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Jul 16, 2007 - Issue #067

Onward and Upward?

DJ-30: 13907.25 +295.57 +2.17%. In the Real World: 57.03 +1.21 +2.17%.

UP: 27, Down: 3.

Trends (weekly): This is the subjective part.

Rising 21 (+5) 70%:

+*AA, AXP, +*BA, CAT, +*DD, +*DIS, GE, GM, HD, +*HON, HPQ, IBM, INTC, JPM, MMM, +*MO, T, UTX, VZ, WMT, XOM.

Consolidating 7 (-4) 23%:

AIG, +*JNJ, -*KO, MCD, MRK, MSFT, PFE.

Declining 2 (-1) 7%:

C, PG.

+/- denotes change of direction.

* denotes change of category.

Onward and Upward?

From the above stats, it would seem obvious that the resumption of the, to use Larry Kudlow's (CNBC Kudlow & Company) expression, "Goldie Locks Economy" is alive and well. Maybe it is. But don't confuse the economy with the stock market. They're two different things.

While the market did, in fact, explode to the upside on Thursday, no small amount of the buying was "short covering". Those "shorts" are now out of the market. They've "covered". Unless they bought from new short sellers taking their place, the "open short interest" is greatly reduced, to say the least.

Or did they cover from "longs" cashing in? Even if the "shorts" reversed and went "long" where was the "follow through" the next day?

From the sheer power of Thursday's move, one would have expected more the next day, wouldn't one? Instead, what did we get? A fireworks "fizzle"? Where's the meat?

One attractive CNBC anchor was moved to say to a colleague, "I don't want to hear any negative arguments right now, just let us enjoy our little moment in the sun!" Wow! Such enthusiasm!

It reminds of one whistling past the cemetary at night trying to convince themselves, "I'm not afraid, I'm not afraid!"

What do we do Monday morning? Raise protective stops to just underneath the most recent significant lows on the weekly charts, at least.

If this is a continuation of the uptrend, fine. If not, let the market take you out.

Another time-tested strategy is to take some money off the table by lightening up your positions (see Learn to Trade/ When to Sell).

On the daily charts GM, on a gap up on 6/28, formed what eventually became an "island". This is usually ominous. The gap has filled. I would expect a down move to follow.