Tuesday, January 23, 2007

Blue Chips Shine

The broader market -- and energy stocks -- caught a nice bounce today, but technology had little success holding onto its gains.

Breadth on the NYSE was solid, as oil, materials and metals enjoyed a nice updraft. In fact, the NYSE nearly notched a new all-time high as volume accelerated a respectable 12%. However, things were very different on the NASDAQ. On the bright side, Composite breadth was positive, volume picked up 6% and New Highs increased. However, Down Volume still outpaced Up Volume, and the results of this were most visible on the NDX. Not only did it close lower, it closed below its 50-day, as only 48 of 100 stocks posted gains. Tech continues to have difficulty finding buyers.

Like the NYSE, the IBD100 had a good day as well, adding 1.1% as 68 of 100 stocks moved higher. However, volume was questionable. Roughly the same number of stocks on the IBD100 posted distribution days as did accumulation days, which means that lots of leading stocks rallied on lower volume. This isn't what you want to see on a 1.1% up day.

Looking ahead, the indexes are very oversold, and today saw positive breadth. When oversold conditions are combined with positive breadth, you have a recipe for more ST upside. Good numbers from YHOO and SUNW aren't going to hurt tomorrow either. However, for this move to be more than an oversold bounce, the market needs a longer-term catalyst. So far, earnings and guidance aren't enough.

That said, the Bears continue to wimp-out on downside follow-through. Ghastly divergences are everywhere -- ripe for the picking -- yet index prices continue to hang in there. Long or short, if you pick your positions wisely, you can outperform the meandering broader indexes.

Below is the NDX. While the SPX and Dow actually look pretty good, the NDX isn't printing a particularly constructive chart formation. However, sideways-to-lower action would help a lot, possibly setting up a very positive double-bottom. It's hard for the market to go far without the NDX, and it's at its healthiest when the NDX is leading.

Have a great night.



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