There was a common theme today and that was the continued dominance by Chinese stocks. On the flip side large cap technology stocks weighed down the NASDAQ. But, the selling was subdued to lower volume showing institutions were not selling hand over fist. This is important because the NASDAQ has yet to record a distribution day in recent weeks. In addition, the NASDAQ has been the leading index and this action is representative of consolidation for a move higher.
Volume slid on the NYSE while the S&P 500 hit another 52 week high. Normally, we’d like to see volume increase when indexes hit new highs. While this is not an immediate concern it will be a cause if it continues. If the S&P 500 was our leading index the lack of volume at highs would be more of a concern. In the meantime, the index continues to move higher and price action is where we want it.
We are still at elevated levels in terms of the number of stocks are above their respective 20dma. Seventy-nine percent of stocks are over their 20dma and while this isn’t extreme it still remains at an elevated level. This does not indicate our uptrend is over, but it should alert you to not chase stocks higher. We are in an uptrend, but chasing extended stocks can derail your portfolio. We do have stocks breaking out of consolidations areas and these are the stocks you should be focusing on. We have plenty of stocks running, but buying stocks at these levels only heightens your risk of a reversal. Proper cushion, buying stocks out of fresh bases allows us to hold onto stocks while they have a normal reaction. But, chasing stocks increases the risk of being shaken out during a normal reaction a stock may undergo. Stay disciplined and avoid the emotion of feeling-left-out.
On a positive note the market only produced 5 new lows while notching 887 new highs! There is an old saying “stocks that hit new highs will continue to hit new highs.” In this case, we had plenty of stocks hitting new highs showing the strength of this market. If this uptrend was hitting new highs with a lack of new highs we’d consider this a red flag. Along with stalling and distribution the lack of 52 week highs is another sign the market is healthy.
Until we have the build up of distribution and stalling we will continue to stay with the trend. No matter if CNBC marches out the smartest guy in the room telling us the market is overbought or overvalued. Options aren’t valuable in the stock market only being with the trend.
Stay disciplined.
