Why I Believe A Major Change Could Have Started…
Since
January 16, I have been walking you through the market’s distribution. Simply
put, volume patterns were horrid. Leading stocks were no longer breaking out.
The oft-mentioned and all-important SEMICONDUCTORS continued to make lower highs
as important names like
(
NVLS |
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PowerRating),
(
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PowerRating) and others did bungee jumps. Then, in my
morning report on
3/25, I called for a bounce as the Nasdaq/Semis/Tech seemed to be holding
the 200 day average.
This is what I wrote: “I believe the Nasdaq/Semis
could bounce from here. I say this for 2 reasons. The first being that they have
already dropped a decent amount in a short period of time and sellers seem to be
less aggressive. Secondly, they are sitting on their 200-day averages. I believe
this is the place they put up a good fight and a normal place to bounce off of.
”
Then, in
my last report, I penned these words:
“As of this second, I have no conviction. Yes, I have no conviction…but only
on the major indices. I knew we would bounce…but as usual, the bounce may be
turning into something better. If you had asked me a week ago, I would have said
we would be heading back down by now. So, how do I play it? I call it: “Next big
volume day wins.” Whichever way the next big move goes, I play it. It is that
close. I gather Friday may tip the scales one way or another.”
The rest is history as the market gapped up on Friday’s strong jobs numbers. (No
doubt, the champagne was being served at the White House.) Volume was strong. I
consider Friday’s action a follow-through day. For sure, volume was skewed by
Sun Microsystem’s
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PowerRating) 200-million-share day…but volume would still have been
strong.
^Next^
Let me be clear. I had no idea what the jobs number was going to be and for that
matter, how the market would react. BUT…I do know how to react at this point
in time. The strongest stocks started to break out a few days ago…and many
more kicked out on Friday. Also, many stocks turned the corner of their bases
and headed up their right sides. Most moved on heavy volume. I would use this
latest move to embolden yourself to start probing these moves. If they stick,
you do more and more. Of course, use the same sell rules no matter what. Notice
the word “probing.” The market is 13 months into this bull move…meaning the
late innings. Not every stock is going to work…and yes, the market will not go
up in a straight line.
Now, let’s delve a little deeper. I do believe a major change could have
started on Friday. With the strong jobs number, the
bond market gapped down.
This hurt many interest-rate-sensitive groups. I would look to underweight those
areas as I do believe they start to underperform. They include
HOMEBUILDERS,
MORTGAGE-RELATED, DEBT-RELATED, misc. FINANCIALS.
Keep in mind, the heaviest weighting in the S&P 500 is FINANCIALS…thus, you
may see the bigger-cap indices lag a bit here.
Take a look at some of these charts.
It is a definite positive that all major indices
are now back above their 50-day moving averages. I suspect those areas will now
become support on any pullback. The NEW HIGH LIST expanded quickly. This is a
list of leadership and should be scanned on a daily basis. Get to work! And…oh
yeah! Before you do jump the gun too much…earnings are coming out in droves
next week. As always, that will change a few stocks’ direction.
Gary Kaltbaum