Why I think the market could go much higher

Positive

Foreign Markets — Markets around the globe have continued to act well. Most of
them are trading well above their long term moving averages and are near or at
new highs. Some notable markets that look especially strong include China,
Brazil and Eastern Europe.

My Expanding Watch List — This past weekend unveiled more new prospective
buying candidates than I’ve seen in several weeks. More and more quality stocks
are near completion of basing formations. Especially encouraging is that I am
seeing potential opportunities across a wide array of industries. Should the
market break out to new highs, there appears to be an ample supply of stocks
that could lend some nice fuel to the fire.

Neutral

UUWNHI (Unofficial, Unscientific, Working / Not working Hanna Indicator) — The
market is failing to trend with any conviction, and individual stocks are acting
in a similar fashion. Breakouts had great follow-through in January, but have
cooled off substantially since then. In this choppy, low volume, uncertain
environment, the easy money has been in buying pullbacks or channel bottoms
rather than breakouts or breakdowns. Unfortunately, no conviction means no bias
so the UUWNHI isn’t telling us much about direction this month.

New Highs vs. New Lows — New highs have continued to outpace new lows by a wide
margin. What has concerned some analysts is the fact that the net new highs are
still well below levels we’ve seen in the past when the market was making new
highs. This is a valid concern, but based on my expanding watch list, it appears
a quick move up could remedy this problem. Breadth as measured by advancers vs.
decliners has improved fairly steady over the last three weeks, so although a
large number of stocks aren’t hitting new highs yet, they don’t appear to be far
off.

Accumulation / Distribution — To evaluate price and volume action you need
volume. Conviction isn’t evident right now. Rather than a mad rush of buying or
selling, the market is just drifting. A few high volume days in either direction
could create some nice excitement (or panic). We just need to wait to get them.

Sentiment — Like most of this list, sentiment is providing few clues currently.
Most indicators I look at are neither excessively bullish nor bearish right now.
Short-term the market is mildly overbought, but beyond that sentiment readings
don’t seem to be providing any clear edge.

Summary

I’ve heard the following about the S&P 500 chart in the last couple of days: 1)
It has put in a nice double bottom base back to early January that it is
attempting to break out of now. This will launch a new leg up. 2) The S&P 500 is
putting in a perfect double-top formation.

Take your pick. My trading bias has been neutral for several weeks now and I’m
not seeing anything to make me change that. There appears to be a good amount of
fuel building up that could send the market higher, but that fuel needs to be
ignited. So far it hasn’t been. The market could just as easily top out here.
Watch for conviction in the form of high volume buying or selling to tip you off
on direction.

Good trading,

Rob