Following a surprising cooling in inflation, at least temporarily (let’s remember that one month of data doesn’t make a trend), the market got a nice pop yesterday.  While volume came in higher than the day before, indicating accumulation, it was not all that impressive considering the price move.  I want to see another day of higher volume than the day before (and this time above the 50 day average) to indicate more institutions putting money to work.  The Nasdaq cleared two key resistance levels yesterday (the downward trend line and the 50 day moving average).. no doubt this is a very important move.  Now let’s see if this old resistance level can hold as new support.  Both the S&P and Dow remain in striking distance of a breakout move.  The market is getting another pop this morning as traders like the CPI data indicating a pause in the escalating inflation.  I certainly won’t be chasing this move at the open.  Let’s see if it can hold in the first hour, then we might have a chance at a real breakout today. 

The level on the S&P I’m watching today is 1290.  If the S&P can move above this level with volume higher than the day before and hold there, that would be a very bullish move and force me to move more cash into the long side.

What I’m looking for in the Dow today is a strong move and hold above 10344 with volume higher than yesterday above the 50 day average.

I mentioned several weeks ago to members of Selfinvestors.com that another major upgrade is in the works.. I won’t give a timeline because these projects always seem to take much longer than expected.  BUT, I will say that one new feature will be a Market Snapshot page where you’ll be able to quickly see just how well the overall market is doing.  Along with this new feature will be a MidDay Update on days when the market moves significantly in any one direction.  I’ll discuss the strength of the move as well support and resistance areas.  This new feature will be available to registered users of SelfInvestors.com completely free.

** MARKET SNAPSHOT **

Looking at the price change is of course one piece of the supply/demand puzzle that all financial sites use.  What you won’t see at nearly every financial site is a focus on the volume behind each move.  That’s where the SelfInvestors Market Snapshot page comes into play.  Throughout the day (updated every 15 min.), you’ll be able to not only see price changes in the major indices (Nasdaq and Dow) and ETF tracking indices (SPY, QQQQ, DIA & IY), but you’ll be able to guage the volume as compared to its average at 15 minute intervals throughout the trading day.  For example, at 1:15PM EST the Nasdaq is up 1.7%, but volume is tracking 11% below the average at this point in the trading day. 

We’re at the halfway point of the trading day today and looking at the numbers makes it clear that today’s rally doesn’t have the big fellas behind it.  Considering yesterday’s volume was very light as well, we could still get a day of accumulation (if today’s volume can surpass yesterday’s), but we’re going to need to see some volume into the close on the upside. 

The rest of today’s data is as follows:

Nasdaq ETF (QQQQ): up 1.85%, volume currently tracking 6% higher than average
Dow: up .84%, volume -25% from average
Dow ETF (DIA): up .84%, volume -42% from average
S&P500 ETF (SPY) up 1.00%, volume -16% from average
Russell Small Cap ETF (IYM): up 1.57%, volume -23% from average

** Self Investors Leading Stocks Index **

Another component of the Market Snapshot page is the data for the SelfInvestors Leading Stocks Index, which you can currently find just to the right of this post.  SelfInvestors Leading Stocks are stocks that are currently in the Breakout Tracker database.  Most of these stocks are near a breakout or have already broken out.  This database is comprised of market leaders so provides a great look at the health of the market.  Again, looking at today’s data indicates that the rally today is muted.. no reason to get too excited about today’s move.

While advancers are crushing decliners 313 to 34 and advancing stocks are up 1.96%, volume is currently 16% below average at this point in the trading day for these advancing stocks.  Institutions are not putting money to work in leading stocks today.

** Where’s the Money Flowing **

Many websites just provide leading industries based on price performance alone.  Without the volume, this can be misleading.  The only way that I know of to guage industry/sector strength WITH volume levels is through the analysis of ETF’s.  A couple years ago this was not possible, but as more traders/investors use ETF’s they become a much better tool for guaging the health of the market and seeing where the money is flowing (or not flowing).  Using the proprietary SelfInvestors Demand Indicator score which measures price and volume movements, I’m able to quickly see which sectors/industries are seeing the greatest inflows of cash.  For example, the Market Snapshot page is currently showing that demand is currently greatest in Pharmaceuticals, Financials, Gold, Health Care and Telecom while demand is weakest in Consumer Services, Aerospace/Defense, Internet, Transports and Oil & Gas Services.

** Stocks **

The final component of the Market Snapshot page is a section that displays Breakout Tracker stocks moving up and down with significant volume.  This area is still in the planning stages.

** Several Other Features Planned **

Other components of the Market Snapshot page will include article headlines, SelfInvestors portfolio allocation, quick links to SelfInvestors State of the Market reports, Accumulation/Distribution calender, etc.   

If you’d like to begin receiving the MidDay Updates as well as the Weekend Review Reports, feel free to sign up for the free membership on the home page of SelfInvestors.com

Last Tuesday, the S&P500 became the first major index to rise above resistance of its downward trend line.  On Friday, the Dow too, was able to follow in the S&P’s footsteps.  Time to jump into long positions right?  Not so fast.  There are some glaring red flags indicating that this market is still on shaky ground.  The big concern is volume (more on that in a minute), but there are also problems with the number of high quality successful breakouts.  Friday, I remember scanning my database as well as other info sources for high quality breakouts.. outside of PVTB, I wasn’t seeing much that interested me.    A run down of the charts revealed many moves were ocurring off oversold conditions and many of those moves lacked volume.  Clearly, high growth stocks have lost their luster of late.  Not what you want to see in a market rally.  With big pharma, cigarettes, select banks, utilities and some large cap names like AT&T (T) and Comcast (CMCSA) doing well, traders continue to put money into the more defensive areas.

The biggest concern is the lack of volume behind the latest market rallies, most notably last Tuesday and again on Friday as the Dow also broke through resistance of its downward  trend line.  I for one am becoming increasingly skeptical of this two week surge in the market.  With more resistance levels on the horizon, it pays to remain largely on the sidelines until we get a big price AND volume move.  That would signal that the big fellas have come to play the long side.. and a signal for you to follow their lead. 

Taking a look at the chart of the S&P 500 below, you see that the index made some key moves last week by clearing 3 resistance levels of the 50/200 day moving averages and the downward trend line.  It also remains above the 2 year trend line I’ve discussed in previous reports.  That’s the good news.  The bad news as I mentioned above is that lack of volume (in addition to looming resistance areas somewhere between 1280 -1290).  Looks like we’re going to see some selling very soon.  Pay attention to volume levels on the sell side.  Are institutions using the rally to dump shares?  That would show up in increasing sell volume levels in the coming days.

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Not surprising, the Dow looks very similar.  It too cleared several resistance areas last week but looks shaky up here (at least in the short term) with a lack of momentum behind the move as it faces another round of resistance. 

The Nasdaq has long a way to go before you could declare a new uptrend.  It has yet to clear any resistance levels and still remains submerged below that 2 year trend line I have discussed in past market reports.  It’s difficult to have a sustained market rally without the Naz involved.

After yesterday’s big move with surprisingly little volume, it appeared that the market would once again turn tail at important resistance.. and that was the case in early trading this morning following a run up in oil and some poor earnings results.  However, by the end of the day, with oil prices retreating, we were looking at a nice little confirmation move in the S&P above key levels.  Today, the S&P became the first major index to clear important resistance of the 200 day moving average AND the downward trend line with volume higher than the day before.  It’s not a blow out bullish move and much work is left in the Dow (which sits right at resistance of the downward trend line) and Nasdaq (not even close to first major resistance of downward trend line), but it’s another step in the right direction.  Keep an eye out for new leaders in emerging industries.  Certainly, those small banks can’t be ignored and oil stocks made a big move today as oil companies begin to report big profits once again this quarter.

Note the formation of the W shaped double bottom bases in the charts below.  I would have liked to see both the Dow and S&P under cutting the first leg down, which would increase the likelihood that we have put in a  bottom.  Also note that with today’s move, the S&P has a new support level at the downward trend line around 1260.  Let’s see if the Dow can follow the S&P lead tomorrow and clear that downward trend line.

On Tuesday, the market appeared to be setting up for a tradeable rally off support levels by reversing sharply off the lows in higher volume.  It didn’t take long for the bears to rush in and spoil the optimism, taking out key support levels in the process.

With geopolitical concerns comes rising oil prices, comes curbing inflation worries, comes slowing economy..  sure, that’s a wall of worry for the market to climb, but the wall may be too big.  Here’s a look at the chart of crude.  I’m still not completely convinced that crude is going to break out of this base successfully and soar to $100/barrel, but anything is possible.  I’d want to see one more big move above $76/barrel and close there to be convinced that out of control crude prices were on the horizon.

It’s easy to fall into the trap of trying to anticipate moves off the bottom, instead of being patient and waiting for the sure thing.  I was guilty of this and put on an additional long trade on Wednesday, in anticipation that the market would follow through higher for at least a couple days.  Hopes for a quick gain quickly turned into cutting and running with a small loss. 

With the rally attempt failed, we now turn our attention to bottom seeking mode and how much room to the downside could be expected.  The bad news is that the Nasdaq is now firmly entrenched below support of its 2 year trend line and will need a 100 point rise just to get back to that resistance level.  If it weren’t for the S&P and Russell 2000 Growth Indexes holding support above their 2 year trend lines, I’d say we’re in for a lengthy bear market.  It’s the last glimmer of hope for the bulls at this point.  Let’s have a look.

Looking at the 2 year trend on the weekly chart, you see the Naz flirting with that support level over the past month or so, but ultimately holding above.. that is until this week.  Will it reverse sharply and hold that line of support again by Friday of this week?  No, the Nasdaq won’t be rising 100 points tomorrow, so the Nasdaq will close significantly below this key support level.

With the Nasdaq taking out the June lows today, look for a retest of the October lows in the next several days at around the 2025 level.

The glimmers of hope shown below.  Both the S&P500 and the Russell 2000 Growth index [represented here by the Ishares ETF (IWO)], continue to hold above their 2 year trend lines.  If I were a betting man I’d say these support levels would be violated in the next couple of days.  It’s important to see how they recover though.  Perhaps, some sort of capitulation move is in order where these support levels are violated with panic selling, only to give way to a massive reversal.  After selling a few small, long positions today, I’ll be watching this unfold from the sidelines.

The market knows all and forecasts the future, pricing in fears and optimism along the way.  Over the past few weeks the market has been pricing in rate hike, slowing economy and inflation fears and today was a clear indication that the bulk of rate hike fears had been priced in, leading to a relief rally. 

About a week ago, once the Dow made the first move above 1st level resistance levels, I began to prepare SelfInvestors members for the possibility of a coming relief rally once the Fed decision was made.  In the Weekend Roundup report to members I mentioned:

"One significant positive move occurred in the Dow on Wednesday as it cleared first level resistance with volume higher than the day before (but below average).  However, both the S&P and Nasdaq remain submerged below first level resistance levels.  The Fed decision on Thursday may provide important clues as to where this market is headed in the coming weeks.  Just how much of the inflation and rate hike fears are priced into this market?  It’s quite possible that most of those fears have been priced in and we get some sort of relief rally following the Fed decision.  At this point I’m dabbling on both sides of the fence with a bias towards the long side.  It’s important to be prepared for a rally at the end of this week by dabbling in long positions or at the very least have your watchlists at the ready and prepared to make a couple moves."

There has been some speculation that traders read too much in to todays Fed statement and that there is no clear indication that the rate hikes are near an end.  At any rate, shorts covered and buyers rushed in for what technically amounted to a confirmation of a new rally as the major indices spiked 2% or more higher on volume higher than the day before.  No doubt, you’d like to see volume more impressive with a move like we got today but it was a significant step in the right direciton.

But, (you knew that was coming).. important resistance levels remain and this market still has much work to do before we begin a new sustained rally.  Lets keep in mind that it is the end of the quarter, a typically volatile move after a Fed announcemnet and a holiday weekend coming up (sort of).  Today’s move without a doubt signals the go ahead to pursue long positions with a bit more aggression, but with resistance looming and earings season fast approaching, jumping in with both feet remains an unwise decision. Once the bulk of earnings begin to roll in around the middle of July, we’ll have a much better idea of just how well the economy is doing or isn’t doing as well as how inflation is faring.

On to the charts….

The weakest of the major indices, the Nasdaq cleared first level resistance areas today with volume above average and above yesterday’s level indicating accumulation. Volume was good but not outstanding. Institutions may have begun putting money to work today, but they aren’t jumping in with full force and you shouldn’t be either. Today’s move most likely gives the Naz the momentum it needs to test the next level of resistance where the 50 and 200 day moving averages converge. Note: the 50 DMA has crossed below the 200 day moving average which is a bearish indication. It’s a reminder that MUCH work remains as the market works through significant technical damage.

With today’s move, the S&P managed to clear both 1^st level resistance of the downward trend line AND resistance of the 50 day moving average. Again, resistance looms at the 50 day moving average. Also, notice the unspectacular move in volume today. With a move of over 2% you’d expect volume to be significantly higher than it was.

 

The Dow is the strongest of the major indices and is already testing 2^nd level resistance levels. It cleared first levels resistance back on June 21^st and has since been finding support along the downward trend line, ultimately bouncing off of the 200 day moving average.

 

I’d like to share a couple premium reports I sent out to members last week. A few are well extended past a proper buy point, but there remains some great opportunities you may want to consider in the coming weeks.

The Longs

Remains one of the best looking charts around and has held remarkably during the downturn, holding above key support and still in position for a solid breakout above the consolidation.  Look for a high volume break above the highs of the consolidation with volume heavier than it was today as a signal to initiate a small position.

Another great looking chart.  Tight price action, trending along support of the 50 day moving average, good surge in buy volume at the breakout and now digesting those gains to return to the pivot.  Looks like a good entry is shaping up soon at this level with good support around 8.30 and at 8.  Sell volume was a bit heavy today… I’d want to see sell volume dry up to around half or more of the average before getting in.

I like this chart because it represents a scenario where you could play off support or play above resistance (or what could be called a ‘handle’).  Those following strict IBD rules would only buy on a break above 49, but if I see a stock changing momentum, surging above resistance, then consolidating quietly to return to the support level (as GPN) has done here, I can get in with more reward potential and lower risk.  Why?  Because my support levels are much closer to my buy point.  If I buy near support around 46.50, I have very strong support between 46 and 46.50 (where the 50 and 200 day moving averages converge).  I have the safety of support but the underlying momentum to provide significant potential reward.  Remember, as much as investing systems like to package everything into a nice tidy little package, it’s not always so cut and dry.  Master price/volume movements and know where support and resistance levels are and you can come up with your own system for success.

The Shorts

For those that have been premium members here for awhile, may recognize that I always look for a similar pattern when trolling for short positions.  It’s the high volume plunge followed by a weak return to what is now resistance.  It’s a short pattern that often works well with very little risk.  China Life (LFC) and Zoltek (ZOLT) below both offer outstanding short opportunities.  Both stocks are making their way back to resistance of the 50 day moving average so you’ll want to see how it does when it meets that level before initiating a position.  Does the stock continue to run up with weak buy volume only to retreat with increasingly heavy sell volume?  Time to short.

Quick Strike Profits Report (Sent to members June 26th)

Last week I told you about a few high quality long plays as well as plays on the short side.  In current market conditions there are opportunities on both sides, but it’s important to lock in profits (and cut losses) a bit sooner than you normally would.

A couple months ago I launched a new feature for premium members called Quick Strike Profits, which highlights stocks that are pure technical/momentum plays and offer great potential reward in the short term.  These stocks exhibit great looking charts with lots of momentum.  I personally like to supplement my core portfolio holdings with a couple of these plays to give the portfolio a little extra juice.  With market conditions slowly improving, I feel its time to at least begin to take a look at some of these plays again.  Here are a few of my favorites right now:

1.  Vaalco Energy (EGY):  breaking out of long base as buying demand has surged in the last few weeks.  Just cleared an all time high on Friday.  I’d wait for it to come in a bit, but it may not do so.

2.  Celgene (CELG):  broke out of a base on Thursday and cleared an all time high with decent volume.  Remains in buyable range.

3.  Advanced Medical Optics (EYE):  broke out on Friday with decent volume.  Big demand over the past couple weeks and the stock remains in buyable range.

4.  Open TV Corp (OPTV): forming bullish triangle pattern – breakout point is around 3.85 (look for heavy volume on any move above this price)

5.  Quest Communications (Q):  Can you believe it? These guys are still in business and expected to become profitable again in ’06.  Last quarter was the first profitable quarter in several years and that’s been reflected in the stock price which has more than doubled over the last year.  The stock broke out of a decent looking base on June 2nd and has been consolidating in a healthy manner since.  I’d be looking for a breakout from this consolidation as an opportunity to make a small purchase.

On a day like today it’s very easy to see all that green and want to jump in with both feet and forget about where we are coming from.  Granted, if you’re swing or day trading today’s move created opportunity.  But for those not interested in the short term thrills this market has been offering recently, it’s important to keep the bigger picture in mind.  Despite today’s thrilling move to the upside (or so it seemed thrilling to CNBC), the market is still seeking a bottom and today’s move only gets us to first levles of resistance.  Nothing more than that for now.  Let’s not get too excited yet longs.. there is much work to do.

There is room to run yet before that resistance level is met, so we’ll probably get some more green tomorrow at the open.  With options expiration it should be an interesting day.  That was a big time move today, but where is the volume to accompany it?  Sure it was higher than yesterday, but not well above average.  Institutions aren’t yet putting money to work but the picture for longs is continuing to improve. 

Same story with the S&P.  Some room to run before resistance comes into play.  There is probably enough momentum from oversold conditions to clear that first level of resistance at the 200 day moving average around 1260 and touch the downward trend line at 1270.  I’ll be looking for a couple short term short plays there should it happen. 

On a day like today it’s very easy to see all that green and want to jump in with both feet and forget about where we are coming from.  Granted, if you’re swing or day trading today’s move created opportunity.  But for those not interested in the short term thrills this market has been offering recently, it’s important to keep the bigger picture in mind.  Despite today’s thrilling move to the upside (or so it seemed thrilling to CNBC), the market is still seeking a bottom and today’s move only gets us to first levles of resistance.  Nothing more than that for now.  Let’s not get too excited yet longs.. there is much work to do.

There is room to run yet before that resistance level is met, so we’ll probably get some more green tomorrow at the open.  With options expiration it should be an interesting day.  That was a big time move today, but where is the volume to accompany it?  Sure it was higher than yesterday, but not well above average.  Institutions aren’t yet putting money to work but the picture for longs is continuing to improve. 

Same story with the S&P.  Some room to run before resistance comes into play.  There is probably enough momentum from oversold conditions to clear that first level of resistance at the 200 day moving average around 1260 and touch the downward trend line at 1270.  I’ll be looking for a couple short term short plays there should it happen. 

When the market is searching for a bottom and you see it drop like a stone with heavy volume, you have to be on the lookout for that dramatic reversal that signals a bottom.  We got it today.  In a report a couple days ago I mentioned that the reversal had me unconvinced because it was lacking volume.  That was certainly not the case today.  In fact today marked the 4th highest trading volume day in its history (the biggest volume day was on April 18th 2001 when the Nasdaq traded 3.08 billion shares – surprisingly the only time it has traded more than 3 billion shares).  While the Nasdaq didn’t close in the positive (the only negative of today’s action), it did reclaim a very important support level at its trend line off of the October 2005 lows.  Have a look.

While the S&P finally broke down below the 200 DMA, it still had support of its trend line which it bounced off of in convincing fashion today.  I didn’t go back and research volume levels for the S&P tonight, but no question it was up near a record as well.  One negative is the fact that it did not reclaim support of the 200 day moving average.  It would not at all surpise me to see the S&P retest that trend line at some point in the coming weeks.  You’d like to see that happen with declining sell volume.

The Dow broke through its 200 day moving average today too, but it was able to reclaim that support level.  Volume wasn’t quite as good in the Dow, but impressive action nonetheless.  It still has support of its trend line off the October ’05 lows around 10,500.  There certainly is a good possibility of testing that level before the summer is over.

So where to go from here?  I personally took profits in short positions today and dabbled in a couple long plays in my personal accounts when it was clear the reversal was taking shape.  This volatility has certainly created many opportunities for those getting in and out in a few days time, but those kinds of opportunities are better geared towards the trader who’s able to track the markets all day.  For most investors (who aren’t able to keep close tabs on the market during the day), the best option is to remain largely in cash while the market gyrates back and forth finding a bottom.  You’ll save yourself the stress and probably quite a bit of money by continuing to be patient.  From here, we most likely see a continuation of the springboard action we saw today for a day or two, but it should come back and possibly retest the lows.  At this point, a big long signal would occur on some kind of confirmation day (a 2% move up with heavy volume).