The morning buying frenzy jolted stocks higher as shorts covered their positions heading into the FOMC rate decision. By 10amEDT the frenzy had slowed by quietly volume began to pick up on the day as institutions were slowly picking up shares. Institutional players can not hide in the market and it was quite clear looking at volume they were participating after the short covering was finished. As the release neared choppy action began as traders were positioning themselves for the press release. After the release and for the remaining portion of the day stocks were pushed around in tugofwar action with the last 15mins showing shorts piling back in the market. On the whole, we saw a very nice move in the indexes with volume support and small caps leading the way.
Wednesday’s action was a sign institutions were behind the move as volume jumped noticeably. Although volume wasn’t over the 50dma it jumped significantly enough to overshadow Tuesday. In addition to volume leadership held strong with a few select leaders taking charge. The significant outpeformance of these few select leaders are the key to a sustainable rally. Back in June I spoke of the need to see these leaders emerge and take over. So far, the few that have continue to remain in strong uptrends.
During William O’neil’s radio interview on TFNN Tuesday was putting this rally into “context.” What he meant by context was that we did not see a “normal” correct, we saw a big time bear market (4th largest ever). Therefore, we are not going to see typical new bull market characteristics. He described the 3/12/09 follow-through day as the start to a new bull market and we are now in the 5th month of it. Now, looking across the land of Market Pundits there are many who are ultra-bearish: James “RevShark” Deporre, Gary B. Smith, Doug Kass, etc and given the news reports one would be awfully bearish. Bill O’Neil didn’t cover this, but he has in other writings and he says this: “coming out of a bear market 7 out of 8 news stories will be bearish.” Quite the interesting stat and one that is based on historical fact finding. At this juncture, I will stick to the action of leading stocks and the market itself rather than guess the next direction it may take.
Taking a look at New Highs vs. New Lows the inability for this market to make more new lows is a positive sign. Remembering in order for Monster Stocks to exist we need a positive NH vs NL ratio. We are continuing to see this ratio stay positive, this is good news for any potential Monster Stocks. It may take a while longer to see the type of gains Monsters produce, but there are a few stocks out there that are fitting the bill.
My main focus is the leading stocks and the market action. Anything else to me is simply “noise” that will only cloud my judgement and trade effectively. Continue to cut those losses!
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