Small caps suffer the Russell Rebalance hangover while the S&P 500, Dow Jones Industrial, and NASDAQ enjoy gains on lower volume. Volume fell sharply from Friday’s inflated levels and was even lower than Thursday’s level. Monday’s action did resemble typical window dressing action the market experiences at quarter’s end. Leaders were mixed, but the positive action outweighed the negative action. The leaders that were down did find support at key moving averages. Dealing with Friday’s Russell Rebalance the market held up relatively well with key leaders showing strength.
One day does not make a difference and more than likely Monday’s shouldn’t sway you to the bullish nor bearish side. Taking the 50,000 foot view the market continues to be in an uptrend with decent leadership. This is what we are dealing with at the moment; it isn’t the best looking rally, but its what we have. Often times rationalizing moves is a way for those who are not on top of the market to make an excuse for missing out on gains. Taking a step back and viewing the larger picture will help you gain a better perspective of what is happening in the market.
As far as short-term over-bought conditions we simply aren’t there yet. The McClellan Oscillator is indicating we are at the mid-point between oversold and overbought. In addition, the number of stocks over their 50dma is only 51%. A month ago the number of stocks over their 50dma was 83%. It’ll take another run at the most recent high quickly to send this market into overbought conditions. A more constructive move would be to see this market drift slightly lower for the remainder of the week while we consolidate the gains recently observed by the market.
I would like to point out that the New Highs versus New Lows continues to be positive. Remember, history has shown this ratio to be positive for Monster Stocks to exist. Price and volume of leadership along with the overall market conditions are most important, but being able to recognize secondary conditions is key too. Seeing the positive New High versus New Lows suggests we continue to see strength from the stocks that are leading.
As the second quarter wraps up, we will get the Case/Schiller Home price index being published. This will shape the views of traders tomorrow morning during amateur hour (first hour of trading). The street is looking for a Year-over-Year (YoY) decline of 18.8%, which is quite staggering. Nonetheless, traders will be paying attention to the report and acting accordingly upon its release. Do not get caught up in the mayem following the report’s release. Stay focused on the stocks that are showing strength rather than a reaction from an economic index. Remember, stay focused on the strong stocks and not an economic report.
My hope for the week is we simply glide into the holiday weekend rather than have crazy moves in equity prices. Moving sideways on declining volume would be a constructive way, with leaders having positive action would be the ideal situation.
Keep focused and stay positive…Cut your losses short.
