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Monday, January 09, 2006
Market Recap
For the fifth day in a row, the bull forged ahead with powerful upward movement again today. The Dow closed above the 11,000 mark with a gain of 52 points. The NASDAQ tacked on a gain of 13 points to close at a five year high while the S&P gained 4 points (just 10 points shy of 1300). Last week, the Dow gained 241 points to ring in the New Year with a bang. With this gain today, it is up nearly 300 points in the first five trading days of the New Year. The Nasdaq rallied 100 points last week for one of its best weeks in a long time. The S&P gained almost 40 points; I do not know what is more convincing than this rally.
It was a great day for our bulletin stocks with many forging ahead to new highs and making stellar gains again. BCRX, CMED, ISRG, MEDX, MIND, OVTI, SNDK and NVAX were among the big gainers and SUF was up an amazing 25% today alone.
Fire on High
This market is acting like a fire on high as the start of 2006 is very impressive. Each day has had solid gains supported by robust market internals and good volume. As we suggested in December, the catalyst for these gains have been undoubtedly the inflows of new money into the market as new IRA and 401K money along with year end bonuses are being put to work. This money has flooded the market and stocks have been forced to move higher with this demand outweighing the supply. Also, it did not hurt the market sentiment at all when the Fed minutes were released last Tuesday. This report was interpreted to mean the Feds are close to being done with their relentless three year rate hike assault.
With such a lousy December, many participants probably shorted the market thinking that if December is not strong, then January would not be strong either. All the talk last week on BSNBC about an inverted yield curve may have scared people from going long and may have prompted new short positions. Those short positions taken in December were probably covered last week in a panic fueling the market rally as well. Hopefully the gains we had last week are not artificial to some degree because of the unwinding of short positions.
Signs of Bull Mode
In our trading so far we have closed out 4 positions for nearly 10% each. In the first day of trading last week, we established many positions and by last Wednesday we were 100% long the market and well positioned to take advantage of the markets strength. With the market and so many indexes and groups breaking into new 4 year highs we can not be sidelined. We need to be fully positioned for upside momentum and flow with the trend.
Of course, we never know when profit taking will take place, so keep your stops tight. There will eventually be a resting period where the market pulls back to support. When this happens, if you have stopped out at higher levels, new positions should be taken on this pullback. Last week's gains blasted the Dow, S&P, Nasdaq, and Russell 2000 above resistance and into new highs, and from a technical standpoint that is very a bullish.
In bull markets, we have to buy the dips and with last week's breakouts, this market right now has all the signs of staying in bull mode. With that said, we are due for a small pullback soon, because the market is over bought. When the pullback comes it will be time to load the boat.
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