More Good Vibes

June 9, 2000
Kevin Marder

More quiet. More
constructive action.

Friday, up and down the vogue
corridor, names tiptoed higher on slowing turnover, with five up for every three
down.

In the glamours, up days are
coinciding with rising volume and down days are coinciding with
flattish-to-lower trade.

Higher highs are being printed along
with higher lows.

It is just this sort of
beneath-the-surface analysis of the emerging leaders that will give you the best
clues as to whether this is a new bull market.

It is also something done by probably
less than 1% of all investors/traders.

Of course, had you listened to the
popular media, you would have heard that “there was no follow-through this
past week,” or “the market did absolutely nothing this past
week.”

But when you see a
market move up like the Naz and Q’s did from May 24 through Monday, 28% and 32%
respectively on an intraday basis, and you don’t see any distribution to
speak of, and you see dozens of aggressive growth stocks being
accumulated as they sketch the right side of their cups, you have no choice but
to take this market seriously.

Friday, the daily range was tight,
with a third straight day of slackening activity.

This tightening action of Friday’s
Nasdaq price bar is what you want to see prior to a breakout of a trading range,
whether it be in an index or a stock.

Couple this with the fact that very
few breakouts to new high ground have failed over the past week.

In sum, everything the market should
be doing, it is doing.

And with each successive day, stocks
are acting increasingly as if they are in a new bull market.

This is not a popular view, as I
learned when I wrote a piece for CBS MarketWatch a week ago.

Then, I received email from some
people who apparently were bruised badly in the March-May selloff in tech.

These people don’t want to hear of
anything positive about the market. They’re still busy licking their wounds.

A Beverly Hills broker with a bulge
bracket firm told me similar things about his clients, though he did say they
finally began returning his phone calls during this past week for the first time
in over a month.

Although I never let anecdotal
evidence like this ever affect any trade I put on, I can’t help but find the
bearish vibes comforting.

These vibes aren’t found in popular
gauges of sentiment like the put/call and VIX.

Nor are they found among the ranks of
most TradingMarkets.com members, judging by conversations I had with some at a
trade show in Las Vegas a couple of weeks back.

Every single one of the members I’d
met said they’d learned plenty from the March-May downpour, learned plenty about
what to watch for in the next bull move, were grateful for the service that this
site provides, and harbored an upbeat attitude about the future.

Not one expressed sorrow over anything
that had happened to them in the market over the previous few months.

“You have to go through it to
learn from it,” said one.

In the bells, EMC
(
EMC |
Quote |
Chart |
News |
PowerRating) acts very
well as it simmers just beneath its all-time high.

Ditto for Nokia
(
NOK |
Quote |
Chart |
News |
PowerRating).

Also, H-P
(
HWP |
Quote |
Chart |
News |
PowerRating) has followed
through nicely on its recent breakout.

Regardless of whether you trade the
bells, it’s important for you to assess their health.

The reason for this is that the
institutions, and their gigantic buying power, are the rocket fuel for any bull
market.

And these names, given their high
liquidity and fairly high growth rates, are the institutions’ favorite food.

The bells, then, offer you an
excellent window into the sentiment of the game’s biggest players.

Among the names, ASM Litho
(
ASML |
Quote |
Chart |
News |
PowerRating)
went out a millimeter away from “turning the corner.”

Analog
(
ADI |
Quote |
Chart |
News |
PowerRating) held up well
following Thursday’s high-volume breakout.

Aware
(
AWRE |
Quote |
Chart |
News |
PowerRating) continues to act
well.

Ditto for recent newbie Bookham
(
BKHM |
Quote |
Chart |
News |
PowerRating).

Koninklijke Philips
(
PHG |
Quote |
Chart |
News |
PowerRating)
completed the week with a five-day handle.

This is the case with numerous growth
stocks.

A bullish indication: Practically none
of these handles shows a high level of volume, indicating minimal profit-taking.

Meanwhile, for those of you that are
having difficulty winnowing your list of buyables down to a select few, Mark
Boucher’s Friday column provides a nice checklist of points to consider.

Mark trades all timeframes, but the
following is particularly suited to the intermediate-term player, and the swing
trader secondarily.

The following is his brief checklist
of extra criteria to look at to help you become
selective and judge how valid and likely profitable a particular breakout is:

Is
the stock in a leading group — is it the first of its group to break out or
are there many other stocks in this group on our Top
RS/EPS New Highs List?

Is
the volume positive? A good breakout should show volume that is either 40%+
above-average volume (50-day) or very close to the highest volume of the
last several months. Volume on breakout should be higher than on the prior
day (unless that day was arguably a breakout of another important pivot
point as well)

Is
the price action on the breakout day positive? Is the breakout on a TBBLBG
(see my 10-Week
Trading Course)?

Have
there been at least three more accumulation days (advances on higher volume
than the previous day) than there have been distribution days (declines on
higher volume than the previous day) since the last low pivot point from
which this rally started?

If
it is a cup-with-handle pattern, is it a top-quality cup and handle? Does
the handle have at least three days in it? Is the handle in the top half of
the pattern? Is the handle itself less than a 30% decline? Did volume
clearly decline on the handle correction and then pick up sharply on the
rally and breakout following the handle?

Is
the base of strong quality? Is the base at least four weeks long (preferably
seven weeks+). Is the base tight (the tighter the better)?

Is
the stock a good investment as per the original “upfuel” criteria?

More Good Vibes

BUY THE FEAR, SELL THE GREED

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