Play It Day By Day
Not much has changed from
Thursday’s report. Near-term action remains excellent. But it now gets
tougher from here. Let’s elaborate.
A close above 912 on
the S&P 500
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close above 8762 for the Dow could lead to near-term upside testing. Only one problem, any further move up gets
the markets
into the meat of resistance. So far, this rally is only recovering the major
oversold conditions that occurred into July 24. I expect and would love to see a
pullback…right here.
I feel it is much more important to concentrate on what is working and what is
not.
-
For the first
time in months, several stocks have broken out and extended their gains. I
named a few in my
last report. More names are starting to follow. If you want one indicator
that stands out which will tell me the market’s rally would have legs, it
would be an expansion in quality breakouts. -
For the first
time in months, the rally is being met with a dose of skepticism. This is in
stark contrast to the bullish reactions on every previous three-day rally. -
For the first
time in weeks, I have found a couple of sectors that are showing strong
relative strength. That in itself tells you how bad things had become. The
groups are BIOTECHS (now close to a huge area of
resistance), smaller BANKS (check out
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SWBT |
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EWBC |
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NYCB |
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BPOP |
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DORL |
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SBIB |
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am talking about) and SCHOOLS. After that, there
is a smattering of strength but no real leadership.
That’s what’s
working. Everything else is coming off of deep oversold conditions. Think about
it. The Dow is up 1200 points from the low and still is under 9000. The
Dow
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like… so more repair work needs to be done.
Now…time for what is not working. Simple…TECHNOLOGY
as a whole… continues to lag badly. Maybe, it starts to play catch-up. The
important note is that even after a 1200 point romp, many important names are
BELOW July 24’s low.
HOMEBUILDERS are not catching on with the rest of
the market. This group was on fire during the BEAR.
Right this second, things have changed.
RETAILERS are ugly. In fact, they are now
underperforming by a wide margin. This action is almost across the board.
As a note, I am basically flat in
my subscriber service. That should tell you something. When the markets get
into what I call a transition period, I take a step back. Shorts had been
working easily since February. That couldn’t last. Breakouts
are just starting to work. I would like to see breakouts prove themselves
before I get too excited.
Unlike some pundits, I will not predict how long this rally lasts and how much
territory it will cover. I think it more important to play it day by day right
now until a definitive trend shows up. As I said earlier, I do expect and hope
for a pullback at this juncture. It would fit in well with the fact that major
indices are sitting right near resistance.
There still remain a couple of nagging problems. First off, volume is anemic on
this move. I keep hearing not to worry because we are in the month of
August…where trading is lighter. OK…maybe they are right. Time will tell.
Secondly, I do not like the saw-tooth patterns the market is tracing out. A more
constructive pattern would be one of backing and filling.
I leave you with the five-year-weekly chart of the S&P
500. This chart is exactly what I mean about longer-term problems.
This is a gigantic top…and in the broader context of things, this rally is
quite normal.
Until
Thursday,
Gary
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