Blame it on ISM non-manufacturing index coming in below expectations but this market was overdue for a distribution day. Since this uptrend began on 7/8 we have yet to see a distribution day creep into the market. Sellers stepped up the pressure just after the release of the ISM number as volume was running hot all day long. This market is quite resilant as buyers began stepping up their operation by 3 o’clock. What could have been a nasty day of distribution turned out to be a simple day of distribution. This type of action bodes well for the current uptrend.
The last thing we want to see is the market to pick up the downside pressure. Back to back distribution days aren’t a great sign, but to have 3 straight days of distribution would be a big red flag. However, taking a look at a few leading stocks this is far from the case indicating the market simply took a breathier today. In fact, we are seeing some tight action in leading stocks and even a few 3 week tight formations. Tight action is very bullish for stocks who are experiencing it. Taking a cue from leading stocks, this rally is going to continue marching higher.
Taking a look at the New Highs made today I see 440 new highs made today and only 27 New Lows. This is anything but bullish on a day where stocks pulled back on higher trade. This doesn’t translate into a higher market for tomorrow by any means it simply signifies the strength that is underpinning this rally. Regardless if this is a new bull market or not we have a rally that has muscle behind and we are riding it. If we do pull back further in lighter trade that would suite me just fine so long as its done in orderly fashion and leading stocks hold up.
Looking ahead to Friday’s job report and CSCO’s disappointment we might very well see the market pull back or trade flat for the next few days. My focus will remain on leadership and how it reacts as the market does its thing. Pay attention to how leaders act as they will be the ones who show what this market has up its sleeve. Although this rally has mainly been lead by the stocks that have been BEATEN up by short sellers I do believe leading stocks will begin to emerge as leaders. If not, they will show signs of it well before they make a break for lower ground.
Again, try not to get too cute with this market as it makes it move. I am taking it for face value and leaving the noise behind as it will not serve you well. As long as distribution stays on the lighter side and leading stocks continue to act well I will remain on the long side of things.
Remember to always cut your losses short!
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