IBD: "The Big Picture--Broad Market Improving; Dow Back Above 11,000"...
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>>>Monday, August 14, 2000
Broad Market Improving; Dow Back Above 11,000
Stocks finished the week with a broad if modest rally that lifted the Dow industrials above 11,000 for the first time since April.
The blue chip average is still 6.2% off its January peak. But it's providing the market some welcome leadership. The Dow's financial stocks are at or near new highs. Its cyclicals were among the better performers Friday.
Philip Morris also gave the Dow a rare boost. The big tobacco stock gapped up 2 5/16 to 31 after Goldman Sachs said most of its litigation risk has passed.
Most investors probably aren't making much headway right now. Indeed, these light-volume summer sessions don't inspire a lot of enthusiasm or confidence. But the market is putting in the necessary preparations for its inevitable next advance.
The Dow has been consolidating for seven months, and the Nasdaq and S&P 500 have about five months under their belts. The sideways action lets stocks form new price bases, which serve as launching pads for the leaders once the general market rallies convincingly.
The Dow and S&P have put together only marginal follow-through days, which barely rose 1% in higher volume.
Still, the broad market is improving. The NYSE advance-decline line has trended higher for the past 11 weeks. On Friday, advancers led by more than 2-to-1. Money has rotated out of inflated techs and big caps, searching for less rarefied merchandise. More than 60% of NYSE stocks are now trading above their 200-day moving averages, one basic requirement for a healthy stock.
While the major averages are anywhere from 5% to 26% off their peaks, other market gauges are hitting new highs. The NYSE financial index broke out a week ago. It added almost 1% last week, and closed at its first new high since July 1998. A strong financial sector is often a key ingredient of a rising market. Big brokerages such as Merrill Lynch and Lehman Bros. plowed higher last week.
The unweighted Value Line index is less than 1% below its high of three weeks ago. And the NYSE composite, which hasn't made any real headway for more than a year, scooted up to a record weekly close.
Some of the market's strength is on the defensive side. Utilities and real estate investment trusts continue to dominate the new-high list. But IBD's Defensive Index, which rallied strongly during the Nasdaq's spring sell-off, has been drifting lower for the past eight weeks. There isn't a headlong rush into defensive stocks.
Successful breakouts remain rare.
Walgreen was about the only stock making an attempt Friday. The drug store operator bolted ahead 2 1/8 to 34 1/4, clearing a long 17-month base on double its average volume.
As the market moves sideways, you should see more stocks building the right side of their bases.
But the waiting is wearing out some investors. Bullish newsletter writers saw their ranks decline last week, while bears increased. A little less optimism can only help the market.
Patience is a virtue right now. Let the market and leading stocks make up their minds.<<< |
