Freezing Weather And Super Bowl Hangover Keeps Major Stock Indexes Mixed, Flat, And Dull; Leading Stocks Outperform

February 6, 2007

It was a dull day of direction-less movement for the major stock indexes, as several mergers failed to move stocks one way or the other. STT acquiring IFIN, TRI going private, SPG bidding for MLS, and Carl Icahn’s AREP bid for LEA were the highlights of the day.

At the close, the DJIA led the way with a .07% gain, the SP 500 pulled back .1%, the Nasdaq ended a five day win streak falling .21%, and the SP 600 led the way lower with a .44% loss ending a six day win streak. Even with the slight weakness in the overall major indexes, leading stocks outperformed to the upside, with the IBD 100 up .4% and the IBD 85-85 up .3%.

Volume was higher on the Nasdaq by an ever-so-insignificant amount and volume on the NYSE was a tad lower than Friday’s level. The higher volume on the Nasdaq is not a distribution day as there was absolutely no selling pressure that really hit the index. Nothing was nasty about the down day in the Nasdaq today, when looked in the overall context of this uptrend. Therefore, the Nasdaq still only has two distribution days the past month, along with the NYSE.

Breadth was negative on both exchanges, with decliners beating advancers by a 9-to7 margin on the NYSE and by a 3-to-2 margin on the Nasdaq.

The clearly obvious good news came in the form of leading stocks. Many leading stocks provided good gains today, despite what was a lackluster market. HC, UCO, SYX, STP, DECK, CTSH, POPEZ, ATHR, and SIMO are some of the stocks with CANSLIM characteristics that made 5% or better gains today. These leading stock show that the big money is made in being in the right stocks in this strong market. The IBD 100 is up over 4% this year compared to the DJIA being up 1.5%. You definitely are not getting these kind of gains or moves in stocks that make up the DJIA. As long as you see this kind of action by leading stocks on flat to slightly down days, you can rest assure the long side is still the right side.

The other clear trend to me right now is the momentum plays. Daytraders are very active again and have found a PERFECT momentum group. The group is even more perfect due to all the recent IPOs and the EPS and sales growth of these companies. This group I am talking about is Energy-Other (Solar). These stocks are moving and are doing so in dramatic fashion. The leader and old dog is SPWR but there are a ton of other great stocks in this group that are new and if they breakout from a proper base on strong volume they will become fantastic plays. Stocks like SOLF, TSL, PVG, and FSLR have already made strong runs without creating a well formed base to give me a chance to get long. But if these stocks rest on quiet volume and can manage a breakout 5 days or later, I would love to be long these stocks. Other stocks like CSIQ and ASTI are starting there uptrends and are doing it on great accumulation. If they can form a good base and breakout from them on high volume I would love to be long these stocks too. This is the new momo momma group; Daytraders are talking about these stocks non-stop, they are moving on the charts, and the groups fundamentals are very strong.

The bears are still out there. I read a couple of articles today, from value newsletter writers, that completely think the market is way too overbought and expensive here to have the market rally any further. Then I read some articles from Cliff Droke that used pure facts and history that completely disagreed with the previous two writers market stance. So there is still a pretty strong battle between the bull/bear camps with many players just sitting on the sidelines too afraid to get involved.

The one remaining theme for the folks on the sidelines is that the market has come too far too fast to be safe to buy now. However, I would fear missing out on more gains at this point. Stocks simply can not get any follow-through on the downside. Even today’s early morning reversal did not get any follow-through. This just empowers the bulls more and more as they can clearly see that shorts can not get anything going and a nice short-squeeze would definitely wipe a lot of the bears out and make money longs already long great stocks much more wealthier. With the put/call constantly up here around the .9 to 1 level, it is obvious players are still betting on a downside move. If the market takes off and these folks are forced to cut losses or cover margin calls, you can bet that all of us that are long are going to be very wealthy at the end and that the bears will capitulate and turn tail.

That final short-squeeze, of course, will probably mark the end of this bull market. I don’t see this scenario setting up anytime soon. But the longer the market keeps rallying and shorts keep shorting as the market rallies, the more powerful the final run will be when it does end.

I hope everyone had a great Super Bowl Sunday; it was a great game and I am very happy to see Peyton Manning win a championship and for Tony Dungy to win one as a coach also. The speech he made afterwards was just wonderful! God bless that man. What a remarkable story that is. I hope everyone is making as much money as I am in this second greatest bull market EVER. Aloha and I will see you in the Chat Room.

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