Stocks End Mixed On Higher Volume; Nasdaq Suffers 3rd Distribution Day Since March 21st Follow-Through

April 18, 2007

Stocks started the day off on a bit of a sour note, thanks to YHOO’s earnings release last night. YHOO dropped 12% today and had a very negative effect on the indexes in the early going. But proving that you can not stop these dip buyers, stocks rallied off the morning lows and stair-stepped higher all day long until the final hour where stocks pulled back some. When it was all said and done, stocks closed mixed, with the DJIA and SP 500 rallying for the fifth day in a row.

The DJIA led the way with a .2% gain, hitting all-time highs, thanks in part to good earnings and a share buyback announcement from JPM and good earnings from UTX. The all-time highs was good to see, considering the weakness in IBM shares caused by poor earnings and a downgrade from Goldman Sachs.

The SP 500 followed with a .1% gain and the NYSE gained .03%. The SP 600 and Nasdaq diverged in the other direction, losing .5% and .3% respectively. And the bad news continued for leading stocks. The IBD 100 kept pace with the top index to the downside, losing .5%. This makes it the seventh day in-a-row that this index has led to the downside, kept pace with the worst index to the downside, or lagged to the upside.

In truly bullish markets, the IBD 100 always leads the broad market to the upside while lagging the broad market to the downside. So if the market is up 1%, the IBD 100 should be up 1.5%. If the market is down 1%, the IBD 100 should be down .5%. When this index is not outperforming, you know you are not in a good market environment, even if we are going up and making new highs.

Top sectors on the day belonged to the IBD Building-Residential/Commercial group rallying 2.2% and the IBD Transportation-Shipping group rallying 1.8%. Semiconductors came to life with the Philly SOX index up 2.5%.

Volume was higher on both the Nasdaq and the NYSE. Volume was higher by about 2% on the NYSE and was over the 50 day volume average but there is nothing to take away from that data. The higher volume on the Nasdaq, however, combined with the .3% loss, gives the index its third distribution day since the March 21st follow-through. I have to admit, though, that this distribution day is a hard one to call a clear distribution day, with the close being higher than the open and with prices reversing so well off the early morning lows to close in the upper portion of the intraday range. Still, however, it is what it is: a distribution day.

Internals show a market that is weakening, with decliners beating advancers on both exchanges. Decliners beat advancers by a 9-to-7 margin on the NYSE and by a 3-to-2 margin on the Nasdaq. This is yet another day where prices rise on the NYSE but breadth is negative. The other problem today is that there were ONLY 383 new 52-week highs compared to 42 new 52-week lows. Even with the markets making six-and-a-half year and all-time highs, new highs contracted and new lows expanded. This is more negative divergence and makes this overbought market feel like a pullback is needed. Since last November, new highs have constantly been diverging in a negative fashion. This is bearish for the market.

The action in the Nasdaq is reminiscent of a market that is typical to sucker in every last player. The action since February 27 has been the same thing: low volume rallies then distributed into by funds creating a distribution day. Then the whole process starts over again, with stocks rallying on lower volume. Then they hit them again with selling. That is why, since February you see nothing but low volume gains followed by some higher volume sell-offs.

The Nasdaq and leading growth stocks are still lagging the big-cap and speculative stocks that always lead near a markets end. That doesn’t mean the market is no where near ending but this is more-than-likely the last leg of the uptrend that started in March 2003.

The other symptoms I am starting to see that are making me nervous about this rally is that speculation and euphoric like trading continues in solar, biotech, and Chinese stocks. Did you see AVNR today (up 320% at one point)? The daytrading crowd was all over this stock. I am also seeing that courtesy of CNBC the $1 mill. challenge is being led by daytraders. This along with an acquaintance of mine saying that stocks will go higher, AAPL is going to $125, and China is going up another 1000% makes me believe that pure madness has finally infected some people. I know the numbers out of ETFC and AMTD say that less people are trading but the ones that are trading are doing so in a very speculative manner.

This strength is very impressive but it is very disturbing at the same time as many stocks are becoming very extended again and some stocks are looking like they are going on climax runs. This is yet another run of stocks making what appears to be climax runs. We have to wait to see how they react after these runs to see if they are tops but most of the stocks that are making these moves like TNH can’t possibly have much further to go.

Earnings are coming in mixed, after the bell, with eBay up 6% but NVLS down 3%, ETFC down 4%, and SPSN down 19%. eBay is bigger and more important than the rest of these stocks but still the lower guidance is still the dominate theme with most stocks reporting right now. We have more action tomorrow, with earnings from GOOG, AMD, AXP, DHI, and MRK. That should keep things interesting.

Aloha and I will see you in the chat room!!

Sidenote: THE US DOLLAR HIT 26 YR LOWS VS THE BRITISH POUND, 17 YR LOWS AGAINST THE AUSTRALIAN DOLLAR, AND THREE YEAR LOWS AGAINST THE EURO IN OVERNIGHT TRADING

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