We finally got some follow-through on volume to a previous day’s gains. We have not seen that really happen at all since the top in April. That is bad news if you are a bear and are definitely betting on lower prices. What has happened the last two days is pretty darn bullish on the short-term, with the Russell 2000 rallying 6% and the Nasdaq having above average volume taking out the 50 and 200 day moving averages. The other problem with those that really want us to have lower prices in the near term is that some leading stocks that have cracked wide open on volume have already found very strong support. Stocks like AMZN, NFLX, CMG, and ISRG, for instance, have all reacted extremely bullish to their breakdowns and could very well be starting a period of forming new bases. If this market was really wanting to push for lower prices these stocks would have cracked like they did and then followed through with more losses. The reversals indicate that lower prices are not coming any time in the short term. Some other leading stocks have done beyond well in holding up during the selling like CRUS, RVBD, UTEK, ARMH, INFA, ISLN, NTAP, and CRM. If the market was really looking to break wide open we wouldn’t be seeing any leaders holding up. Now, this does not mean we are out of the woods yet, OBVIOUSLY. What this does mean is that we have the potential to rally and make some good money on the long side. Still, this rally could falter and we could be right back into our choppy trading zone in no time. We could also roll over and start a decline. What will be important to watch is volume. If we continue to rally on above average volume, keep having high quality stocks break out of nice chart patterns, see our short scans get smaller and smaller, and have pullbacks on lower volume, then we can start to breathe easy once again. I like the fact that I have some green volume/BOP filled charts showing up and that some CANSLIM quality longs are breaking out but I will be watching for even more follow-through before my purchases start adding some real meat to them. For now, after covering 3 more shorts for Monday, the short side is not looking too promising, and that is why I will have less than 8% of my accounts in shorts after Monday’s opening bell. I am still short seven stocks but will be ready to cover them all on any higher volume surge to the upside.
new short positions: none
none
