Five Signs Of Healthy Action

  • April 17, 2003
  • Tim Truebenbach

One
day after hefty distribution and selling was evident in the major indices;
they managed to gain ground from a Nasdaq-led rally.


 


 

We are seeing a divergence of
sorts.  The NYSE-related indices
have been facing selling from institutions and have been unable to make any
progress above their 200-day moving averages. Yesterday’s
heavier volume selling was the fifth such instance in the past 14 trading
days…enough to hold off new purchases.

On the other hand, the Nasdaq
has been coming under the same selling pressure, but then we also have had
days such as today. The index rose 2.2%
and traded more shares than yesterday.  This
fits the technical definition of a follow-through day. 

There is an easy way to break
the dilemma, and that is by turning to the stocks that have providing
individual leadership. 

University
of
Phoenix


(
UOPX |
Quote |
Chart |
News |
PowerRating) took quite a hit yesterday, but managed to stay above
its breakout point.


Ebay

(
EBAY |
Quote |
Chart |
News |
PowerRating) continues to hold strong as it etches out a base after its recent
move higher.


 

J2
Global
(
JCOM |
Quote |
Chart |
News |
PowerRating) has not given much ground until today’s rally. 
This will be one to watch and see how it deals with profit-taking.


 

Overall, leadership has
stayed fairly healthy, but definitely should be watched for signs of trouble,
which include:

–        
heavy volume declines

–        
low volume rallies

–        
undercutting and closing below technical support levels

–        
other stocks in same industry suffer above conditions

If we start to see healthy
action in leading stocks and new names continue to set up and break out, then
that is an indication we are in a good market and will most likely move
higher.  Some of these signs are:

–        
Heavy volume as stock rallies

–        
Stock declines as volume gets lighter

–        
Stock finds support at technical levels

–        
Other stocks in group break out

–        
Other stocks in market break out accompanied by heavy volume.

One such example of a healthy
sign came in today’s breakout of Boston
Communications
(
BCGI |
Quote |
Chart |
News |
PowerRating). The
company posted good earnings and today the stock opened higher and never
really gave people a chance to buy it.  Volume
came in very heavy as compared to average.


 

We are definitely at a point
where it may not be good to write the market off entirely just because of
recent distribution. On the other hand,
buying without discipline can definitely hurt a portfolio because we are not
in the rampant Bull Market of the 90s yet. It
is important to insist on fundamentally and technically superior companies and
always manage risk through position size and by knowing exactly where a loss
may be cut at.

Have a Wonderful long, Easter Weekend!

Tim
Truebenbach


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