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Don't Worry About the Rally, Again

Is the rally over? Lackluster trading has bulls worried, but the internals show no cause for concern.

I have noted all week that four stocks--AIG, Citi , Fannie Mae and Freddie Mac have accounted for 20 to 30 percent of the volume at the New York Stock Exchange (ex-Archipelago).

If you remove these stocks, volume has been VERY LIGHT. And prices? They have essentially moved sideways.

So we have LIGHT VOLUME combined with CHURNING. This means nothing. When you have HEAVY VOLUME with CHURNING, it can sometimes mean distribution, but that is not what we are seeing.

Elsewhere:

1) AIG up almost 10 percent pre-open on heavy volume. It is now up 50 percent on the week. However, traders have noted that the preferred shares are pricing in considerable risk. One preferred share , a debenture due in 2077 with a 6.45 percent coupon, closed yesterday at $13.63, or just 54 cents on the dollar (par is $25), with a yield of 11.8 percent. And remember, preferreds are higher on the food chain than common stocks.

2) Tiffany is up 6 percent after beating estimates and raising guidance. Led by a 16 percent decline in same-store sales, Q2 earnings topped estimates ($0.39 vs. $0.33 est.), but fell 30 percent from a year ago.

a) Good news: The luxury jeweler raises full year guidance to $1.65-$1.75 from $1.50-$1.60. Total sales are now expected to fall 10 percent, but that's better than the 12 percent drop the Street is expecting.

b) Bad news: The full year guidance still falls below estimates of $1.79. Also, sales and margins will still be down from a year ago and store expansion will be at a "more modest pace" this year.

3) J Crew up 8 percent after reporting a better-than-expected rise in Q2 profits. Earnings handily beat estimates ($0.29 vs. $0.15 est.) and were way ahead of the company's prior guidance of $0.08-$0.12). Same-store sales declined 5 percent, but total sales came in above the Street's forecast as phone and internet sales rose 6 percent.

The outlook for the third quarter is strong too, as the apparel retailer sees guidance above analyst expectations ($0.30-$0.33 vs. $0.30 est.).

Following the strong earnings report, Citigroup upgrades J Crew's stock to a "buy" from a "neutral.”

4) The Dow Industrials is up 8 straight days, rising almost 5 percent during that period. According to Birinyi Associates, it's just the 3rd time since 2000 the Dow has seen an 8-day winning streak

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