Overseas markets took a dive early Monday morning setting a negative tone for the market from the onset. Wall Street has been anticipating earnings for quite some time and Monday was the official kick off to the 2nd Quarter earnings season. Early morning volume selling was met by volume buying, the v-shaped recovery from the morning’s lows had put into question whether or not the market wanted to make a run for higher ground. A buying frenzy was taking place about mid-morning with the lunch hour into 2 o’clock time frame saw stocks holding gains. It wasn’t until the end of the day where you saw stocks push up into the high of the day and close there on volume. Monday’s action moved this market into a confirmed uptrend and we should continue to see higher equity prices.
After the July 7th market session I made it clear stocks were in correction mode, where we begin to look for stocks to make a bottom and attempt at another rally. You can read it here. Price and volume action alone was concerning and the market was correcting. However, the very next day as stocks made new lows they were able to make a steady recovery with volume. Looking at hourly volume on the NASDAQ you could see the selling was done on much lower volume during the same time periods the day before. This suggested that shorts were pounding stocks. July 8th kicked off Day 1 of an attempted rally and I was hoping for quieter days ahead. We got just that, quiet days on Thursday and Friday on extremely light volume, although not ideal, but it is what we got. Today marked the 4th day of an attempted rally where we look for the indexes to make strong moves percentage wise on higher volume than the day before. Monday’s market saw just that, take a look at this NASDAQ chart:
[singlepic=14,500,350,,]
Although volume was not above the 50dma during the follow-through we are still seeing buying action. For those who do not remember in August of 2007 we saw a very light volume follow through 19 days after the low. Many were in disbelief that we could move higher but the S&P 500 and Dow Jones Industrial averages were able to make all-time highs just a few months later. We may not have the best looking uptrend, but we have something.
Leading stocks were left behind during the follow through seen in the NASDAQ as well as the Russell 2000 and S&P 600. Not the type of action you normally see in a raging new bull market. Quality Growth or leading stocks is what you would like to see during a raging bull. This would alert you to be able to get bigger in stocks rather than taking smaller positions. A “loose” bull like we have here is full of downside susprises that could put a severe dent in your trading capital. I point to ADY and its trouble it had today when they guided below estimates. We continue to be in a tricky environment where being quick and nimble is being rewarded. And of course, those who are trading along side of us in the Platinum and Gold packages are well aware of it.
We do have some big boy stocks, institutional quality type stocks that were able to find support and move higher. A few had decent volume above their respective 50dma, but some others had higher volume but below the 50dma. Big institutional stocks are important to watch because they are a nice barometer to see whether or not the big boys are getting into the market.
Now its time to see if we can grab some monster stocks here if this uptrend can produce some nice ones. Odds are it probably won’t produce the kind of winners that were in 1999 and 2003, but at this point we are early in the game and we will search out and grab the stocks that are move higher.
FREE YouTube Video from Joshua Hayes explaining the correct way to analyze the stock market:
