Thursday, May 03, 2007

SPX 1500

It's been a long travel day for me, but Thursday's action had a few twists and turns worth mentioning.

The mainstream press is all over SPX 1500 and Thursday's gaggle of new index highs. There's good reason of course, because the NASDAQ, NYSE, SPX, Dow, NDX, SML and WLSH all hit record highs, a solid technical development. In fact, tonight the SPX is parked just 3% below a new all-time high. Should the SPX take out this old high with gusto, it's very likely the stock market will catch an updraft and push even higher.

The biggest problem with Thursday's action was that the records happened on mixed volume. NASDAQ trade picked up 2%, but NYSE volume slipped 5%. Of course, this also means that sellers were non-existant, making one day like this little cause for alarm. However, unless institutional investors throw a shoulder into these new highs soon, another pullback is almost certainly in the cards.

That said, total volume was about the only problem with Thursday's action. Market internals were strong yet again, and New Highs outran New Lows 419-62. That's the second straight day the High/Low ratio came in at 7-to-1.

Also, the IBD100 was strong. The index outpaced the broader market again on Thursday after tripling the SPX's gains on Wednesday. New Highs picked up from 9 on Wednesday to 17 on Thursday, another good sign. According to Investors Business Daily, the IBD100 is up 10% in 2007, vs. 5.9% for the SPX.

Despite the so-so volume, it remains a handsome chart tonight. The technical indicators all look strong.

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New highs and good economic data aside, one of the most provocative data points to come out on Thursday was the AAII Bull Ratio. Despite last week's solid market gains and earnings reports, investor sentiment plunged!

The Bull Ratio tumbled to the warning track (dotted line), it's lowest level since last summer. The disconnect is that the SPX is 23% higher since then! Individual investors have no faith in this rally, a fact corroborated by the weak fund inflows institutions are seeing. Of course, this is very contrarian bullish -- almost to an extreme. It will be interesting to watch this divergence work itself out. Who blinks first?

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I'll be in and out tomorrow, but should have time for some weekend commentary. Until then, have a good one.



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