Here’s My Month-End Recap For You
As the month
comes to a close, here’s what I’m looking at…
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Positives
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New Highs vs. new lows — As the
market has rallied over the past few weeks, the breadth of high rs/eps new highs
has increased nicely and the number of low rs/eps stocks making new lows has
fallen off. While new sustained leadership has been slow to emerge, the number
of potential leaders is beginning to increase.
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My slow growing watch list —
Along the same lines, I have been finding more and more quality stocks beginning
to complete basing formations. If this rally really begins to assert itself,
there should be a decent number of potential candidates to trade.
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Neutral
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Sentiment — It’s been quite
some time since bull/bear sentiment had any tangible affect on the market.
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UUWNHI
(Unofficial, Unscientific, Working/Not working, Hanna Indicator) — Breakouts
continue to be hit and miss. In my August 16th column I highlighted
breakouts in Travelzoo (TZOO) and the Austria Index Fund (EWO). These two
stocks typify what I have been seeing in the market lately. One does well (TZOO),
while the other turns tail and drops below it’s recent basing formation (EWO).Â
TZOO has actually done better than any other breakout I’ve noticed. Most
breakouts that have “done well†lately have been much more subtle about it –
very few quick gains of 20% or more. On the short side, the slow and steady
drift higher has provided few opportunities. And those few opportunities have
been marginally profitable at best.
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The economy — One key report
says the economy is holding up well. The next is pessimistic. Back and forth
it goes, while the stock market seems to bounce around with each big economic
release. (As well as the price of oil.) Look for more bouncing around after
the employment report is released on Friday.
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Foreign markets — Potential
seems to exist in a few foreign markets such as Chile, Brazil and Belgium.Â
Still, it’s just that — a few markets. The vast majority of foreign markets are
still trading below thick levels of resistance.
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Negative
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Accumulation/distribution — The
song here remains the same as it has all year. When the market moves up, it
does so without any volume behind the move. So far this year that has led to
several failed rallies. If this rally is to succeed, this missing ingredient is
going to need to show up. Don’t count on it happening this week, though.Â
Friday’s employment report and the end of the summer have the potential to make
next week very interesting. Will the market begin to show any conviction once
traders return after Labor Day? If so, which direction will the market go if
volume appears? That could be the most telling sign of all.
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From a technical standpoint,
the major indices are all below their 200-day moving averages. The Nadaq is
well below it’s 50-day, while the S&P and Dow are right near it. In other
words, there is still plenty of resistance just above where we are currently
trading. September is historically the worst month for the stock market and I
wouldn’t be surprised to see a strong selloff this September. To me, the bottom
made a few weeks ago still looks very suspect. It is rare that the market
bottoms out after an extended decline without capitulative selling and a strong
rebound — neither of which were present. It also rare that the market bottoms
without some help from the Semi’s. This group is still in miserable shape.Â
That’s not to say it not possible that a bottom was made. Anything is
possible. As far as market corrections go, this one (if it’s over) was rather
weak (less than a 10% decline for the S&P and less than 20% for the Nasdaq), so
a weaker than normal bottom could certainly be possible.
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Overall it appears that this
rally does have some potential. Whether that potential can be realized is
very much in doubt. We should start to get more clarity in upcoming weeks.Â
The most significant indicator I would suggest watching is price & volume action
for clues of what the big boys are doing with their money.
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Best of luck with your trading,
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Rob
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