The big story of the day was the epic turnaround stocks staged after suffering some heavy volume selling. Hitting its 200 day moving average the NASDAQ found buyers and in big volume too. Economic data came in pretty much as expected and nothing to really get overly excited about. Today’s rally did mark day one of a new attempted rally and since it came on big volume we have a bit more hope for this one to work. Last week we saw turnaround Tuesday’s gains fade in one day and the rally was on light trade. Above average volume is certainly positive news for those in the “just by the dips” camp. Given the solid turnaround we have to respect our process and go forward accordingly. Do not get complacent as we could sneak out some solid gains on any rally this market may cough up.
Energy and utility stocks continue to make strong moves in this market. For whatever the reason they are certainly setting up to continue to be the leadership if we do get a rally. Focus your time and energy on what is leading the market higher, not what has lagged. Biotech stocks may rebound, but they aren’t leading this market like we are seeing energy names lead. Stick with the process and focus on winners.
At the lows of the session roughly 22% of stocks sat above their 20 day moving average. Just about in line where we would normally see a relief rally. The NASDAQ McClellan remains in oversold territory where as the NYSE McClellan oscillator was able to lift into neutral territory. Clearly, the NASDAQ has some ground to make up for since its highs in March. A straw man argument would be for the NASDAQ to rebound hard after suffering heavier losses than the Dow and S&P 500. However, we know better than to act on our opinions. Price will always lead you in the right direction.
Wednesday would be day two of our attempted rally and we could see a follow-through day as early as Thursday albeit a rate occurrence. Day four through seven should be watched carefully for a follow-through day. In addition, if we do get a follow-through day any distribution following the follow-through day should be a major caution flag. Until such time, we’ll stick with our current plan of attack. The bulls cannot have a repeat of last week’s selling.
