Friday, April 06, 2007

A Peek Out of the Box

The chart below shows that the Composite managed to peek out of the box on Thursday.

The light holiday volume creates an important asterisk, but the NASDAQ still closed above 18-week resistance on Thursday. By itself, the 11% slide in volume would virtually negate the significance of this move. However, Thursday's close above 2468 is just one twinkle in a growing constellation of bullish signals.

Not that this makes sense of course. The economy is clearly slowing, and most pros are expecting the coming earnings season to be the worst in 4 years. However, the market appears to be seeing something else, and it's been having these visions for four weeks. Some would even say that it's been having them since mid-July.

One of these visions appears to have been Friday's strong jobs number. Recession hawks have been roosting in the rafters of troubled housing for some time. However, recessions don't happen with 4.4% unemployment, something the yield curve has been telegraphing for over two weeks.

Meanwhile, against a peak in bearish investor sentiment last weekend, the Composite closed higher for six straight days on generally declining volume. If Monday is strong, the market will have pulled off its most famous trick three times in the past month: making a key move with the fewest number of investors participating.

TA is designed to simplify investing decisions, not complicate them. ADX crossed bullish on Thursday, and now five important TA indicators -- MACD, Stoch, ADX, OBV and MFI -- are all confirmed bullish with room to run. Listen to the pundits, but trust the market.

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Over the past several weeks, numerous indicators have triggered Buy signals. In addition to the VIX and various EMA systems, there have been heavy volume intraday reversals, the Day 6 follow-through and a steady stream of breakouts on the IBD100.

The following are a variety of other indicators worth a look:

One IT indicator I've been stalking for weeks is the TOF Ratio. It's now poised to trigger a Buy soon, the result of option investors developing a renewed taste for calls. TOF: to simplify things, I'm using the EMA version going forward. As always, thanks again for indulging my interest in your very clever indicator.

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Markets are at their healthiest when the riskiest stocks move higher. To monitor risk performance, one of the handiest proxies to use are the Biotechs. The BTK recovered from the Feb 27 correction faster than any other sector, and on Thursday, it closed at a 7-year high. Remarkably, going into an economic slowdown, the BTK now sits just 1.8% below an all-time high. This is another good sign for the broader market.

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The Banks continue to hang tough at the 200-day. A resumption of the uptrend in the BKX would be another positive sign for the broader market, probably the most important one of all.

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I suspect price volatility will remain elevated as the market digests an uneven earnings season. However, overall the market looks good moving forward. As always, how successful you are depends largely on what stocks you own.

Have a great Easter weekend. I'm looking forward to going home on Sunday.

best

dk