Stock Indexes Pullback On Higher Volume; Index Have First Ditribution Day Since The End Of March

April 15, 2009

Futures are mixed this morning but the real important information is what happened yesterday as we saw the stock market selloff on higher volume. Was the selloff the start of a new downtrend lower or just a blip in the uptrend.

Well if you follow volume closely and you watch how the stocks rallied before Monday or Tuesday and then how they have sort of just flat lined and gone no where the past couple of days, you can tell that the market needs a breather.

We got very overbought on the short-term and we were due for a pullback by just the way some leaders looked. On the short term trend, I made mention how many of the recent leaders looked like they went too far too fast. One stock that we are long is up almost 20% in two days since we went long (congratulations everyone that went long with me), NTES, CYOU, and SNDA all indicated that they needed a pullback too. So when I look at the leading stocks and Chinese stocks I don’t see a nasty top forming per se.

About the only troubling part I saw in yesterday’s selloff came from bank stocks. I have 19 longs and about 15 have been taken the past month. If yesterday I would have had 5 new full sells or 4 new full sells and a few partial sells then I would have been real worried. But the fact that all of them held was a very good sign that the rally could continue without a ton of problems.

A few distribution days along the way up is good as long as the market can quickly reverse them and soon close higher. Also if those distribution days are coming with volume lower than the volume on the up days or the down session is smaller than the up sessions you can be sure you are still good to go from here.

Now like I was saying the bank stocks were looking like they were putting in great bottoms as stocks like FITB, BAC, and C were having some great charts but after just yesterday’s price damage stocks like C and BAC will need more work before they can become longs in my portfolio of bottom fishing. The one bank long I thought would be OK to bottom fish (if I did stuff like that) would be FITB. Now, while FITB has a lot of green BOP still the fact that it could pullback 17% and still be in a “good position” tells me that this market is still a bit too wild for me to look to be buying anything on margin in bulk or bottom fishing. Especially bank stocks.

One of the biggest problems I continue to have with this rally is that leading stock market indexes continue to lag. The IBD 100 and IBD 85-85 are doing one thing very well. When the stock market does seems to pullback the leading indexes do not always pullback more than the general market. That tells me that they are holding up much stronger than to the overall market thus that is why the IBD indexes RS lines are doing pretty well compared to the SP 500 while overall not doing very well price wise.

Right now, when we have big up days, the IBD indexes are not leading. Well, in every bull market that lasted for a prolonged period of time we have had IBD CANSLIM quality stocks leading the way higher. The fact that they are not right now indicates to me that if we are in another bull market that we have not seen the biggest move of the rally yet.

If the market pulls back here and then we start to rally with the IBD indexes leading the way you can be sure that the 19 longs that I have now along with all those beautiful green BOP filled stocks I keep posting on the videos every night are going to start making us a lot of money. After listening to the WON interview at IBD, I would love to get this rally really moving with leading stocks leading the way. I really miss the days of 1998-early 2000 and late 2002-early 2007. The best of those time frames were 1999 and 2003 of course and I still think about those two years every day and can’t wait till something similar to those kind of runs come back. They still exist today, you just have to go to China to find them.

Great luck out there today and let’s see if any of our 19 or so longs can produce the kind of gains our two new longs produced for us to start out the week. I tell you what that 20% gain we almost got in two days immediately after going long is exactly how every long we take should act. Maybe later on when the bull market has more leadership. We shall see. Aloha and great luck everyone!

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