Stocks End Mixed On Higher Volume; Leading Stocks Still Lagging

April 18, 2007

Stocks got off to a good start on the back of a lot of different economic numbers and some earnings announcements from some members of the DJIA.

The day started out with the CPI data. The CPI increased .6% in March in-line with expectations, thanks to a 5.9% increase in energy cost. That was the biggest increase since last April. The core CPI was up only .1%, also in-line with expectations. The bad news from these numbers is that the core CPI is now up 2.5% YOY. That is above the comfort zone of 1%-2% for the Fed.

Housing starts were up .8% in March, building permits were up .8%, industrial production was down .2%, and capacity utilization was down to 81.4%, rounding out of busy day of economic numbers.

All of this, however, had little effect on the overall market as stocks spent the day backing and filling the early morning gains. When the final bell rang, the DJIA led the way with a .4% gain, thanks to strong earnings from components KO and JNJ. The SP 500 followed with a .2% gain and the NYSE rallied .06%. Going the other way, the Nasdaq fell .03% and the SP 600 led the way down with a .3% loss. Leading stocks, via the IBD 100 and IBD 85-85 indexes, lagged again or failed to lead the market. That makes it the sixth day in a row that leading stocks have not done as well as the top performing index. The IBD 100 and IBD 85-85 gained .3%.

Volume was slightly higher on both exchanges, with volume coming in 8% higher on the Nasdaq and about 1% higher on the NYSE. The slightly heavier volume and the gains on the NYSE can be considered a positive as the index has finally made some gains on higher volume but the volume is still below the 50 day volume average so there isn’t a lot to get excited about. The Nasdaq is a bit more confusing as the higher volume and lack of price gains with the intraday action has the characteristics of a tired overbought index.

Maybe tipping off a possible short-term top, breadth was negative on both exchanges, despite the NYSE being higher. Despite the gains on the NYSE, decliners beat advancers by a 9-to-8 margin. On the Nasdaq, decliners best advancers by a 3-to-2 margin. Underneath it appears the market is weakening and leadership is narrowing. However, the advance/decline line of the Nasdaq is still hitting new highs so any pullback is still probably nothing to get worried about. That is unless volume starts increasing. Speaking of new highs, there were 635 new 52-week highs and only 48 new 52-week lows. And over 75% of all stocks are above the 200 dma. This is a very bullish market. The put/call ratio is at .88, signaling that bears are still shorting upticks and buying puts as the market goes higher. With this kind of momentum, it is silly to fight this powerful trend.

Even though the institutions are not interested in this market, the retail crowd is still very interested. The SP 500 has been up 10 out of the last 11 days and up 11 of the last 13. This along with the action in biotech, solar, Chinese, and low priced stocks show that the frothiness in this market is starting to get very thick. Speculation is running amok.

After the bell LLTC, INTC, and IBM reported numbers that have basically gone over with a big yawn. But YHOO came out a penny below estimates and guided revenue lower for the next quarter. This dropped the stock 7% in after-hours trading. This should add a little pressure to the market but the way it has been acting I wouldn’t place a bet on that coming to reality. Earnings so far have been a bit weak and do show that growth is slowing. In my book when GDP and earnings start to slow the stock market is not far behind. We shall see if that is how it works this time.

Aloha and I will see you in the chat room!

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