Finally, a Follow Through Day - Just What the Doctor Ordered

Today, the markets started up, continued climbing, and never looked back. This is just what we needed and just what the doctor ordered.

Yesterday the markets looked like they were going to post their 1st 3-day gain in 2 months. The DOW was up almost 120 points and the S&P 15. However, sellers emerged and all the gains disappeared. Only the NASDAQ managed to stay marginally positive, less than 1 point.

Hitting these resistance levels coupled with "overhead supply" is a test for the markets. This is magnified by the fact that the DOW and the S&P are both attempting to cross above their 200 day moving average.

Normally, I would say that the end of the day's pullback is a negative sign and we are, in all probability, headed lower. However, there were some positives. The Up Volume on the NYSE was 53% and was 67% on the NASDAQ. Also, the breadth was positive with 732 more advancers than decliners on the NYSE and 413 more on the NASDAQ.

Also, supply or selling volume did not increase, it stayed the same, while demand or buying volume actually increase. Both of these are bullish signs. In addition, large small & mid caps held up better than the large caps and all 3 major indices, which are based on large caps. In fact, the small and mid cap indices had decent gains yesterday.


But again, all 3 indices needed to break above their resistance levels. These important levels are:

10,315 on the DOW 1105 for the S&P 500 2305 for the NASDAQ

Being patient and giving it one more day may have paid off. All 3 major indices broke through their resistance levels on expanding volume today. Just what the doctor ordered!

Today, toward the end of the day, I increased 401k assets into more US equities as you only get the end of the day NAV. With the more nimble accounts, I will be watching carefully tomorrow morning for a good entry point and more exposure to US stocks if things continue to be positive.

For those of you who love graph, I have attached the Russell Mid Cap Index so you can see that is was actually positive yesterday. Also, it has broken through resistance, just like the other indices, but also, it is breaking through a lower trend line which is a positive sign.

If we start on a positive note tomorrow, I believe we will be due for a nice rally. A lot of cash on the sidelines will begin to enter the market.

These are my thoughts. Keep studying,
Dan Stewart CFA®