Incredible Earnings Fail To Inspire Stocks As A Choppy Day Ends With Stocks Mixed; DJIA Hits Another All-Time High

April 27, 2007

It was a quiet day on the economic front, with only the initial jobless claims report, which saw claims fall by 20,000 to 321,000. However, when it came to earnings there was plenty of fire and most of it was bullish fire.

AAPL, VDSI, CNS, ESI, SSYS, RKT, and PRXL all gapped higher after reporting incredibly strong earnings that beat estimates on all these bad boys. That, along with another day of AMZN crushing the shorts, and CSC buying tech service firm CVNS, and you have a very positive day overall despite the mixed close.

All of these great earnings helped the markets gap higher. But that did not last long as it gave way to a choppy day of trading until around 2pm when stocks caught a bid lasting until the final hour where a final selloff took the indexes off their highs.

At the close, the Nasdaq led the way with a .3% gain, the SP 600 gained .2%, the DJIA followed with a .1% gain, and diverging in the other direction the SP 500 lost .1% and the NYSE lost .3%. The good news, once again, was that leading stocks led. The IBD 100 gained .4%, beating the broad market. The Nasdaq hit its highest highs since February 2001, and the DJIA hit another all-time high and is now up 18 of the last 20 trading sessions.

Another positive sign is that technology stocks may be seeing some rotation from the parabolic metal charts and from the old leaders in oil and gold. The Philly SOX index gained .7%, well outperforming the broad market and the Nasdaq 100 gained .4%. This shows that techs are coming on, while the big caps may be losing some steam in the very short-term.

Volume was slightly higher on the NYSE, giving the index a very marginal distribution day. This is the indexes third distribution day in the past four weeks. This, imo, is only a distribution day based on the requirements needed to identify something as a distro day. However, today did not feel like a market that was being sold hard by the big institutional funds. So a distribution day it is only by definition. Volume on the Nasdaq was about 9% lower.

Breadth was surprisingly negative all day, with decliners beating advancers by a 6-to-5 margin on the NYSE and by a 8-to-7 margin on the Nasdaq. There was also only 593 new 52-week highs and new 52-week lows expanded to 84. This is negative divergence and readers who have been reading my previous postings know that these negative divergences are starting to pop up everywhere.

It was nice to see the market finally not ramp higher and make huge gains. Having that happen every day is not good and ALWAYS ends up bad. You need bases to form on individual stock charts and index charts to help set up a strong platform for a stock to run. Imagine being a runner. Does a marathon runner blast off and use all of his energy at once? Of course not. They burn out hard and crash. That is what happens to a stock that does not form bases as it moves higher and instead just keep moving higher and higher and higher without ever pulling back. Stocks like VDSI and FALC are ALWAYS preferred compared to stocks like SOLF and JASO.

If small caps and tech stocks keep acting like they have started to act and the metal stocks can start to cool-off, we could be setting ourselves up for a last hurrah that will produce some very big gains. The bears continue to be crushed yet they are still obviously heavy on the put side as the put/call is still at .76. This is not extremely bullish, by all accounts, but it is definitely not a bearish .5. Momentum is abating but there are still enough sellers to keep this market going. That along with the charts says more pain is probably in store for the shorts.

The bears continue to be crushed every day. Don’t be like the perma-bear resident in a chat room that I monitor that has finally ran away and hid (he finally left last month after being bearish for the past five years) when the market refused to agree with his OPINION. His worthless opinion killed him. Not the market; his opinion. If the fool would have just followed the trend that was right in front of his face and not have fought the market for FIVE years maybe he would be as wealthy as the bulls have become.

The market is still acting like it is bullet-proof and can do no wrong. But that may not be the case for much longer, as even with earnings impressing market players and sending the bears to the poor house, earnings are still coming in below 10% for the first time in 16 quarters. Like I keep saying the trend of earnings and GDP leads the market. The trend in the GDP (expectations of 1.8% growth; last quarter was 2.5%) and earnings (up 7.1% so far, above estimates of 3.4%, but below 10%) does not bode well for future stock prices. However, until the market actually reacts to these poor numbers, there is nothing to do about them except be aware of them.

I hope everyone is enjoying this nutty market. If you don’t think it is nutty, do me a favor: go find another time the DJIA has been up 18 out of the last 20 days. Also for those with tcnet, check out the BOP on the DJIA. You will see the surge in BOP on 4/20 has not been seen since 1987!!! Also this is the longest period of time the DJIA has seen this many consecutive days of green BOP since 1987. When that happened in 1987, the markets went on to rally another 25% before giving way to the most memorable one day crash ever on 10/19/87 when the DJIA fell 22.6% capping a four-day 30% sell-off.

It should be a wild day tomorrow, with MSFT earnings and GDP numbers to digest. Aloha and I will see you in the chat room!!

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