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Are the salmon about to run\?

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If you've ever watched the Discovery Channel, you've probably seen some type of documentary on the Alaskan salmon runs. Heck, I know of a couple subscriber's in Alaska that "live and die" to fish the salmon runs that take place in that part of the world and shut down their trading on a seasonal basis as they head for the streams!"

This morning, my e-mail was once again full of subscriber questions as they tackled the bullish % charts to try and understand just what this indicator was trying to tell them as it relates to the internals of the various markets.

I'm no "salmon expert," but I'd say that from time to time, stock traders can make some very similar analogies to the bullish % charts (imagine each stock is a salmon) and salmon runs that take place at various times of the year for the different species of salmon. Some salmon attempt to spawn in the spring, while other species (like the Kokanee salmon here in Colorado spawn in the fall).

While most salmon runs are limited to the spring and fall months here in the United States, similar "market runs" are found, but their dates are not as well defined. Even the various sectors we trade could be considered to be the different "species" of salmon where their runs may be different that other sectors.

For a moment, understand the salmon fisherperson, or the investor as it relates to investing. There are basically two types. The "hardcore" that will brave the turbulent waters and weather to try and catch the first salmon to show itself from the deep lake or ocean as it tries to navigate the freshwater streams on what ends up being the salmon's final destination to spawn, only to eventually be eaten by a bear at some point, but usually when it tires! Did somebody say "bear" as in "bear market?" The other type is the "sure bet" fisherperson that doesn't bother breaking out the fishing equipment until the salmon run is in full swing and his/her buddies call them regarding their unparalleled success during the previous day's outing. Take note, while there's no guarantee you'll catch any fish the following day you and your buddies go fishing, there are no "sure bets" when investing, but there are increased probabilities of catching a fish/winning stock. If you've ever gone fishing with me, you'll understand my frequent quote "You should have been here yesterday! They were biting like crazy!" (grin)

I like to think of the NYSE Bullish % ($BPNYA) and NASDAQ Composite Bullish % ($BPCOMPQ) as the biggest rivers that the salmon will attempt to swim against. These are the "broadest" of the bullish % indicators and cover the "bulk" of stocks that you and I might consider to be salmon.

Right now, these "big river" bullish % continue to show weakness, so we know that there isn't a major salmon run taking place. In essence, there are still a lot of salmon still hiding out somewhere in the ocean and they have yet to show themselves at the river mouth or upstream where the fishermen await.

As it is, think of two broad species of salmon here. NYSE salmon and NASDAQ salmon. Let's take a look at the NYSE Bullish % ($BPNDX) with a current reading of 40.67%, which is down from Thursday's reading of 42%.

NYSE Bullish % Chart ($BPNYA) - 2% box

The broader NYSE Bullish % Chart ($BPNYA) shows that there was a bullish salmon/stock run in place from October (red A) to mid- March (after red 3), but the run started to fade in June (red 6) when the bullish % reversed to 58%. I drew a "pink" horizontal line just under the 58% level to show a relative high that this very broad market indicator had reached some relative highs at in the past. However, note that each "run" higher has found some higher/highs in recent cycles. This hints that the "bull cycles" of the market runs finds more and more stocks giving "buy signals" once the "bull run" begins to take place.

Still, current conditions show that there are more and more stocks giving "sell signals" and that stocks with 1,2 and 3- letters in their stock symbols are tired and perhaps being eaten up by bears.

Lots of fish in a very big pond, some of them very big in fact!

If you think of the NYSE Bullish % ($BPNYA) as an indicator of how big the salmon population is, then you can begin breaking down the various species of fish by what sector they belong.

Last week I profiled a bearish trade in the Retail HOLDRS (AMEX:RTH) 78.75 -2.87% in the market monitor at OptionInvestor.com. One of the "biggest fish" in this school gave a glaring sell signal just recently and shows further weakness today.

Wal-Mart Chart - $1 box

One might argue that Wal-Mart (NYSE:WMT) $50.89 -3.74% is a "key stock" in the retailers. Thursday's trade at $53 triggered the "bearish triangle" and that coupled with the already bearish vertical count of $46 gives hint this stock and perhaps the entire retail sector has some downside left in it. Wal-Mart (WMT) is one of the 3-lettered stocks listed on the NYSE.

As you begin to think of the retail sector as a "school/species of salmon" then the retail sector bullish %, from Dorsey/Wright and Associates that is "bear confirmed" at 35.81% still isn't "oversold" at this point, but more and more fish in the group are dying off or showing weakness as sell signals continue to be generated. In April, this group reached a high reading of 78%, while September group reading was clear down at 20%.

Think it through

While the more volatile and narrower NASDAQ-100 Bullish % ($BPNDX) (think of this as a different school of salmon) showed some internal bullishness from Friday (now at 21% from Thursday's 15%), this hints that some salmon/stocks are trying to begin a swim upstream.

However, the broader NASDAQ Bullish % ($BPCOMPQ) somewhat similar to the NYSE Bullish % ($BPNYSE) still show that there's a might river current that the early spawners have to swim against.

Only when the rivers (broader bullish %) are filled with salmon/stocks that are swimming upstream does the fisherperson/stock trader begin to see a river that appears to be running up-hill!

Right now, only the "hard core" bulls have their lines in the water, but the fish they're casting for had better be "big" or at least showing some type of "buy signal" on their charts. If the stock is in an upward trend, then all the better!

Jeff Bailey
Senior Market Technician
Option Investor

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