Tuesday, April 10, 2007

Bullish on Earnings Eve

Ahead of what is forecasted to be a shaky Q1 earnings season, stocks were surprisingly bullish again on Tuesday.

Even though Alcoa beat estimates, the Composite bounced off support and the Dow made it eight-straight, today's real star was the NYSE. The blue chip exchange officially beat everyone back to the top on Tuesday and posted a new, all-time high.

Volume left much to be desired, but the NYSE has managed to reclaim its new high without any MACD divergence. Given the huge momentum swing since Feb 27, that's a very tough trick. It's also a sign that beauty is running more than skin deep.

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While the indexes outwardly traded with caution on Tuesday, beneath the surface the market internals were notably bullish yet again. Advancers led Gainers, Up Volume outpaced Down Volume and New Highs dwarfed New Lows, 408-71. That's a ratio of 6-to-1, a remarkable figure given the current economic conditions.

The IBD100 acted similarly. On the outside, the index closed unchanged. However, on the inside, 54 of 100 stocks moved higher, while an impressive 21 stocks hit record highs.

Lethargic price and weak volume are disguising the buying that's actually going on inside. The fact that volume accelerated 7% as the Composite printed an outside day are indications that the buying isn't exactly a well-guarded secret either.

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One chart worth a look tonight is the NASDAQ 60-minute. It shows how the index appears poised for more gains.

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The Banks continue to hang tough at the 200-day, and now the BKX appears to be printing a diamond. Diamonds are a sign of indecision, and they're tricky. They can either be a reversal pattern (the BKX would move higher), or a continuation pattern (the BKX would move lower). The only thing that's certain is this: once diamonds get this far along, a break is near. The green line at 119 is the old all-time high.

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Tech stocks are generally still a mess, but it's important to note that Software remains the best sub-sector thus far. It's just off a new high, which suggests that if you want to own tech, you'll improve your odds by including Software in your search.

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Finally, lowrisk.com shows investor sentiment remains firmly Bearish, even though the NASDAQ is up 6.2% off the March bottom and just 2.1% below a 6-year high. This is contrarian bullish, and corroborates the AAII Bull Ratio.

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If it seems weird that the indexes appear so bullish while we're in the middle of an economic slowdown, you're not alone. It's a head-scratcher, and reveals that following the ball isn't as easy as it looks. I'm a fair-weather friend of this market, and it's good to know cash is just a few clicks away. However, for now anyway, the weather still looks pretty good.
Until tomorrow, have a great night.



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