Thursday, April 26, 2007


Stephen Hawking and the stock market had something in common on Thursday: both floated in zero-gravity.

If you felt that your portfolio wasn't quite keeping up with the market on Thursday, you weren't alone. Even though all of the major indexes tagged new highs, breadth was negative on both exchanges. About 4 stocks fell for every 3 that rose on the NYSE Thursday. While Up Volume exceeded Down Volume on the NASDAQ, even that was negative on the NYSE. New Highs did outpace New Lows 513-93, but ahead of tomorrow's GDP report, a fair amount of profit-taking was going on today.

For now, Thursday's mixed internals offer little cause for concern. The IBD100 bucked the trend and had a strong day, adding 0.6% as 52 of 100 stocks moved higher. Most telling were the record highs -- a whopping 25 today. When the market's trending, anywhere from 8 to 12 daily record highs for the IBD100 is normal. Good earnings and guidance continues to be rewarded, a healthy sign.

Eventually profit-taking is going to hit the market, but fortunately the chart below has room to give. Fridays are known for profit sweeps, but last Friday shows that short-term calls are tough to get right.

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On a day that saw RYL, BZH and PHM all decide to no longer offer guidance for 2007, the Housing Index rallied. Go figure. According to Bloomberg, positive guidance from a single builder -- MTH -- caused the whole group to go up. Really? Are we sure it wasn't Stephen Hawking's zero-G experience? I have no edge in the housing game, but it's fascinating to watch. Given the dreadful housing news everywhere you look, days like this can drive the bears nuts.

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Something else that drove the bears nuts on Thursday were the precious metals. A common bear trade these days is to short the indexes, short housing and go long gold and silver. This has been a very tough trade this week, and today's action didn't make it any better.

NEM came out with poor numbers, and there's a lot of buzz about an IT rebound in the US dollar. Both are PM negative, and you can see the speculators unwinding their positions in the chart below. The XAU sliced through its 50-day on Thursday after recently failing to take out a triple top. Yuk.

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While profit-taking hit the blue chips, select tech sectors actually had a decent day. Software and Networking are now at multi-year highs. The SOX keeps making new 52-week highs, and Internets aren't far behind. While the Tech Ratio shows it's too early for a cyclical tech upswing, specific tech sectors are seeing noticeable accumulation. Below is the SOX, which has been higher 6 of the past 7 sessions.

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The AAII Bull Ratio came out today, and it shows that Dow 13,000 was greeted with skepticism by investors this week. Surprisingly, the Bull Ratio fell, a contrarian bullish reaction in the wake of record highs and decent earnings. The strength is making investors feel uncomfortable, and that's good for the market. The last thing this market needs is for everyone suddenly to become bullish.

The Hulbert Sentiment Index (HSNSI) is saying similar things. The HSNSI actually ticked higher to 42.2% from last week's 34.1%. This shows optimism, but is hardly the heat of wild abandon. On Feb 26 -- right before the correction -- the HSNSI clocked in much hotter at 62.4%. However, the Dow was 4% lower than it is now. In a nutshell, sentiment -- by all of the metrics -- remains contrarian bullish.

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It's been a good run for stocks, and I suspect profit-taking will arrive in various forms soon enough. As long as volume eases on down days, a healthy process is underway. A massive distribution day -- like on the preliminary GDP report tomorrow -- would be a skunk at a lawn party for this market.

MSFT is up 4%+ as I write, so apparently any tumble won't be the fault of Vista.

Until tomorrow, have a great evening.



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