Stocks Close Slightly Higher, Ending A Week Of Low Volume Gains; Beautiful Charts Still Do Not Exist
March 10, 2007
Stocks gapped higher off a mixed jobs report. Total jobs for the month came in at the lowest level in two years but the unemployment data dipped to 4.5% from 4.6% and last months numbers were revised up continuing a recent pattern, possibly giving market players a bit of buying power. The gap higher then led to an immediate selloff, followed by a weak rally, that led to even more lows. However, at the end stocks actually caught a late bid, helping them close off the lows. A pattern that did not exist the rest of the week. The prevailing pattern, before Friday’s close was to rally until the final hour then either selloff or flatline. This is bearish action and combining that with the low volume rally puts and end to a dead-cat bounce week.
At the close, the SP 600 led the way with a .4% gain, the SP 400 followed recapturing its 50 dma with a .35% gain, the NYSE picked up .2%, the SP 500 was higher by .1%, and the Nasdaq diverged to the downside with a very tiny .01% loss. The IBD 100 failed to lead to the upside, with a .3% gain. This index should be outpacing all the indexes by a fair margin on rallies. The fact that it is not is not bullish for this bounce. The top sector on the day was the Computer Software-Security group (VDSI, BCSI, DMRC, SFNT, MFE, DBTK) with a 6.6% gain.
Volume was lower on the NYSE and higher on the Nasdaq (IBD says volume was lower on the Nassy). The lower volume with the gains, on the NYSE, show that institutions have no interest in buying a market that just went through such a severe selloff; at least they don’t yet. The volume on the Nasdaq really doesn’t matter if it was higher or lower. The small price changes basically leave this day as a draw for both bulls and bears.
Breadth was slightly positive on both exchanges. Advancers beat decliners by a 3-to-2 margin on the NYSE and by a 8-to-7 margin on the Nasdaq. However, a small sign of weakness can be found in the breadth of the DJIA. There were 14 advancers to 16 decliners. Maybe I am reading too much into it for a such a weak day but negative breadth with price gains are not normally bullish in the short-term. There were also 114 new highs to 80 new lows. If the market was in better shape, I would expect the difference to have been wider.
Friday was day four of the rally attempt. The best rallies almost all start on the fourth or fifth day and when they rally they make HUGE point gains on big volume. The fact that we did not get a follow-through today doesn’t mean we still can’t get one in the next six to nine days. But the fact that this one did not start early increases the odds of it either being a weaker rally if we get one or that we are setting up for more distribution. Even if we get a follow-through nothing says that it will succeed. All market rallies start with a follow-through day. But not all follow-through days guarantee a bull market. I think no matter what happens, the way the charts look, this rally either will not happen or it will fail.
I say this because I don’t have nice charts out there. I always have nice and pretty charts setting up with good fundamentals and with poor fundamentals, before a real rally takes hold. Without these charts, there is no reason for a rally to appear. Also the Accumulation/Distribution ratings on the index charts are horrible. During the rally this week, the grades fell! You don’t get that at real market bottoms. When the March 2003 rally got underway, the Acc/Dis ratings were a B+ or better on all indexes. Right now, there is a D- out there on the IBD 100 and the SP 500. The NYSE also carries a D and the Nasdaq has a C. This shows that there is still heavy selling by funds. Until the funds start buying stocks, these grades will stay low. So until the market gets some better figures, don’t count on any rally really succeeding and producing big gains. History shows that to be the case; not my personal opinions.
For the week, the DJIA and SP 600 led the way with 1.3% gains, the SP 400 and 500 rose 1.1%, and the Nasdaq gained .8% this week. This seems good after a selloff but remember the Nasdaq lost 5.9% last week. A gain of less than 1% after a 6% loss is not what I would call healthy. The IBD 100 gained 2.5% for the week, well outpacing the other indexes. But just like its Nassy brother, the 2.5% gain pales in comparison to the 9% swoon of last week. It is hard to call this weeks rally anything but an oversold dead-cat bounce. There is simply no other way for me to interpret this action. If this was a real buying opportunity, more charts would appear and volume would be much higher on the indexes. Where are the big boys? They are possibly waiting to sell at higher prices waiting for the dead-cat bounce to end.
It was a crazy week that started with a big selloff and ended with a continuation of a dead-cat bounce. The low volume gains after such a nasty week did nothing to change my opinon on this market. The current market condition I have been writing about since last Tuesday’s selloff is still in place. It doesn’t matter if the subprime mortgage loans or yen carry trade was the reason for the selling. God knows most ignorant journalist seemed to place blame on these two catalyst. What matters is the fact that this market sold off hard last week, rallied on poor volume this week, and didn’t produce squat for charts that signals to me it was a one-time selling event last week. The only real good news I can see is that oil fell back to $60 a barrel. But the stupid commodity has not fallen below that since February so I am not that stoked over that bit of data either.
This market is still not the kind of market I like to operate in. I am still taking longs whenever I can find a pretty green chart that is breaking out of a proper pattern but they are few and far between so that is naturally keeping my cash level high. As I continue to take profits and cut losses on weaker performing stocks, the cash that is raised is getting ready to be put to use in better trade opportunities. If this market rollsover on higher volume, I can start shoring all these ugly chart patterns and show you guys how to make money consistently on the short side. Or if the market rallies and charts start building green pretty bases I can have money ready to deploy into these sweet patterns. Then I can go back to making money like the good old days of normal bull markets. Remember, this last upleg from August was the weakest bull ever with only 180 stocks making 100% gains out of a universe of 8000. The norm at the start of bull markets to the first correction is around 500-1000 or more. That is where I find my handful of 200-500% winners and double fisted 100% winners. Not on rallies like we just saw. Thank God that is over!
This oversold bounce probably still has a while to go as the readings on Helene Meisler’s overbough/oversold indexes are still very oversold. That is sure to lead to continued wild and choppy intraday price action that results in poor performance from individual stocks. Daytrading is safer than holding stocks right now. This is ONLY the case in these kind of wild and choppy markets. Unitl the trend is firmly down or firmly up via a follow-through day, cash is the appropriate place for investments. When a solid trend develops, then that is where I will be. For now I am just counting my chips waiting for a good hand. 7 2 offsuit is not a good hand. And that is all I am getting right now. Fold and wait. That is the name of the game right now: waiting with cash.
Cash is king!!!! Aloha and I will see you in the chat room.
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2 Comments »
I really like the poker analogy. Glad to be a member here. Very insightful, and hopefully i will learn how to use my TCnet charts I have had for over a month!!
LOL. Yes you will learn how to use those charts.
Make sure you really study all of those longs and shorts (when I do go short) really well. You will get good really fast if you make sure you know what you are seeing. Now that I can see the new comments, if you have any questions, just let me know.