Wednesday, June 22, 2011

Is This Follow-Through Day Going to Be Different?

We saw an obviously great session yesterday on Wall Street, with stocks starting the day slightly higher, but it was onward and upward from there.   The morning session was extremely strong, and although there was some consolidation in the afternoon, stocks did manage to close near their highs for the session.  The 2.1% gain along with the heavier volume gave the Nasdaq a follow-through and put the market (at least for now) into rally mode.   It is too early to tell if this will simply be another fake-out like May 31 was, but there are some differences between that day and this one.

On the plus side, breadth was very impressive yesterday as you may guess.   It was the heaviest buy/sell ratio in the indicators I use since Novemeber 2010.   A new trend is not made in one day and there is still some work to do to get the breadth thrust that would signify the market wants to really move higher, but at least it's a start.

(I am having trouble uploading pictures the way I normally do so you may have to click on the picture to see it better - sorry for any inconvenience.)

Buy/Sell Pressure

Technically, the Nasdaq and Russell led yesterday which is exactly what you want to see, but there is some resistance overhead for all the major indices.   Although it would be great to see immediate follow-through to yesterday's action, a little rest would not be a bad thing as well.   As long as the market doesn't give it all back like it did on June 1, then you need to respect this rally and realize it has a chance.  It's not guaranteed to work, but nothing is on Wall Street.
Russell 2000
S&P 500

The positive about yesterday is that the action was very strong %-wise, especially when you compare it to May 31, where we were up only 1.4%.  Historically, that is not a large enough gain to really qualify for a follow-through day.   We have also had a much larger correction than we did then, so that may help get this rally going.

I did enter some longs yesterday but none were large positions as I think it's smart to make the market prove itself here.  There are some stocks setting up here that are worth watching, but not a ton because the market has been hit hard over the past month.  If this rally does move forward, it will likely be a slower-developing one in terms of leaders.

All charts from Telechart, Courtesy of Worden Brothers, Inc.

Overall, yesterday was very positive and the opportunity is now there for the bulls to move this market back up.  We may see a little "sell the news" action today on the Greek vote from yesterday but as long as the selling is light, then it is not a big deal.   If it's 10:30 and were down thirty points on the Nasdaq, then I'll start having flashbacks to June 1 and likely be out of my long positions.   We'll see - either way, good luck.


Anonymous said...

hi mac

i didnt overtrade but the market exhausts me, very tired... ...


Mac said...

I don't think you're the only one. It's extremely tough to do anything productive right now.