Today Was No Different Than The Rest, As Stocks Hit More All-Time And Six-Year Highs
May 4, 2007
Stocks started the day off with a slight gap higher, thanks to a good day in China with the Shanghai index gaining 2.2% and on the back of more good earnings and economic data.
Jobless claims fell 21,000 to 305,000, better than expectations for a 10,000 increase. The ISM non-manufacturing index rose to 56 in April from 52.4 in March which is an incredible 49th straight month above 50. Wages grew .6% in the first quarter and productivity for the first quarter grew 1.7%–this caused some traders to speculate a rate cut could be possible (don’t hold your breath). Stellar earnings from NVEC, GFIG, HURN, RDS.A, and CBS didn’t help stocks in the morning either.
However, all the good numbers had a very short high for the market as stocks quickly gave back the gains in the early hours of trading. But, even though it was choppy, stocks continued to rally in a very choppy fashion into the close where the indexes finished higher across the board.
At the close, the NYSE and the SP 500 led the way with .4% gains. The NYSE closed at an all-time high and the SP 500 closed at its highest point since September of 2000 (3% off an all-time high) and over the 1500 level. The Nasdaq followed with a .3% gain, the DJIA hit another all-time high with a .2% gain, and the SP 600 finished slightly higher, hitting another all-time high, with a .03% gain.
Leading stocks outperformed the broad market, with the IBD 100 gaining .7%. While it is very nice to see the IBD 100 leading the past few days, it is still nothing compared to the record the DJIA is putting in. It has now been an incredible run of gains for the DJIA, with 25 of the last 28 days being green closes and six of the last seven being all-time highs.
Volume was mixed, with volume coming in 5% higher on the Nasdaq and 2% lower on the NYSE. This was the second day of gains for the NYSE that came on lower volume. The pattern of low volume rallies followed by distribution followed by more low volume rallies continues. In real powerful bull markets where I fell safe to be 200% long in the top stocks, you will see the opposite. Powerful accumulation days followed by low volume pullbacks and then followed by more high volume accumulation days.
At least breadth was positive on this up day. Advancing stocks beat declining stocks on the NYSE by a 3-to-2 margin and on the Nasdaq by an 8-to-7 margin. There were 484 new 52-week highs and 53 new 52-week lows. The only thing to take from that number is that the markets keep hitting new all-time highs yet the amount of 52-week highs remains well under the numbers seen in November and January when the markets made new highs.
You would think that a pullback would happen soon. But, since I want one to start myself, as I feel uncomfortable with the non-stop gains, I will go on the record and say that we are not going to pullback. Every time I am convinced that a trend is ready to really get moving, it normally pronounces the end of that trend. However, this market is so insane with the non-stop gains with no pullbacks, I find it hard to believe that it is going to end any time soon.
Why do I think this? Well according to the ever volatile AAII poll, 55% of those surveyed said they were bearish. This along with a put/call still around the .8 area, shows that the crowd is still bearish even if they are going long stocks and making wild bullish bets. This is sort of where I am at also. Even though I am making very good money on the long side and am very happy with my portfolio of stocks, I feel extremely uncomfortable with the non-stop gains and would not be surprised if we get a huge fast vicious pullback.
But when I look at my recent (past three months) CANSLIM longs that I have purchased for my IRA and my trading accounts, I can clearly see that these breakouts are fresh and from very sound and pretty bases (AFSI EDS FALC SXC VDSI TESO KRSL). Most of these stocks have performed remarkably immediately after the breakout and continue to act just like leading stocks should in a bull market. This makes it hard for me to believe that the market is going to turn on a dime right here. Other CANSLIM longs that make up a good portion of my portfolio are basically in perfect condition too. So it is hard to think that the uptrend is near the end.
I also keep hearing people say that this market is going to end like the market in 1987. Really? Back then the market rallied in an insane fashion that brought the collective p/e ratio of the DJIA to an extremely high 27. Right now the p/e of the DJIA is a very low 18. This is not far from historical DJIA p/e lows of 16. It is hard to believe the market is going to crash when the market is so cheap on a price to earnings basis.
The one thing that is easy to believe is that emotions are all over this place, in this market. Nobody knows how to feel. And neither do I. I am just going to keep riding the trend higher until it is no longer an uptrend. When the selling happens, it will happen. It may be one swift kick in the face or a slow bleed. But the bottom line is: until the selling actually hits stocks, there is no reason to bet against them now.
There is one more thing that tells me that we are in a crazy phase of the market. The recent buzz over the Interactive Brokers (IB) IPO is getting thick. The offer price has doubled as the price and amount of shares offered has both been increased!! So I assume when this thing starts trading, it will probably be quite crazy. The craziness will be amplified considering it is a trading software IPO that is well known all over wall street as one of the best professional platforms out there for low cost commissions on trades.
So we have that and the very important jobs report to deal with Friday. Aloha and I will see you in the chat room!
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