Why the Current Selling May Be Bullish for 2007

Timothy J. Truebenbach is the President of True Capital Management and general partner of True Capital Partners LP, a hedge fund. He uses a disciplined model that trades on the intermediate-term time frame. For a free trial to Tim's Nightly Stock Analysis Report click here or call 888-484-8220 ext. 1.

Tuesday flashed a little more distribution in the market. NYSE-related indexes appeared to stave off any real selling and actually display support. The NASDAQ and smaller-cap names did close off their lows, but clearly posted distribution.

The distribution count is still less than required to avoid stocks and start pushing money to the sidelines. In fact, distribution in the indices is almost a good thing because stocks large and small were marching higher without looking back. Apple (AAPL | Quote | Chart | News | PowerRating), Google (GOOG | Quote | Chart | News | PowerRating), Cisco (CSCO | Quote | Chart | News | PowerRating), Merrill Lynch (MER | Quote | Chart | News | PowerRating), Morgan Stanley (MS | Quote | Chart | News | PowerRating), Copa Holdings (CPA | Quote | Chart | News | PowerRating), First Marblehead (FMD | Quote | Chart | News | PowerRating), New York Stock Exchange (NYX | Quote | Chart | News | PowerRating), U.S. Global Investors (GROW | Quote | Chart | News | PowerRating), Ezcorp (EZPW | Quote | Chart | News | PowerRating) and many other strong growth stocks began advancing in late-summer and have really not paused a whole lot or offered new buying opportunities. This selling, unless it becomes more serious, may actually be very bullish as we move into 2007.


Chart courtesy of StockCharts.com

Oh yeah, we had that little meeting today from the Fed. They left rates unchanged as they were expected to do, but the bigger news seems to come out of the stance they take moving forward. Interest rate futures’ trading has put a rate cut by March, 2007 at between a 50 and 70% chance depending on the day you check the numbers. By numbers, I am referring to the varying economic numbers we see come out on various days. There seems to be a large balancing act going on between slowing the economy down in a controlled manner (soft-landing) and having it come to a screeching halt (hard landing).


Chart courtesy of StockCharts.com

Through this column, my trading service and clients that I advise; the most important thing we can do is follow the stock market’s price and volume action coupled with the action of leading growth stocks. Historically, stocks have been a leading economic indicator and with the current market’s rally underway I would not discount that at all.

We will keep tabs on any real change in the market’s landscape as well as try and point out any quality stocks taking advantage of the current distribution to set-up and offer sound entry points.