Monday, January 3, 2011

State of the Stock Market - 1/3/11 - "Quite a Happy New Year"

We saw a great start to the new year today on Wall Street, as stocks gapped up to start the day and although they faded slightly throughout the afternoon, they still closed with very nice gains.  Volume will be heavier which is another positive.  Small caps led the way, outperforming the Nasdaq and S&P, and financials led the sector-action with a gain of over 2%.   The overall action was more impressive when you consider commodities faded late and did not participate much in the rally.  

 Russell 2000
 Charts from Telechart, Courtesy of Worden Brothers, Inc.

Signal-wise, the main signal turned bullish December 1 and remains bullish today.  A down day today would have turned the main signal to "caution", but that didn't happen, so it's a moot point.  Continue to ride your longs if you have them. Both secondary signals I use are also bullish, as we saw some solid breadth action and a large number of breakouts.   The numbers I follow are getting "up there" in a few cases, so I wouldn't be surprised to see a quick correction soon, but it's certainly not a given. 

In terms of individual stocks, there was some nice action in more well-known momentum names today like RVBD, LULU, APKT - all look good.   I also liked the action in some smaller China names like CCME and HTHT, although their moves weren't explosive.   GMXR was the big early winner from my "top 11 stocks for 2011" video on Saturday - up 10% today on very nice volume. 

We'll see if we get some follow-through tomorrow, but today was an impressive start to the year.   That does NOT mean we are going to keep going up forever - at the start of 2009, the Nasdaq was up 3% (1/2/09) to start the trading year, but went into a correction four days later on 1/6/09.   Last year, the Nasdaq was up 1.6% to start the year (1/4/10) but started a correction about two weeks later on 1/20/10.   We'll have to watch and see if the market can make this move last longer than those two.   Take care and good luck Tuesday.

Main Signal:  Bullish   Secondary Signals:  Both Bullish


Doctor Stock said...

Great analysis... thanks. I think your advice to ride the longs while the momentum says so is right on. Of course, as you note, this won't continue forever, but while it does... we might as well make money!

BTD said...

True but it couldn't hurt to sell into strength and take some profits along the way so you don't get whipsawed.