Stocks Race To Six-Year And All-Time Highs But On Lower Volume; Smallcaps, Technology, And Leading Stocks Outperform
May 3, 2007
More solid earnings reports, a strong factory orders report, and lower oil sent stocks gapping higher in the morning. Earnings from CMG, BWLD, BGC, DWSN, SPSS, MA, and DLLR blew the pants off estimates and helped their stocks and the indexes tack on large gains in the morning. During the time those earnings were coming out, factory orders rose 3.1% in March, above estimates of 2.1% and at the fastest pace in over a year. And oil fell $1.13 to $63.68, helping stocks forge ahead with the gains.
This was all the market needed to gap higher and rally the rest of the day, as shorts were squeezed hard. The put/call fell from 1.05 to .7, by the end of the day, as shorts ran for the hills. There was some slight profit taking in the final hour but when it was the day was over stocks still put in a very impressive short-killing day.
At the close, the SP 600 led the way with a 1.6% gain, the SP 400 rallied 1.1%, the Nasaq gained 1%, the NYSE rallied .8%, and the DJIA and SP 500 put in a respectable .6% gain. The SP 600 and DJIA hit another all-time high and the Nasdaq and SP 500 hit six-year highs. Bullish for the market, the top indexes today, were the IBD 100 and IBD 85-85. The IBD 100 rallied 1.9% and the IBD 85-85 gained 1.6%. It is good to see small-caps and leading stocks lead. Let’s hope this trend last longer than a couple of days or less.
Volume came in lower across the board, as NYSE volume ticked 3% lower and the Nasdaq volume dropped 11%. The lower volume put a damper on today’s gains as it was obvious institutions were not falling all over each other to buy stocks. With today’s big gains, it would have been nice to see volume expand. However, that was not the case.
But breadth did improve significantly, as advancers beat decliners on both exchanges. On the NYSE, there were three advancing stocks to every one that declined. On the Nasdaq advancers beat decliners by a 7-to-3 margin. This helped turn the trend of breadth back up and brought the advance/decline line of the stock market near new highs. It is good to see breadth expand as it is not healthy to have a market rally on negative breadth. That is how crashes come about.
The amount of stocks hitting new highs did improve as there were 413 new 52-week highs and only 64 new 52-week lows. Though not great, it is a positive reversal from the recent action.
The market showed everyone again why it is silly to bet against the general trend of the market. Shorts got killed and those thinking of going short this market should think twice with this kind of momentum in the market. This momentum is like a train and, as everyone knows, it is hard to stop a train once it gets going.
This momentum makes it very hard to find stocks breaking out of bases that are at least five weeks long. This is the minimum amount of time a stock needs to base to be considered a proper breakout. History shows the greatest stocks biggest runs come after they form bases lasting at least this long. This market is making it tough to find too many great looking patterns with this minimum requirement.
Instead the momentum in the big-caps keeps piling up. Most of these charts are well extended beyond proper buy points and chasing performance has never been a long-term wise investment strategy. So if you are not doing as well as the DJIA right now, don’t worry. It has been a very rough market for leading stocks since the July/August bottom in 2006. You must remember that since May 2, 2003 the IBD 100 index is up 164.5% compared to the SP 500’s 59.6% gain. It is clear where the big money is made in the long-term: top growth stocks with CANSLIM traits. For now the action in the current DJIA reminds me of the action in the Nifty 50 back in the 1970s. If you don’t remember how that ended, you need to take a refresher course on the history of the stock market.
Right now it is clear trying to pick a top is as useful as trying to cut off your nose to spite your face. Don’t attempt to short the market to prove to the world how smart you are. Just ride the trend until we get some real distribution and a real downtrend with lower lows and lower highs. Then we can think about shorting. For now, that word should be considered hate speech; hate speech against the current bull market.
This current bull market is being led by all sorts of positives that outweigh the negatives. The fact that the $5 billion bid by NWS for DJ happened shows you that this market is full of buyers. And the LBO seen is still active as can be with CVC being taken in a private equity deal by the Dolan Family. This is yet another incredible deal in a year of insane liquidity.
So far this year we have seen $650 million in M&A deals. Last year at this time we had only $445 million. Globally there has been $1.67 trillion in deals so far, this year. That compares to a total of $1.06 trillion last year. At the current pace, global deals will be a stunning $5 trillion! Amazing, indeed.
Hopefully Thursday’s market will be as exciting as Wednesday’s market. Aloha and I will see you in the chat room!
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