Does This Rally Have Legs?
The overall
market continues to act solid. Advances come on slightly heavier
trade and declines have seen volume recede.
There have been several secondary
indicators that have also looked good during the rally that began on July 24.
The fact that Bearish Advisors now exceed Bullish Advisors is a great contrarian
indicator. Another great sign was to see the Put/Call ratio move higher even
though the market rallied yesterday. During Bull Markets, the averages usually
close at their best levels of the day, similar to the rally that pushed us
higher into the close on Wednesday. All of these facts are good signs that this
rally might actually have legs.
Now comes the Bear opinion in me!
Volume has been suspect. Unfortunately, if you are Bearish and trading based on
facts, it is very hard to trade on something that is suspect; it leaves too much
room for error. Secondly, for all practical purposes, we have not seen any
strong companies break out of a solid base and successfully move higher. This is
the most important indicator of them all. It does not exactly support going
short or betting the market will drop from here, because stocks can still
complete and break out of their bases. On the other hand, it does force Bulls to
maintain their position on the sidelines with very little to move into this
minute.
Advanced
Neuromodulation
(
ANSI |
Quote |
Chart |
News |
PowerRating) has been working up the right side of its
base. This company’s earnings growth has been stellar over the past quarter,
but ROE is only 5%. A strict set of rules is invaluable when analyzing companies
such as this right now. As perfect as something may seem, it is important to
spot any flaws that may impede a nice, consistent move higher.
Amsurg
(
AMSG |
Quote |
Chart |
News |
PowerRating) is another stock working on a two-and-a-half month base on top of
its previous base that stretches back to October of 2001. The Outpatient group
it is in is in the top 20% of the market and this company’s EPS displays nice
growth rates.
Pixar
(
PIXR |
Quote |
Chart |
News |
PowerRating) has a good-looking base, but very questionable fundamentals.
If this rally is able to progress, we
will have more to choose from. Last weekend, one of my stock screens produced 99
names. The weekend before, it only gave me 68 names. This is just an example of
how choices increase as a rally unfolds.
Right now, it is important to watch
for leading stocks to buy as they break out of a solid base. It is equally
important to keep a close eye on the end-of-day price-and-volume action of the
overall market. These two points will either make us money if it is there to be
made, or keep us out of trouble if the market rolls over.
Have a Great Weekend,