing on making bearish bets as stocks rise.

The investors intelligence survey also showed bulls rising to 53% and bears falling to a quite low 20%. This is just more juice to the fire that the actual participants in this market are now getting bullish as prices rise.

Who is not bullish? The whacked-out gamblers who played DNDN. I admit I went long 30 shares of the trash stock trying to hit a home run so that I could pay some bills. Instead I got hit with a 60% haircut in the stock. But with the stock compromising less than .1% of my portfolio, obviously this didn’t hurt at all. Those who know my style know that the CANSLIM stocks are the ONLY stocks that ever make up significant portions of my portfolio. Pretty charts like CTCH now and MAMA back on 12/8 count too. But those stock had either incredibly rapid recent EPS and sales growth or had beautiful perfect green charts breaking out of sound patterns. However, some beauties fail like INXI. That one sucked but all the buys only left me with a 8% loss. That is how it is supposed to be. Keep the losses small. Let the winners ride.

This market is in an uptrend with no sellers and fighting this trend is silly so it is best not to fight it. We have earnings from NVDA SLE VIA and economic data on import and export prices and initial jobless claims. So we will deal with that tomorrow as earnings season runs down.

Aloha and I will see you in the chat room!

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