Tuesday, June 19, 2007

The End is Near!

In the new HBO drama, John From Cincinnati, a mysterious stranger with child-like mannerisms arrives in a sleepy, surfing town and repeatedly professes, "The end is near."

He could just as easily be talking about the stock market. Everyone knows that the prophecy is true, it's just that no one knows what "near" means. One thing for certain is that for stocks, "near" slipped further into the future on Tuesday.

For all the bearish bluster and weak housing data, selling pressure continues to be very unfocused. For the second straight day, a sharp opening selloff was met almost immediately with buying pressure. This time the NASDAQ managed to protect a positive close on a 12% pickup in volume.

Perhaps the most troubling thing for the bears is that the stealth rally continues to rumble higher. Tuesday marked the 5th consecutive day that the IBD100 has outpaced the broader indexes. On a flat market, the IBD100 surged 1% as 70 of 100 stocks posted gains. Also, an impressive 30 stocks tagged record highs. While the NASDAQ has gained a scant 16/100 of a point in the past two days, the IBD100 has surged 1.6% higher.

Confirming this stealthy strength are the market internals (see charts). While Up/Down Volume was negative on the NASDAQ, all other internals on both exchanges were positive on Tuesday. As crazy as it sounds ("The end is near!"), based on recent trading patterns in leading stocks and market internals, stocks appear poised to move higher soon.

If an index isn't gonna move higher, the chart below is definitely the way to move sideways.

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Besides leading stocks and market internals, other evidence is pointing to higher stock prices as well. The section below discusses how Treasuries, Banks, the VIX, foreign markets, and options all suggest that more gains lay ahead for the US stock market.


On Tuesday, yields fell, Banks rose -- and the stock market yawned. Stocks will eventually wake up to implications of these moves, but meanwhile the 10-year Treasury yield filled the second of its three gaps.

It's hard to imagine the 10-year acting with such mathematical perfection, but it's worth pointing out that filling the third gap below would also coincide with a 62% Fib retrace. Fun to consider, but don't hold your breath.

In the past 8 sessions, yields have now fallen 0.6%, while the Banks have gained 3.1%. This confirms what the market leadership was saying all along: the stock market is far less concerned about the jump in yields than was first thought. This, of course, is good news for stocks.

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The VIX continues its jittery decline, which generally fills the sails of the stock market. There's an acceleration of interest in the VIX and option-related volatility, and I urge readers to keep up with VIX and More and Daily Option Report for the latest developments.

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In the past two days, Hong Kong, Taiwan, Singapore, Seoul, London, Germany, Brazil and Mexico have all rallied to fresh, all-time highs. Meanwhile, Shanghai, Tokyo, Australia, India, France, Italy, Netherlands, Austria, Spain and Toronto all sit within 3% of new all-time highs (most are much less).

Below is Tuesday's spectacular -- and long-awaited -- Hang Seng breakout. It's an event that many view as particularly bullish for the world markets. It's also a picture-perfect resolution to an inverted H&S.

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Finally, the TOF Ratio continues to strengthen as option investors pick up calls.

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At this juncture, it would be foolish not to advise caution. However, the evidence suggests that while the end may be near, it's not here yet.

Until tomorrow, have a great evening.



1 comment:

Anonymous said...

You should remember 3 agoust 07 for rest of you life.BLOOD in Wallstreet.