Traders ushered in the New Year by pushing stocks higher. The US Dollar was the focus during the early going as commodity prices rose. However, a positive manufacturing report gave the market even more fuel. Many leading stocks moved quite nicely adding confirmation this move is for real. Sellers did step in and made the 1 to 2 o’clock hour interesting as it appeared a roll-over may have been imminent. But, buyers stepped in and began to support the market and ultimately finishing the day off the highs. A very impressive day as this uptrend continues.
Small cap stocks once again shined above all others. The Russell 2000 closed at its highs while the S&P 600 closed a shade underneath. Volume figures are not available, but judging by volume on the exchanges it’s a safe assumption small caps enjoyed a volume surge. Small cap stocks tend to lead the market at the beginning and end of an uptrend. It is quite possible we are seeing one last move prior to a meaningful correction. Remember, we are in an uptrend it is not smart to fight it. Therefore, we are more focused on small cap stocks.
Strong price gains from the market and leading stocks the only minor blip is volume being (preliminary) below average. We aren’t terribly concerned with this development unless we start seeing volume decline if we move higher. This type of move should provoke volume to show up and if it stays on the sideline it may pose a problem. However, continue to pay attention to individual stocks as they are the key to the market. If we begin to see our leading stocks to really take out key areas it’ll be time to trim back and get a bit more defensive.
One thing to keep an eye on is the number of stocks over their respective 20dma. At the moment it stands just above 80%. While ignoring price and volume action of the market and its leaders many would think this is signaling a top. However, we know overbought and oversold conditions can last longer than one may think it should. It is possible we see this number soar above 90%, but at this time it is something to keep in mind as a secondary signal. If we see stalling and distribution this will become more significant, but for now we will stick with the trend.
We are seeing plenty of stocks breaking out of bases and intend to continue to follow these stocks. 2010 has started off nicely; it is time to build upon these gains.
