Why Are Stocks In This Sector Breaking Out?
As I
normally do at the end of each month, today I will be giving a fairly
comprehensive market overview. I am writing this prior to the close, and so
will not having all of today’s data factored in.
Here’s what I’m looking at:
Positives
-
Foreign Markets –
While the global markets have been rotational and split, there is leadership
present. Markets like Japan, Turkey, Russia, Malaysia, Eastern Europe and
Austria have performed well and have hit or are close to hitting new highs.
Western Europe seems to be the weakest area globally. Although it’d be nice,
I don’t need to see the whole world hitting new highs. I am listing this as a
positive since I believe there is clear leadership present. -
My Healthy Watch List
— The recent correction in the markets has allowed a large number of stocks to
set up in new basing formations. Should the market continue to move higher
and this bounce develop into a new leg up, then there should be plenty of
candidates that could act as leading stocks. -
UUWNHI (Unofficial,
Unscientific, Working/Not Working Hanna Indicator) — In the last week or so I
have begun to see some real strength in select breakouts. QUIN, GMR and GMAI
are a few examples. And did anyone notice MSON today? Now that is what I
call a breakout! A number of stocks have managed to bounce nicely off longer
term moving averages as pullbacks have also been quite playable. On the short
side, breakdowns have remained somewhat scarce and have been rather hit and
miss. Opportunity has been present, though. Follow through has not been
steady and partial profits needed to be taken when available in most cases.
Overall I would say we’ve seen opportunity on both sides of the market
recently, although the long side seems to be picking up some steam.
Neutral
-
New Highs vs. New Lows
— Breadth has not been stellar either to the up or downside in recent weeks.
New highs have begun to pick back up in the last week, though. This could
easily become a positive should the new high list continue to improve. -
Sentiment — The
difference between bullish and bearish investment advisors is smaller than it
has been since last May. So while it is not extremely bearish, is has stopped
being extremely bullish, which should help. Put buying, while it has calmed
recently, did move over 1.0 about a week and a half ago. Extreme put buying
can sometimes act as a catalyst for a rally.
Negative
-
Accumulation/Distribution
— While this is the only negative I am listing it is a big one. Without
institutional buying, there is no way a rally will be able to succeed. While
some accumulation was evident in Monday’s rally, I don’t feel it should
qualify as a follow-through day. The Nasdaq still hasn’t had an up day on
above average volume that was also larger than the previous day since
mid-January. I will need to see some real buying on strong volume before
getting too excited. Incidently, as I write this it looks like volume is
running a little stronger than yesterday, but it is unclear whether the market
is going to finish in the green or red.
The wildcard in all this is
the economy. The most talked-about and biggest piece of the economic puzzle
right now is job creation. Friday’s jobs report could very well provide a big
catalyst for a sharp move in the market — either up or down.
I believe Wall Street is
betting the jobs report will be surprisingly good. This is not only due to the
recent rally but some action I’ve noticed in hiring firms as well. For
instance,
(
KFY |
Quote |
Chart |
News |
PowerRating), which focuses on senior-level personnel recruitment
recently broke out of a base and has moved
higher.
(
GVHR |
Quote |
Chart |
News |
PowerRating) which among other things assists companies in their hiring
process also broke out and has moved
higher. Meanwhile,
(
MRN |
Quote |
Chart |
News |
PowerRating), which focuses on
temporary medical staffing services has been approaching
new lows.
I am seeing some signs of life
return to the market, which just a short time ago seemed ready to collapse. If
we can get some real institutional buying, perhaps spurred on by a strong jobs
report, then I will feel more comfortable donning my bull horns. (A weak jobs
report may require some traders to wear a crash helmet.) Until accumulation
returns strongly, though, I will remain skeptical.
Best of luck with your trading,
Rob Hanna