At the close, the NYSE led to the downside with a .6% loss, the Nasdaq followed with a .5% loss, reversing a 2.3% loss earlier in the day, and the DJIA, SP 500, and the SP 600 all finished .3% lower. The IBD 100 did not fare well, falling .4% and finishing lower for the sixth day in the last seven sessions.

Volume was lower on the NYSE but was higher on the Nasdaq. The higher volume, technically, gives the Nassy another distribution day but it was a weak one. Remember, distribution days really don’t matter any more as the market is in a confirmed correction. I am watching distribution days now to tell me if this correction is going to turn into a bear market. If it turns into a full bear market, then I will be able to start operating on the short side. Until then, it is strictly gambling and emotional trading; I don’t play either one of those games.

The stand-out stat of the day, for me, today, is the advance/decline line. The NYSE and Nasdaq both saw some nasty breadth to start the day. Both were near 4-to-1 negative. However, by the end, decliners beat advancers on the NYSE by a 10-to-7 margin and by a 2-to-1 margin on the Nasdaq. Considering how much the market finished off the lows, you would think breadth would have caught up. Instead, breadth remained much weaker than what the final figures on the indexes show.

There were some more signs of weakness/caution that popped up today on my radar (these are really starting to outnumber the positive signs). The first thing catching my attention today is the new list of Your Weekly Review in IBD. There were a total of 120 stocks on the list this week, compared to 144 last week. That means the Tuesday damage and further losses today resulted in 24 stocks coming off the list. If this were a simple selloff and a rotation was happening, I truly doubt 24 stocks would have fallen off. More than likely 24 would have fallen off and 10 to 20 stocks would have been added. Instead stocks fell off the list and few were added.

The second thing is the fact that the top two industry groups in IBD had big losses. With the market down less than 1% and the top two sectors getting rocked for 2% losses it is clear the big boys are starting to dump the old leaders. Steel-Specialty Alloy and Chemical-Fertilizers have normally held up well on down days. Once again, just like on Tuesday, they suffered some of the biggest losses. To go along with this, the top stocks today were the laggard machinery and home builders, and the ever famous for rallying in bear markets group–the HMO stocks.

The third negative is the Accumulation/Distribution ratings on the market indexes. The IBD 100 index now has a D+, the SP 500 has a C, and the Nasdaq and IBD New America index have a C+. These ratings have dropped like a stone, since the Tuesday selloff and until they climb back to the A and/or B level it is smart to avoid going long the market right now. When the market bottomed in March 2003 following the horrible bear market, the NYSE, Nasdaq, and IBD 100 all had B+ or higher ratings. Even if the market was in an uptrend and the ratings were a C, if it came from a D or F rating that would be good. Going from an A and B to a C and D, in three days, is very bearish for the intermediate term.

Let’s go over some of the positives. The impressive rally off the huge losses in the morning has to be taken as very good news for the bulls. The fact that we did not follow-through on that panic selling and closed near the HOD on the indexes has to give some comfort to those trapped bulls that believe a rally is going to shape up soon. The argument for that could be the put/call ratio. This ratio continues to hover over the 1 level and now stands at 1.24 for the equity put/call ratio. This is supposed to show that there is a good amount of fear in the market. However, I am not sure if this indicator should be trusted after such a huge uptrend. If this selloff was coming after a 15-20% loss, then I would definitely interpret this as bullish. However, I simply can not see how this indicator can be bullish considering the damage I have on my individual stock charts. But the indicator is high and a five to ten day rally shouldn’t surprise anyone.

Right now the market is trying to find a solid area of support, in the short term. Regaining some calm over this wild and crazy action is probably what the market is trying to do here. The SP 500 is down 4% and the Nasdaq is down 5% since hitting highs not too long ago and all the gains since December 4, 2006 have been erased in a matter of three market sessions. This is definitely having a major psychological effect on investors and traders. The market will probably continue to be choppy here as traders figure out if all those gains that have been wiped out are going to be coming back any time soon. This nervousness will probably cause some wild swings in the market the next few days to weeks.

Remember, things have changed out there. Cutting your losses faster on stocks not moving up immediately is way more important than letting a simple pullback works its way out for more gains. Normally in bull markets, if I go long a stock and it does not go up immediately, I will hold on to let it gather some momo as long as it does not violate support of the base it is breaking out of. In market environments like this it is best to cut 25-50% of a new long immediately if it is not up the next day. 3 out of 4 stocks follow the market and if the market is not going up, chances are your stock is not going to go up either. So remember in this market, your stock either goes up immediately after you buy it or you dump 25-50% if it does not. And if it drops on higher volume than the breakout day yet does not violate support, consider selling 50-75%.

Be careful out there. This market right now has all the classic signs of an oversold bounce. Besides an oversold bounce, I don’t believe we are going to get much here. I don’t trust rallies here and I believe that it is best to protect profits and if I traded like a daytrader I would want to now short the rallies and cover on the dips. Before Tuesday, it was buy the dips and sell the rallies. I believe that game is over, for now.

Aloha and I will see you in the chat room.

At the close, the Nasdaq had another positive intraday reversal and closed higher by .3%. It was yet another six-year high for the tech heavy index and the fifth session in a row the indexes dipped lower, found support, and rallied to close near the highs. The SP 600 finished higher by .05%. This was the seventh straight positive close, for the SP 600, and was also the sixth day in a row the index has dipped into the red to only reverse and close higher. That kind of action on both of these indexes is very bullish.

The SP 500 was lower by .1% and the DJIA was the leader to the downside with a .4% loss. 22 out of 30 issues were in the red on the DJIA and GM and MRK were definitely the two issues creating the most problems for this index.

Leading stocks held well, with the IBD 100 falling .1%. The best index on the day was the Philly SOX index. That index put in a 2.8% gain, which definitely helped the Nasdaq today.

Volume was slightly lower on the Nasdaq and was slightly higher on the NYSE. This was the second down day in a row on higher volume, for the NYSE. However, with the positive intraday reversals and small losses, this clearly is not distribution on this index. The fact that volume is also below the 50 day volume average also shows that there is not really any selling going on by the big boys right here.

Breadth was even on the Nasdaq. But on the NYSE, breadth was negative, with decliners beating advancers by a 5-to-3 margin.

The one bright spot of the day was the Semiconductor index. That index and those stocks alone helped save the Nasdaq. Good news and an upgrade on ADI, and upgrade on NSM, and good action from LLTC ATHR TXN and MXIM was music to the bulls ears in that sector. However, this index remains well off its old highs in 2006 so I would not expect a whole lot out of this sector just yet. There is simply too much resistance in this sector for any consistent meaningful gains to be had any time soon.

Overall, though, this market is just insanely bullish. This insane strength, without any pullback, I am sure has surprised everyone! It has me. Everyone is still looking for a pullback, including me, and that probably means we still will not get one yet. This momentum is out of control and simply impressive. It is stunning, and even though I am starting to see many stocks go into climax runs, this market still has enough momentum to keep going higher and higher.

The bulls are high in the Investors Intelligence, AAII, market vane, and realmoney.com surveys. However, this highs bullishness does not correlate with the actual betting of market players. The put/call ratio, according to IBD, is at .93. According to my data at the CBOE it is around .66. The total put/call is at 1.03 for index and stock options. This is like the 20th day in a row that this put/call ratio has been around the 1 or higher level. How long can this last? And which put/call ratio is the right one on the equity? is the equity at .66 or .93. However, until the total put/call is under .5, I doubt this market will rollover any time soon. At least the put/call is not a 2, while the market hits all-time high. That would be 10x more insane than what we are dealing with now.

Don’t get me wrong, I love making money and am making it. However, I was making just as much money when I was long 100-200 stocks and scanning only 500-800 charts a night. Now I have to go over 280 holdings and scan 1000-1200 charts every night. This is getting taxing and stressful. I swear I would really love to see a pullback here. My exhaustion is your capital gains.

I am beyond exhausted tonight. I am not sure why I had so much extra side-work but I did and it is time for me to crash. Aloha and I will see you in the chat room.

At the close, the Nasdaq led the way with a .6% gain, the DJIA and the SP 500 followed with a .2% gain, and the SP 600 lagged with a .01% gain. The big winners were the IBD 85-85 and IBD 100 indexes which gained .7% and .9% respectively and the Nasdaq 100 which gained 1.1%. This was the sixth day in a row the Nasdaq and the Nasdaq 100 staged very strong intraday reversals. One look at the daily charts and all those tails shows that any selloff is being bought.

Volume on the Nasdaq rose, giving a strong confirmation that the big boys are buying the dips to the 50 dma. Volume was lower on the NYSE as tech and biotech stocks do not weigh as heavy on that index.

Breadth was basically even on both exchanges, with advancers beating decliners.

It was another day of leadership for the Nasdaq and tech stocks. The Nasdaq hit its highest close since the Jan 4th high and is the only index up on the year so far with a 1.8% gain.

Most of this can be thanked on AAPL. The gains in AAPL the past two days of 13% has definitely helped as the stock makes up 7% of the Nasdaq 100. So the strong move in AAPL has definitely helped the Nasdaq outperform the NYSE during this time.

So far pre-earnings season looks to be starting off well with stocks finding support at key moving averages and rallying off of them. That is bullish action in a tape that seems to have a lot of warning signals in it.

The market loves to climb a wall of worry and ORKiter today posted a fantastic post of extreme indicators. There are ZERO bullish extreme indicators and over 10 extreme bearish indicators. As a contrary indicator, this looks very bullish for stocks.

Even though I have stated many problems I see with the market, the facts remain that the tape is bullish, I am very long, and stocks are still moving up.

Until the trend actually turns down, my bearish feelings are nothing but that: feelings. They are not actionable. What is actionable is price action. That is the only important piece of information and the only piece of information you need to know to buy or sell your stock.

What the market does and not what you feel is what the truth is. Just because you think or feel the market should go lower doesn’t mean you will be proven right. Most of the time you will be proven well wrong.

The market keeps moving up and the wall-of-worry continues to build. This is the third year of a Presidential cycle and that is normally the most bullish period for stocks.

We will see if all the bearish reasons will continue to be wrong tomorrow. Aloha and I will see you here at Big Wave Trading.