This Is What The Wrong-Way Crowd Is Doing
We titled the last report:
“I Think The Market
Has Its Best Chance For Upside Testing — This Is Why”
We then went on to pen these words:
“Short term calls are the trickiest of them
all…especially with the past 10 days being up,down,up,down,up… But right
now, I think the market has its best CHANCE for upside testing
than it has had in a while. Notice the word “chance” in bold. I say this for
several reasons.Â
FINANCIALS and INTEREST-RATE sensitive stocks are
catching a bid and OILS are breaking down. Just stating a little “cause and
effect.” We mentioned this in our last report. OIL prices look like they have
put in an intermediate-term top…but with all the noise, we wouldnt place big
bets on that.Â
We also like that the market has put up a good
fight over the past few days and held support on several occasions. But…to
tell us that this market can at least move higher, watch these levels to be
broken on the upside…DOW 10263…S&P 1165 and NASDAQ 1963. The problem:the
NASDAQ continues to lag very badly.Â
Sentiment is very bearish. I have been laying off
talking about sentiment but a few things need to be mentioned. ODD-LOT
SHORT-SELLING is at a clip not seen in years. No doubt this is the wrong-way
crowd. SPECIALIST SHORT SELLING is at the lowest levels in decades. No doubt
this is the right-way crowd. “
As you know, this column has been negative on just about everything since
the first day of this year. In the past few days, we have been “feeling” a wee
bit better about what we have been seeing…thus our previous thoughts on the
shorter-term. Not only has the market bounced, we now think there is a chance
that the complexion of the market has changed. We say this because we play the
markets by the book, by a strict discipline that has served us well for years.
Major indices have all had follow through days of some sort. A follow through
day occurs in the 4th-10th day off of a low. We urge you to read William
Oneil’s book for the definition. Â
The NASDAQ and the NASDAQ 100 followed through on the 4th day of its
attempted rally as volume picked up. It was the Nasdaq’s third day of stronger
trade out of the past four days. This potentially shows that the big money crowd
is back putting money to work. Would I have liked stronger volume? Absolutely!
But let’s not get picky. Let’s take what we can get.
Also of note:
BROKERAGE stocks kicked into gear on the back of a huge move in Legg Mason.
We do not believe the market has a chance without this important group.
The S&P moved back above its recent breakdown at 1164. It will be vital to
hold this level.
FINANCIALS continue to catch a bid. Put this one in the same category as the
BROKERAGES.
How do we play it? We first come off our shorts. We will now start to probe
some longs. If they stick, we will add. We continue to find the best charts in
most MEDICAL areas. We urge you to check the NEW HIGH LIST as well as those
stocks that held up best during the recent downtrend. On top of that, we will be
eyeing those stocks that acted best on recent earning’s reports. There is no
reason to just dive in with both feet. There is massive resistance overhead and
a ton of charts that are still in bad shape. Remember, every bull move starts
with a follow-through day but not every follow-through day has led to a bull
move. We will continue to follow the day to day action for clues. Lastly, we
continue to stay with the same thesis mentioned at the outset of the year. This
game is going to remain tough. Be nimble and dont be a hero…but for now, the
market finally has a chance to move higher. The big money crowd is starting to
speak up. For the bull’s sake, let’s hope it continues. Next up…employment
numbers on Friday.
Gary Kaltbaum