The Big Bounce

The market looked ready to move lower on Thursday, and it did -- for about 30 minutes.

In a remarkable bounce against all manner of economic headwinds, the NASDAQ reversed direction to close at a 7-week high on Thursday. The NYSE confirmed this move and closed at an all-time high, its second record high in three days. NASDAQ volume was even with Wednesday's total, suggesting there was more to the action than just short covering.

On a cautionary note, the IBD100 put in a muted performance on Thursday. Dragged down by the likes of RIMM and MW, it gained just 0.5%. Breadth was just so-so, as 60 of 100 stocks moved up, while just 10 stocks printed record highs. By comparison, on the NDX, 82 of 100 moved up as it gained 0.9%.

After gapping lower at the open, the Composite bounced off its 13-day (dotted line) before heading higher the rest of the day. One of the most interesting features of the daily chart below is the positive MACD divergence. MACD has nearly returned to pre-correction levels, while index price hasn't. This is an uncommon situation, and is typically very bullish. Stochastics reveals that some of the overbought conditions have been worked off as well. Who knows about tomorrow, but tonight this is a good-looking chart.







Since bottoming in mid-March, market internals have been consistently gaining strength. While not flawless, they've steadily improved as the market climbed higher over the past five weeks. This is important, as the market won't go very far without internal, skeletal strength.

Below are three charts that show this progress visually. NASI is a good proxy for A/D (breadth); High-Low charts New High vs. New Lows; and $NAUD measures Up Volume vs. Down Volume. The most important of these is the NASI, and unfortunately it's the weakest of the three. For the record, NYSE breadth is much stronger.











Banks stopped the bleeding on Thursday, but offered little else. For now, the market will take any strength out of the BKX it can muster.







As a follow-up, last night Biotechs and Commodities were mentioned as likely targets for more institutional buying. Biotech and the Drillers did very well on Thursday. The BTK notched a new, 7-year high, and sits just 0.7% below an fresh all-time high. It's a healthy sign that investors seem willing to buy the riskiest part of the market (many of these stocks have no earnings).

In the tech sector, Software is leading the pack, and it also had a solid day. Seeing strength in these three leading groups suggests the current rally has further to go. The BTK, OSX and GSO are all included below.











When Warren speaks, everybody listens, and Buffet's recent interest in railroads has Transports on the move. That's some very nice volume, and the TRAN now sits just 3.1% below a new, all-time high.







The market's rapid about-face on Thursday was an eye-opener that points to more gains ahead. However, tomorrow's Friday, so we'll see.

Until then, have a great evening.

best

dk