Small Caps And Nasdaq Lead For The Third Day In A Row; Why Are People Still Trying To Call A Top?

May 23, 2007

Today was a good day, overall, for stocks, as the Nasdaq and SP 600 led the DJIA and NYSE. The SP 600 finished higher by .7%, the SP 400 was higher by .2%, and the Nasdaq was up .4%. This was clearly better than the SP 500 and DJIA which finished down .1%. Leading stocks did not lead this time but for the third session in a row they did outperform the DJIA and SP 500. The IBD 100 closed flat.

The big deal of the day came via the private equity group led by Kirk Kerkorian Tracinda Corp. They want to partially takeover some of MGM’s assets. This helped lift the mood of investors as the LBO game continues with a new deal everyday. This is a good time to be a bull.

Breadth was very good today with advancers over decliners by a 6 to 5 margin on the NYSE and by a 5 to 3 margin on the Nasdaq. The Nasdaq also had slightly higher volume, and though it isn’t super bullish, it was none-the-less a day of accumulation for the Nassy.

The Nasdaq had its highest close in over six years but I still saw many people calling tops in the chat rooms that I monitor. This wall-of-worry is just what stocks need to climb higher. However, with those top callers there is also some very heavy sentiment on the other side of the argument.

I am seeing the exact same kind of chutzpah and unwise bragging that I saw in 1999. There is almost no difference. There are a lot of people out there saying “all you have to do is buy gold and you will be rich, all you have to do is trade penny stocks and you will be rich, all you have to do is daytrade solar and Chinese stocks and you will be rich.” The daytrading mentality and the TV infomercials like “4x Made Easy” are clear signs of a market where things are getting out of control.

The sad truth is I just received a phone call from a guy who is just NOW buying AAPL. He is just NOW certain it is going to $200. I still have the message on my phone and I am going to save it. This clearly shows me that not only are the amateur daytraders getting cocky. But now the emotional uneducated CNN watching crowd are buying stocks to “make easy money.”

So the extreme in sentiments remind me of 1999. There is no difference. Super bulls and super bears. Great arguments on both ends. The stupid-new-irrational-inexperienced-daytraders are going to make a lot of quick money. But it is going to disappear just as fast. While we cut losses, they will be buying the dips. Except when it turns, the dips will only lead to more selling. They will not recognize this until it is too late.

For now, we can be just as “smart” as the daytraders, who have graduated to the holy grail and have decided that what the greatest traders of all-time did was not the best way to trade, and ride the trend higher. We will get the big meaty portion with more sleep and less angst. And then when the trend changes, we will be out and in cash or in shorts. We don’t need a “jackpot” to win in this game. We have a proven set of rules that have worked since the dawn of time. This will ensure that we not only make good money now but that we save the money when this market turns. Their is NO better method than the CANSLIM method. That is why all the greatest traders used a form of this method. It is the best. This is not my opinion. This is a fact!!

Boy, oh, boy. It sure would be nice to get a pullback. It isn’t like I want to stop making money. It is that I want to make more money on the uptrend. And the only way to do that is to get a pullback that lifts the volatility in the market. I want 500% gains, not 200% gains, in my best stocks. Most of my best stocks are averaging 50% gains. This would be 150% in 1999 and 2003. The low VIX hurts us in the long run. A pullback would solve this. However, I don’t expect one so I will continue to take my consistent winnings and just be happy with it. I have to admit: this is a great market. I am making a LOT of money…but I could be making more. And that is what bothers me at this point in the rally. We need a pullback.

But for now all bad news is good news and all good news is good news. No matter how much CNN and the big networks will never admit it, this is one of the top three best markets of ALL-TIME!!! This is not opinion. This is a fact!!

Aloha and I will see you in the chat room, where I am sure we are going to make more money. As Jesse Livermore used to say, “It is a bull market.”

Subscribe To Site: