Mondays IBD Big Picture....
<The Big Picture
Monday, May 21, 2001
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Good Week Ends With A Late Rally
Investor's Business Daily
The Dow industrials led a late burst of buying Friday, a good ending to an even better week.
The major averages meandered lower for most of the day. But as the session drew to a close, the buying picked up. The Dow perked up 0.5% by the close. The S&P 500 followed with a 0.3% gain, while the Nasdaq rose 0.2%.
Volume was lighter throughout the day. Nasdaq trading eased 17% to 1.79 billion shares. NYSE activity also dropped 17%.
Even without the positive finish, the session would have been fine. A mild decline in slower trading is a healthy way for the market to catch its breath for the next move up.
Indeed, before Wednesday’s bullish breakout, the market averages quietly consolidated for more than a week. The tight, constructive action is most apparent on the S&P 500.
The big-cap index drifted lower, putting the finishing touches to its cup-with-handle base. The S&P traded in a narrow, declining range as volume stayed well below average. The difference between each day’s high and low was tiny compared with the trading over the previous weeks and months. And the closing changes barely budged day to day.
That sort of action often sets the final stage before a leading stock kicks off a major advance. The same holds true for the market averages. The difference is in the timing. The best moment to buy a quality stock is just as it breaks out of a cup-with-handle base.
In the case of a broad index, the buy signal usually occurs within four to seven days off the bottom, as it did April 10 for the Dow, Nasdaq and S&P. Think of the market cup-with-handle as a bullish exclamation to the new uptrend.
Traders gave at least two stocks making their debuts a warm reception. Reuters’ electronic brokerage arm Instinet Group popped up nearly 22% to 17.65. Investors also rallied behind Global Power Equipment Group, sending the power plant equipment maker surging 57% to 31.45.
A resurgent IPO market is just another sign of the new bull. Recent new issues also have been acting well. Since the market bottomed in early April, the IBD New Issue Index has climbed 39%, more than doubling the S&P 500’s 17% gain.
Don’t waste your time on the last rally’s popular names. Many have fallen so low, they can’t stand up. Take Palm (PALM), which cut its fourth-quarter revenue estimate in half and doubled its expected loss. On Thursday it traded 89% short of its 52-week high. By Friday’s close it was 92%.
Dell Computer (DELL) dropped 1.09 to 24.79 after the company reported an 11% decline in first-quarter profit. A price war is one reason Dell’s second-quarter profit will probably fall short of Wall Street estimates.
Even before Dell’s report, the stock had been underperforming the broad market for nearly a month while the Nasdaq bounced higher. If you concentrate on faded winners, you’ll overlook the new rally’s leaders.
Keep an eye on bullish and bearish investment advisers. The bulls climbed to 50% last week. The 60% level has caused the market problems in the past. But don’t base buy or sell decisions on this secondary indicator. Let the market itself be your primary guide.> |
