THE MARKET:
Stocks pieced together better volume, breadth, price, and leadership to provide a follow through on the forth session since the rebound attempt started anew last Friday. The volume could have been stronger on NASDAQ and the price gains could have been stronger as well; that would have provided a clearer, stronger follow through. Nonetheless, the move was better than the last attempt where only SP600 flashed the right credentials. This time around SP500, SP600, SP400, NASDAQ and DJ30 all posted follow through. One of the most important features was not bad as well, i.e. leadership. It was not just a session where beaten down stocks recovered on short covering. There most certainly was short covering as GM rocked a lot of short sellers' worlds, but stocks in strong patterns were breaking higher as well. That is a very necessary part of any rebound.
Again we don't believe this is the bottom of the selling, at least not the end of the overall selling before a firm bottom is put in place, but we know that you don't know that until you play the hindsight game. When you see follow through and solid stocks making their moves you have to act. It does not hurt when you see a high volume slugfest after a hard sell off. As we noted at the time the market was showing some signs of a season change, and this follow through move builds on that fight between the buyers and sellers.
For now this was a good signal though not the strongest follow through we have ever seen. A follow through, however, only sets the stage for a rally; it does not guarantee a sustained move will take shape. It sets the table and it shows us the guests are starting to arrive (the leaders), but it is not a full blown party yet. This one has some strength, and will likely give us some decent upside before needing that next test lower.
MARKET SENTIMENT
VIX: 13.85; -0.68
VXN: 18.32; -1.82
VXO: 13.13; -1.49
Put/Call Ratio (CBOE): 0.99; +0.14. Jumped on an upside day. That is opposite of the typical action, but when the sellers have ruled and then there is a sharp change in direction, the ratio jumps as the shorts try to crowd out of the door all at once.
NASDAQ
Gapped higher and rallied to the late April peak as volume posted a solid, above average session.
Stats: +29.16 points (+1.51%) to close at 1962.23. The gain was solid and the minimum for a follow through though we would have preferred to see NASDAQ post a 2% gain given it can be quite volatile. That 2% gain would show it was serious. It still was serious.
Volume: 1.945B (+3.39%)
Up Volume: 1.5B (+352M)
Down Volume: 410M (-299M)
A/D and Hi/Lo: Advancers led 2.19 to 1. Decent breadth, just about the minimum for a follow through session.
Previous Session: Decliners led 1.08 to 1
New Highs: 51 (+10)
New Lows: 103 (-23)
The Chart: The Chart: investmenthouse.com^ixq.html
NASDAQ was not the leading gainer on the session but it was no slouch. It blasted through the 18 day EMA (1946), a resistance level that had turned NASDAQ back down in early and late April, and it did so on rising, above average volume. The move pushed it to the late April high (1962.41), but that will not likely stop the bounce. It the bottom of the recent range (1974), the 200 day SMA (1991), and the 50 day SMA (1996) as its immediate worries on the upside. When you are recovering from a tail kicking, you have to make it past the same old areas that where you got whipped. That is why you want to see some strength as you head back to those levels.
NASDAQ 100 posted a slightly larger gain (1.7%) as the beaten up large cap techs were covered by the shorts. That helped drive the action on higher volume. Blasted through the 18 day EMA and the late April high near 150. It too has to deal with the 50 day EMA (1467) and the 200 day SMA (1481) as the next clear resistance.
SOX led the market with its 2.4% gain, not unusual for this volatile index to lead the gains up and down. It came off the recent test of 380 at the bottom of its trading range, cleared the 18 day EMA (392.24) and is looking at the 200 day SMA (407) and the bottom of the late March/early April range at 410. Good start to the move.
SP500/NYSE
This was the move we were looking for as the SP500 rallied through 2 resistance levels on very solid trade. All of the NYSE indices sported solid, follow through caliber moves.
Stats: +14.48 points (+1.25%) to close at 1175.65
NYSE Volume: 1.798B (+7.58%). Very nice above average volume session as SP500 and friends posted a very respectable follow through session. Stronger volume as an index moves through key resistance points is a very good indication of the kind of strength needed to give the move legs.
Up Volume: 1.961B (+948M)
Down Volume: 317M (-813M). Strong 6:1 up volume over down volume. Stronger than much of the downside ratios.
A/D and Hi/Lo: Advancers led 3.23 to 1. Definitely follow through caliber as the small caps led the major indices higher.
Previous Session: Decliners led 1.04 to 1
New Highs: 76 (+26)
New Lows: 30 (-18)
The Chart: investmenthouse.com^spx.html
Strong move on volume as SP500 took out the head and shoulders neckline (1164), the 50 day EMA (1173), and 1175 as well. Technically this was a breakout move from the short three week double bottom base that formed off of the August 2003/August 2004 up trendline. The move gives SP500 some legs and sets up further upside to come as it rallies to set up a better downside test or just continues higher. We still believe the former is more likely, and we will keep close watch for signs of a rollover other than just a pause or rest stop. The move won't be straight up; the index will have to take a breather as all moves do. This was the type of move, however, that sets up further gains.
The small cap SP600 led the NYSE indices as it cleared its 18 day EMA (310). Good move off of its double bottom, but unlike SP500, it has yet to clear the 'hump' from late April (313). It also has the 50 day EMA (316) and the late March low at that same level to deal with, but another good start by SP600, and good to see it recover so quickly from the breakdown of the last follow through attempt.
DJ30
The blue chips were energized by GM, and the index rallied through the 200 day SMA (10,377) and is now at the 50 day EMA (10,406) and the bottom of the late March/early April range (10,400). Volume was so-so as it comes to its real resistance. May have to take a breather here as DJ30 has put together three solid moves in four sessions.
Stats: +127.69 points (+1.24%) to close at 10384.64
Volume: 275 million Wednesday versus 277 million shares Tuesday.
The chart: investmenthouse.com^dji.html |
