July Month-End Recap

Positives —

Foreign Markets — Foreign markets have been acting quite strong. This type of
plurality is a positive and bodes well for the current rally. Latin America,
Canada, and Russia have been especially strong.

New Highs vs. New Lows — New highs have been strong and steady, though not
overwhelming. New lows have been nearly non-existent. Chalk this one up to the
new highs.

Accumulation/Distribution — Over the last couple of weeks, the S&P has undergone
only one distribution day, while there have been several accumulation days. This
is exactly the type of price and volume action we like to see during a rally.
Note: I will continue with more observations from my study on distribution in
next weeks column.

Neutral —

My watch list — There are still several stocks out there that are completing
basing patterns and getting primed for a potential breakout, but the size of my
watch list has been a bit stagnant for a while now. I would prefer to see an
increasing number of stocks setting up to provide additional fuel to the rally.

Sentiment — It would certainly be nice if sentiment were more bearish, but the
bull/bear ratio has backed off a little in recent weeks. I don’t think we’re at
any kind of an extreme inflection point at the moment with regards to sentiment,
so I will discount the effects for now.

Negative –

UUWNHI (Unofficial, Unscientific, Working/Not working Hanna Indicator) — I am
not seeing anything work all that well. In a strong intermediate-term investing
environment you will see numerous stocks break out and charge higher
immediately. They will post gains of 20% or more within a few days or a week.
You may even see some stocks double within a month or so of their breakouts. I
am not seeing anything like this. There is none of the “piling on” action that
is seen in a true runaway up market. It doesn’t take too many high fliers to
make some nice profits, and when you’re dealing with a market environment that
is void of them, it makes posting solid returns all the more difficult. While
the long side is challenging, the short side is like swimming against the
current. It is therefore very difficult to make headway there.

I believe some of the reason that we are not seeing explosive moves by stocks
that are breaking out is that we are in the late stages of the bull move that
began in 2003. While there has been much drifting the past year and a half, the
S&P and Dow have not undergone as much as a 10% correction during the entire
rally. Stocks are no longer undervalued and there is not the optimism that was
provided by company turnaround situations seen a couple of years ago.

The trend remains up, and traders should remain focused on the long side of the
market until this changes. The environment is challenging, though, and I would
expect it to remain so until after the next significant market correction. Long
but cautious seems to be the way to go.

Best of luck with your trading,

Rob

robhanna@comcast.net