Stocks Finish The Week With More Strong Gains; Nasdaq Follows Through On Thursday’s Breakout.

January 13, 2007

On the back of a bullish retail sales report showing December sales rose .9%, stocks scored more gains with the Nasdaq making it five for five this week with positive finishes. The DJIA hit another all-time high and the Nasdaq inched closer to a new six-year high.

At the close, the SP 600 led with a .75% gain, the Nasdaq followed with a strong .7% gain, the SP 500 gained .5%, and the DJIA finished up .3%. The IBD 100 came in with a .3% gain, unfortunately for leading stocks. However, for the week the IBD outpaced the market with a 3.4% gain.

Volume was lower on both the NYSE and the Nasdaq. But volume was above average on the Nasdaq and about even with the 50 day volume average on the NYSE, signalling that there was still plenty of appetite for stocks up here. The lower volume is also to be expected ahead of a three-day weekend.

Breadth was positive on both the NYSE and the Nasdaq. Advancers beat decliners by a 2-to-1 margin on the NYSE and by a 3-to-2 margin on the Nasdaq.

It was an extremely impressive week for the market and one of the best weeks for the Nasdaq in four months. For the week, the Nasdaq 100 led the way as it rallied 3.3%, the Nasdaq Composite rallied 2.8%, the SP 500 gained 1.5%, and the DJIA put in a respectable 1.3% gain. The IBD 100 outperformed all of the indexes, for the week, as was already mentioned, with a 3.4% showing. However, the top index that I see of interest on my screens is the IBD Big Cap 20 index. That index managed a 5.3% gain for the week. Once again, it was a very impressive week. There is NO REASON to be bearish AT ALL.

The other important piece of market moving news this week was falling oil. The 13% fall in oil since the beginning of 2007 had to have some impact on why the market has seen such a severe shift in leadership from oil and commodity related issues to transportation, technology, biotech, and finance related securities. Oil now sits around $53, well off its $75 highs last year.

Some say that this is bad that it is a sign of a slowing economy. I think the actual stock market disagrees with that assesment.

Earnings announcements start next week and that has market pundits talking about a possible sell the earnings scenario. I am not disagreeing in saying that that will not happen. But I disagree with the fortune telling of some market players. We simply don’t know that eanrings will be sold into and with the stock market indexes hitting all-time and six-year highs it seems foolish to me to try to play that guessing game.

When I have this many stocks making these kind of rapid gains, plus this many new longs showing up (even if they are speculative), and very few stocks that must be sold due to proper cutting losses and taking gains procedures, it tells me that this market is not to be shorted.

Very few stocks that have been in long and sustained uptrends are showing me climax sell signals. PTT flashed one and ICE and CCOI flashed mini-short-term topping signals making large price advances on strong volume after a sustained uptrend. PTT is a perfect example of what a climax signal looks like. So with only a few stocks out of almost 300 flashing climax profit taking signals I can only assume there are more price gains to come.

If more stocks would have broken down besides the P.O.S. stocks that I had to selloff before 2007’s rally got underway, more stocks were flashing climax top signals, and I was finding very few new longs, I would say this rally is a fakeout breakout. However, everything says that this rally is the real deal.

Are there problems with this rally? You bet. New highs are much much lower than what they were at the November highs and breadth was slowly been deteriorating the past three months as we move higher. This is a concern but remember I was around in 1999. The whole time from October 1998 to March 2000, breadth lagged, trended down, and even was negative on up days by the time the great bull came to an end.

The point: the market can rally for months and months with poor breadth and less new highs. Why? Because the big caps are carrying the bulk of the gains. Look at the IBD Big Cap 20 gaining 5.3% this week and you will see big caps are leading this rally. Just like they did at the end of 1999. These big caps are creating more of the point gains in the indexes with the smaller stocks selling off but causing less damage.

Until the market actually breaksdown, these are all just concerns. Nothing more and nothing less. The worst thing to do right here is to try to predict or find the non-existant top that could be months from playing out.

As long as we have this many stocks making these gains in this bullish environment, you should know there is only one play to be making. That is to go long the best stocks in the best industries with the best fundamental growth. In one word: CANSLIM.

Enjoy your long weekend and I will see you in the chatroom–where I will be all weekend. Aloha and have a great long weekend.

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