More Than Meets The Eye

Random Thoughts

After all was said and done, a lot more was said than done in the Ps (S&P 500). They ended flat after trading both higher and lower. Net net, they have lost a little steam shorter-term. The volatility has begun to compress here so we could see an expansion in that soon. The longer the index remains quiet on a closing basis, the bigger the move once it wakes up again. Traders don’t agree for long. Write that down.

The Quack (Nasdaq) had an okay day. It tacked on just over 1/3%. This is better-than-a-poke-in-eye and enough to keep it at 14-year highs. So far, its breakout remains nicely intact.

The Rusty (IWM) tacked on over ½%. Again, it continues to claw its way higher in a two step forward one step back fashion. If it can keep this up, it’ll be at new highs soon.

Ideally, I’d like to see the Ps put in a solid rally and not look back for a while. This action would have them clearing the July peak decisively. Take things one day at a time though—so far, so good.

With the Ps in hovering mode just above their prior major highs, one would think that big cap “brick and mortar” sectors would have formed similar patterns. And, to some extent they did. Chemicals and Energies are stalling near their prior highs. However, some areas that often mirror the S&P did quite well. For instance, Transports broke out decisively to new highs. Ditto for Banks. The Financials also made new highs.

With the Quack at new highs, as you would expect many tech areas followed suit. Computer Software accelerated to new highs. Ditto for Internet. Telecom, which not too long ago was rolling over, has now made it all the way back to new highs.

Tuesday was a market of more than meets the eye. Internally, things were much better than the indices would suggest, especially the Ps. I suppose this isn’t a shocker with the broad based Rusty up over ½%.

So what do we do? Again, I’d like to see the Ps blast higher but I’m not complaining. Things continue to shape up. Many sectors that were not-too-recently rolling over are now at new highs. I am still not seeing a lot of new setups just yet because the methodology requires a pullback. So, continue to wait for setups. If the market does continue to remain at or near new highs, eventually we will see some rolling corrections within the sectors. For now, continue to put together your watch list. Usually with my momentum list I have plenty of room for new candidates as older members begin to under perform. Lately though, I have been kicking out quite a few “B+” students in favor of some new “A+” members. I’ll explain this relative strength concept further in Thursday’s chart show.

Best of luck with your trading today!

Dave