Wednesday, May 02, 2007

A Clean Hand-off

The market wasted no time in following-through on Tuesday's bullish reversal.

Wednesday was an important show of strength, made even better by truly excellent market internals. 70% of all NASDAQ companies closed higher as 8 out of every 10 shares traded was a Buy. Also, New Highs outpaced New Lows a very solid 406-71. Even though volume slipped 11%, the quality of market internals was a more important gauge of Wednesday's action.

The IBD100 made an important comeback as well, adding 1.7% on stunning breadth -- 82 of 100 stocks closed higher. Because of the recent pullback, just 9 stocks on the IBD100 tagged record highs. However, about 30 more stocks sit right below record closes, a very healthy sign. The market leadership continues to look fine.

Even though stochastics are pretty sloppy, fast MACD is bouncing off of slow while the ADX lines avoided a negative crossover altogether. 8 weeks of advancing and backfilling has left the trendline flat, but otherwise the Composite remains in very good technical shape. It doesn't hurt that it's a hair's-breadth away from a new 6-year high either.

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Networking and Telecomm stocks have been market leaders, and Networking notched another 6-year high on Wednesday. CSCO reports next week, and has been bullishly working on the right side of a base on solid volume. INTC, TXN, AAPL, MSFT, GOOG, and AMZN each put up strong Q1 numbers and moved the market. CSCO will likely do the same. Below are charts of Networking and CSCO.

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Speaking of technology...last summer, investors rotated rapidly out of commodities and into tech stocks. This phenomenon was partly responsible for the big gains in the back half of 2006. After a 3-month pause in 2007, this rotation appears to be gaining momentum once again. The tech/commodity ratio chart below is back at levels not seen since December. However, you'll know investors are really serious about tech when this ratio takes out its Jan high.

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As TOF described, the TOF Ratio is in excellent shape. The averages and stochastics are in near-perfect position, suggesting this rally still has legs.

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Like TOF, I'm also on the road tomorrow through Monday evening. My itinerary has gotten complicated, but I'll check in when I can.

Until then, remember the expression, "In price there is knowledge, but in volume there is truth." If you follow the volume, it's more difficult to make mistakes.

Have a great evening, and I'll see you from the road.



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