After a dismal jobs report Friday the market was able to confirm a new uptrend and we continued the gains today. Volume did not jump like it did on Friday, but was decent for a Monday. Biotech stocks continued to get hammered as fears over drug prices and the upcoming election in a year has everyone panicking. Biotech is going to be toxic for the foreseeable future. We need to see this market produce solid, healthy leadership. While bottoming patterns are nice, we need more than laggards turning around. For now, we are not seeing leadership piling up and until then we will tread lightly. There is a possibility we have a new sustainable uptrend and we are on the lookout for potential new longs.
Friday’s session was not a complete surprise to us, but the high volume reversal was nice to see. Volume was certainly higher, but not explosive. While the lack of explosive volume is not a fatal flaw it certainly lowers the odds this is a sustainable rally. For any rally to work it is important to see leadership emerge and breakouts sustain themselves. The good news here is unlike the last follow-through day we did not see a distribution day post confirmation day. For now, our recent new longs have been working. A start, but they will need to continue to push higher.
Perhaps another feather in this rally’s cap is certainly how low sentiment is. AAII saw bears jump to nearly 40% with the spread between II bulls and bears has inverted. NAAIM active managers have their lowest exposure to equities in a very long time. Again, sentiment is an imperfect indicator. Yet, this time around it has lined up nicely with this new rally.
The worse thing any trader can do here is think they know where the direction of the market. No one knows where we are headed. Odds are we will probably continue this move higher. Sentiment and seasonality have lined up for us and we must be ready for the possibility of a rally. Given VIX hit 53.29 on August 24th this rally has a potential to be big. Who wants to miss out on a big rally? We will not!
It would be nice to see some back and fill here. All the while it would be nice to see a few high quality names breakout. Be ready!
