The Markets ended up higher again today. The Dow was up +58 pts, the S&P +7, and the NASDAQ +21 and were up 3/4%, 1%, and 1% respectively. The volume was fairly light though. The NYSE traded 3.8 billion shares just before the market closed and the NASDAQ traded 1.5 billion shares. For a continued rally, we need increased buying ON expanding volume. Volume will be key next week so pay attention to volume.
From a technical perspective, many short term indicators have and are turning positive (these apply only to short term traders who watch the markets daily). The 14 Day Stochastic crossed above its 3 day moving average on both the NASDAQ and the NYSE.
Also, Selling Pressure is trending downward and the rate is increasing, while the Buying Power has remained somewhat strong as measured by Lowrys (see attached graph). The rate of change of the slope of the line (the 2nd derivative) is important. Notice Selling Pressure is going down at a steep angle while Buying Strength is turning upward also with a decent incline. These are both bullish signs. We need to pay close attention and watch for a reversal in the slopes of these lines. Selling Pressure and Buying Power are intermediate indicators measuring trends, and a change in directions of both Buying Strength and Selling Pressure will demonstrate the trend reversing and will give strong clues to the next bear market.
As I have stated before, earnings should be good, but after that, fundamentals of the global economy, deficits and debts of governments will begin to occupy peoples' minds. The US Congress is already talking about another stimulus plan (because the all the prior stimulus packages or bailouts worked so well). This will not bode well for longer term bonds but will be good for gold.
Have a good weekend and keep studying,
Dan Stewart CFA®
Friday, July 9, 2010
Wednesday, July 7, 2010
Finally, a Strong Rally on Good Volume - What To Do Next
Yesterday, it looked like it was going to be a good day with a strong market. Then the market sold off late morning and was down for most of the remainder of the day. With less than an hour left in trading, it staged a small rally and the major indices ended up marginally positive.
Seemed to be a good day on the surface. However, looking underneath at the market internals, tells a different story. The NYSE had a 61% Up Volume day, NASDAQ actually had a 52% Down Volume day. So even though the NASDAQ was up marginally, more than 1/2 of the NASDAQ stocks were down.
The broader markets were, in fact, down. Both the S&P Small Cap Index and the Russell 2000 Index were down almost 1 1/2%. As of last week, of all the S&P Industry sectors, 96% were below their 26 week moving average. The markets are extremely oversold as can also be demonstrated by both the 14 Day and 14 Week Stochastic momentum indicator. These are just a few of the many indicators with oversold readings.
Does this mean we will get a bounce, or is it an inflection point and we are entering into a bear market?
Well, today, we finally got a strong rally a good volume. In fact the market trended upwards without much pause throughout the day, and with less than a half hour left, we are approaching 5 billion shares on the NYSE. We blew through the support level we broke through last week at 1040 on the S&P and around 9770 (9800 rounded). I have attached a one day chart (today) of the Dow just going into the close so you can see the strong trend.
Currently, just before the close, the Dow is up almost 275 points, the S&P up 32, and the NASDAQ up 65. This translates into about a 3% gain give or take for all the major indices. The reading and analysis provided early tomorrow morning by Lowrys Research will almost certainly show a 90% Up Volume day on both the Dow and the NASDAQ.
What does this mean. It means you need to watch closely over the next few days and see if we get some follow through. We got our strong demand today that we needed. We still need to see some increase in demand/buying coupled with some good economic date or earnings (I would count on the economic date, but I would count on the earnings).
We will also get a "short squeeze" where all of the shorts are scrambling to cover their positions. This happened some at the end of the day today. I believe that is why you didn't see the market trail off and pull back some late in the day.
The next few days might give you an opportunity to lighten up once the momentum loses steam. Again, I believe we will have a decent earnings season, but after that, most of data point in the negative direction.
You should be thinking about cash, short term bonds, or shorting. Get you plan of action ready in advance.
Keep studying,
Dan Stewart CFA®
Seemed to be a good day on the surface. However, looking underneath at the market internals, tells a different story. The NYSE had a 61% Up Volume day, NASDAQ actually had a 52% Down Volume day. So even though the NASDAQ was up marginally, more than 1/2 of the NASDAQ stocks were down.
The broader markets were, in fact, down. Both the S&P Small Cap Index and the Russell 2000 Index were down almost 1 1/2%. As of last week, of all the S&P Industry sectors, 96% were below their 26 week moving average. The markets are extremely oversold as can also be demonstrated by both the 14 Day and 14 Week Stochastic momentum indicator. These are just a few of the many indicators with oversold readings.
Does this mean we will get a bounce, or is it an inflection point and we are entering into a bear market?
Well, today, we finally got a strong rally a good volume. In fact the market trended upwards without much pause throughout the day, and with less than a half hour left, we are approaching 5 billion shares on the NYSE. We blew through the support level we broke through last week at 1040 on the S&P and around 9770 (9800 rounded). I have attached a one day chart (today) of the Dow just going into the close so you can see the strong trend.
Currently, just before the close, the Dow is up almost 275 points, the S&P up 32, and the NASDAQ up 65. This translates into about a 3% gain give or take for all the major indices. The reading and analysis provided early tomorrow morning by Lowrys Research will almost certainly show a 90% Up Volume day on both the Dow and the NASDAQ.
What does this mean. It means you need to watch closely over the next few days and see if we get some follow through. We got our strong demand today that we needed. We still need to see some increase in demand/buying coupled with some good economic date or earnings (I would count on the economic date, but I would count on the earnings).
We will also get a "short squeeze" where all of the shorts are scrambling to cover their positions. This happened some at the end of the day today. I believe that is why you didn't see the market trail off and pull back some late in the day.
The next few days might give you an opportunity to lighten up once the momentum loses steam. Again, I believe we will have a decent earnings season, but after that, most of data point in the negative direction.
You should be thinking about cash, short term bonds, or shorting. Get you plan of action ready in advance.
Keep studying,
Dan Stewart CFA®
Tuesday, July 6, 2010
Market Finished Up, But Narrowly
The markets opened up strong with all three indices up strongly on good volume. Then late morning, two economic reports came out to dampen the early rally. The Institute of Supply Management (ISM) reported the service sector growth was slowing and Citi's revised negative outlook on the retail sector sent stocks lower, especially retail stocks.
The markets sold off hovering around the breakeven and then remained negative for most the afternoon. A late day rally salvaged the day with the Dow ending up +57, the S&P up +5 1/2, and the NASDAQ up +2 on overall, decent daily volume.
With more economic data coming out, it looks more and more as if the double dip recession is coming. In the short term, we still have earnings season. And remember, with taxes going up next year, companies will accelerate earnings into this year. Therefore, we will probably have one more good Quarterly earnings season before the slowing economy will affect the bottom line of most companies.
Keep a close eye on your stocks over the next few days. Likewise, it is a good time to lighten up if you are overweighed in stocks.
Also, for those of you who missed out on gold earlier or are looking to increase you exposure, you may find another entry point very soon. I have attached a graph of spot gold so you can see how it is hitting a bottom trend line.
These are my thoughts for today. Keep studying,
Dan Stewart CFA®
The markets sold off hovering around the breakeven and then remained negative for most the afternoon. A late day rally salvaged the day with the Dow ending up +57, the S&P up +5 1/2, and the NASDAQ up +2 on overall, decent daily volume.
With more economic data coming out, it looks more and more as if the double dip recession is coming. In the short term, we still have earnings season. And remember, with taxes going up next year, companies will accelerate earnings into this year. Therefore, we will probably have one more good Quarterly earnings season before the slowing economy will affect the bottom line of most companies.
Keep a close eye on your stocks over the next few days. Likewise, it is a good time to lighten up if you are overweighed in stocks.
Also, for those of you who missed out on gold earlier or are looking to increase you exposure, you may find another entry point very soon. I have attached a graph of spot gold so you can see how it is hitting a bottom trend line.
These are my thoughts for today. Keep studying,
Dan Stewart CFA®
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