Stronger Internals

The market continues to impress me.  We remain overbought and that hasn’t changed but when you look at an average day like today (based on the indices), you have to look at the market beyond just the prices.  What I saw was the fact that upside volume consistently improved all day and was about 70% of the total volume.  This morning, the upside volume was only about 40%.  So, we saw conditions improve as the day went on.  This is coming off of a 90% upside volume day on Monday.  So, you’re seeing an overbought market get more overbought.  We’re also seeing more sectors participting.  Every day, I get reports about vacancies in malls rising, rising vacancy rates at apartment complexes, etc.  Yet, I’m watching the REITs today have a wonderful day.  Many are breaking out technically.  This is on top of the homebuilders which have been doing well for some time.  Money just continues to flow into the market and the internals continue to improve.

As the market broadens out, my portfolio does the same.  Technology, industrials, emerging markets, financials, materials, and now real estate all continue to look good.  I continue to believe it’s all about the improvement in the economy.  I think stock prices have fully priced in “less bad”.  What they haven’t priced in is “good”.  That can give us an additional 20-30% upside over the next few months just in the indices.  We obviously won’t go straight up but I think ultimately we continue to climb.  The test will come when we get a sell off more than a few percent.  Will the internals get weak and will volume pick up to the downside?  It could.  That’s why we can never put our holdings in a big basket of funds and go play golf.  This isn’t the 1980s & 1990s.  We’re in a cyclical bull market within a sideways choppy long-term market (ala 1960s & 1970s).  That’s fine as long as we’re willing to trade and have a good deal of our portfolio in instruments that pay us a lot of income.

Another reason I think you continue to see stocks going up is because there are still way too many people underinvested, whether it’s the professional manager or the average retail investor in their 401-k.  We know there’s a ton of money still on the sidelines and that’s the fuel to keep this rally going.  But, as I said, the test will be when we have a pullback.  Right now, it’s easy.  It’ll get hard at some point.  Trading in the late 1990s was easy.  It made you feel smart.  The real test came in 2000.  The test will come.  I’m not sure when but in the meantime, let’s keep making money.

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2 Responses to “Stronger Internals”

  1. 1 Bryan August 4, 2009 at 6:16 pm

    When I start hearing all the rah rah rah on Fast Money, I believe a pullback is not far away.

    • 2 keggerss August 4, 2009 at 8:00 pm

      There’s certainly a lot more bulls than there used to be but don’t underestimate the fact that still a ton of people are underinvested so even though it seems these guys are contrarian indicators, that may not be the case this time. But, I hear what you’re saying.

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