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It’s been a month or so since my last post regarding the strength of the overall market, so I thought it would be a good time to take a look once again. In the previous post regarding the strength of the market, I mentioned the importance of the high volume reversal at the bottom on May 12th, which often signals the end of a correction. Nearly two weeks later (May 25th) we got a confirmation day when the Nasdaq surged 2% on heavier volume than the day before. Confirmation days don’t necessarily lead to new rallies, but no new rally or bull market has started without one. A confirmation day signals it’s OK to test the waters, but not to dive in with both feet. A slew of successful breakouts from leading companies provides further evidence that the correction is over. That is exactly what we are seeing. Many leading stocks are breaking out of sound bases to big gains.

Here’s a list of the top breakouts and their percentage gain from the breakout since that confirmation day on May 25th (the number in quotes is a ranking system I use which combines a fundamentals and technical score that I come up in order to sort the best [20] from the rest [1] – I generally don’t track any stocks rated less than 13 and rarely will a stock get a 19 or 20 rating):

[17] Sanderson Farms (SAFM) – Up 14% since its May 26th breakout
[17] Gen-Probe (GPRO) – Up 13% from its May 27th breakout
[17] BEI Technologies (BEIQ) – Up 8% since its May 25th breakout
[16] Copart (CPRT) – Up 8% since its May 26th breakout
[16] Mine Safety Appliances (MSA) – Up 10% since its breakout yesterday
[16] Old Dominion Freight Lines (ODFL) – Up 8% since its May 25th breakout
[15] Possis Medical (POSS) – Up 7% since its breakout yesterday
[15] Applied Signal Tech (APSG) – Up 7% since its May 26th breakout
[15] Overseas Shipholding Group (OSG) – Up 11% since its June 1st breakout
[13] Toro (TTC) – Up 8% since its May 27th breakout

More notable breakouts from yesterday and today:
[17] Central Euro Media (CETV) – Up 4% in a breakout today
[17] Drew Industries (DW) – Up 3% from its breakout yesterday
[16] Ceradyne (CRDN) – Up 4% from its breakout yesterday

In addition to the slew of breakouts from leading stocks, the market has managed to power through several layers of resistance in the form of major moving averages, psychological resistance and a downward trend line. The only concern is the absense of vigorous institutional buying. Below is a chart of the Nasdaq from yesterday. You can see how the Nasdaq has little trouble with several resistance levels.

Notice the formation of the double bottom base in the chart? By undercutting the first bottom, the second bottom flushes the weak holders out of their positions so that a new rally can begin. You can see the first reversal on May 12th and a second reversal that occurs on May 17th to create the low of the second bottom. That’s the key. Look for reversals, preferably on high volume. Looking out from here, it’s important for the market to find support at these resistance levels on decreasing selling volume. At this point, a healthy consolidation would be welcome in preparation for a run at the highs of April. As the market continues to show strength more investors will begin to feel like they are being left out of a nice rally. Maybe then we can get some volume to this rally!