Month-End Market Breakdown
As I
normally do at the end of each month, here is my broad market breakdown:
Positives
New Highs vs. New Lows —
Breadth has been good. New highs lists have posted consistently solid numbers
over the last few weeks. Many individual stocks have been hitting new highs
even though the indices remain stuck in trading ranges. New low numbers have
been very weak. The combination of many new highs and few new lows means
breadth is favoring the upside.
My decent-sized watch list
— The number of stocks I have found forming mature basing formations has
increased substantially this month. Should the market begin to rally more
strongly, there are several areas that could provide solid leadership. These
include interenet, medical, and metal fabrication to name a few.
Neutral
Accumulation/distribution
— While price and volume action has been skewed towards the positive side
lately, the general lack of volume is keeping me from labeling this a positive.Â
I would like to see a couple of days where the market rallies strongly on big
volume. This type of action would make it more clear that institutions are
stepping up and buying again. For now, the market simply seems to be meandering
higher.
Foreign Markets — While
some small areas of strength seem to be emerging, there is not a convincing
number of foreign markets at or near new highs. A few exceptions could include
Austria and Israel. Other foreign markets that look to have potential currently
include Japan and Norway. Still, broad strength is not evident currently across
the globe, although potential is there.
Sentiment — Very little
to say here. I’m not seeing much of an edge either way.
UUWNHI
(Unofficial, Unscientific, Working/Not working Hanna Indicator) — Upside
breakouts are occurring. Most of them just aren’t following through strongly.Â
In the kind of upward drifting market we’ve been experiencing lately this is not
unusual. Stocks have tended to test their support levels every step of the way
before inching higher. As I noted in last Wednesday’s column, sometimes this
means pullbacks are a better entry than breakouts. On the short side, follow
through has been even weaker. It has been a difficult environment for both
longs and shorts if you are a trend trader, but shorts have had to be especially
vigilant with their stop placement and profit taking to scratch out any gains.Â
Look for a couple of breakouts to quickly run up (or down) 20% or more after
breaking out before assuming the environment is changing.
Negatives — none
Overall, things appear to be
shaping up to the point where the market might actually be able to put together
a decent rally. There are still many wildcards out there, though. Tomorrow’s
Fed rate announcement is expected to be a 0.25% raise. Anything other than that
would be a shock for the markets. Even with the handover of Iraq yesterday,
there are still many geopolitical risks left to worry about, especially with the
upcoming political conventions and elections. Throw in oil prices and terrorism
abroad and the market could find plenty of excuses not to move higher if it so
chose.
As I pointed out a few weeks
ago, the Nasdaq over the last seven months has traded in a tighter range
percentage wise than over any other 7-month period in the last 10 years. This
coiling action won’t last forever and when the range finally breaks, it could be
fairly explosive. Right now it appears that the technicals favor a break to the
upside if any occurs. And although I would be surprised to see a move as strong
as 2003’s rally, I do feel that the long side of the market shows some good
potential currently, and would recommend traders begin to focus more in that
direction.
Happy 4th of July.
Rob