What The Correction Taught Us
We have been watching two
major flaws develop in the market’s rally over the last two
weeks. The first has been occasional bouts with distribution, or days when
the market declines on heavier volume than the previous day. The second
problem has been found as leading stocks fall apart. Today’s trading had two
extremely bullish answers for these issues.
The major averages pushed decidedly higher on heavier volume than yesterday.
When we see the market rally like this, we
are seeing blatant evidence that institutional dollars are still buying
stocks.
The second problem we are seeing answered in a mild way is that of
leadership. Hi Tech Pharma
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was a recent example that no investor wanted part of over the past two
weeks.
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We started to see a similar problem
developing in the leading homebuilding group. Stocks like
Centex
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Hovnanian
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PowerRating) traded below their
50-day moving averages on above-average volume. The group’s most probable
leader: Ryland
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PowerRating) looked ready to
do the same ahead of its earnings report after the close today. But then the
stock found support and traded higher on above-average volume.
We are also starting to see new leadership
emerge as a few newer stocks attempt breakouts.Â
Biolase
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PowerRating) pushed through resistance at 14.30.
Large-cap leader, Genzyme
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PowerRating) also attempted a push through its pivot point at 49.81. Volume
came in above-average as the stock closed at its breakout level.
It’s also vitally important not to forget about our
Internet Leaders! Ebay has been finding support during every market
correction and this one has been no different. The stock is within a stone’s
throw of its all-time high of 127.50. Earnings continue to come in strong and
we’ll most likely expect more of the same when they report earnings after the
bell on Thursday.
For now, the market still pushed on. We are still seeing
accumulation in the major indices and we still have quality leading stocks
such as Ebay
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PowerRating). The recent
correction should have simply reminded us that it is still important to apply
solid rules to our trading. For the most part, this market still appears to
be one that is best to be invested in one way or another.