Stocks Keep Climbing And The Bond Market Stabilizes, Putting More Pressure On. The Shorts; Milk Cost Almost $9 Now On Maui!

June 15, 2007

Stocks gained ground for the second straight session as an in-line PPI report showed inflation under control–that is if you take out the energy prices that surged 4%. Oh yeah and if you don’t include milk on Maui now costing almost $9 a gallon. Inflation is out of control here, but apparently it is under control as the PPI rose .9% in May. We will see what the CPI brings tomorrow.

As for today’s action, stocks climbed across the board and rose pretty much all day long until the last half hour. The SP 600 led the way with a .74% gain, the Nasdaq followed with a .66% rally, the DJIA rallied .53%, and the SP 500 gained .48%. The best news came from leading stocks as the IBD 100 rallied 1.3%, well outpacing the broad market. This followed yesterday’s 1.8% gain. That is very bullish in the face of all the short selling.

Advancers led decliners by a 2-to-1 margin on the NYSE and by a 3-to-2 margin on the Nasdaq. New highs well outpaced new lows. So it was a broad and powerful rally. However, what was lacking? Volume. Volume fell 9% on the NYSE and volume fell 7% on the Nasdaq. This is not the pattern you normally like to see: higher volume selloffs (8 distribution days for the Nasdaq) and lower volume rallies. Yet that is what we have.

However, I really don’t think it matters if we have volume here. We don’t need that much buying by the big institutional funds to move this market when the NYSE short interest ratio still near all-time highs at 7.67%. There sure are a TON of people going short a market that is only 1% to 2% off all-time highs. This seems very dangerous and has the making of a possible massive short squeeze. I don’t here too many analyst talking about this scenario, but I don’t watch CNBC so I what do I know.

What I do know is that on the short-term the put/call ratio has come all the way down to .55. This is a very low ratio and shows that traders have become complacent on the short-term in the market. So instead of buying puts on a bet the market will go lower they are buying calls on the market to go higher. Since the market likes to hurt the crowd, that tells us stocks could see some pressure in the short-term. But….once again I tip my cap to that short interest on the NYSE. That is a lot of kindle for a possible fire.

There is nothing that I can add tonight that I have not seen repeatedly here the past two days. The bulls are in control, the trend is your friend, and being short here is the wrong play period. We have the CPI tomorrow, along with options expiration. So one thing is for certain (well nothing really is): volume will be higher and prices will not move that much. It doesn’t always play out this way but obviously it does more than it doesn’t or else I would not be “predicting” this.

Aloha and I will see you in the chat room….If it comes back online. I can not get into it. So I hope it isn’t on my end. By the time I finish this, someone should be awake shortly and can hopefully fix it. If you have this problem, make sure you contact Justin, Nictech, or MarketSpeculator.

Subscribe To Site: