Thursday, May 31, 2007


The NASDAQ gapped to a new 6-year high on Thursday and then stood its ground, a fitting end to an unusually strong May.

Just five sessions ago, the market stood at the brink of disaster. Even worse, it was the third time in May that the market had been there . Each time, just as the market seemed ready to fall apart, buyers stepped in to push the market to a new record high. The green arrows on the chart below shows this string of higher lows and higher highs, ending with Thursday's close above 2600 for the first time since Feb 2001.

A remarkable bid remains under this market, and three times it averted what could have been a terrible month. It's a reminder that TA graphs the forces of FA, and not the other way around. The three "failed" bearish formations are evidence that if investors want to buy (or sell!), it doesn't really matter what the charts look like.

Speaking of fundamentals, while the broader markets were mixed on Thursday, leading stocks rallied hard. The IBD100 gained 0.9% as a whopping 31 of 100 stocks hit record highs. This was the 4th straight day the IBD100 has outpaced the broader market, positive divergence that is usually very bullish for stocks.

The market internals are sending a similar message (see charts). May's three bearish threats took a toll on the internals, but most of that damage has been repaired.

The MACD divergence is the weakest link on the chart below. However, it's also printing a positive crossover, indicating momentum is accelerating again. If the buying is sustained, MACD can heal itself.

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Since bottoming in Jul 2006, the NASDAQ has been been up 8 of the past 10 months, and is finally pushing the Bollinger envelope open. Volume has been stronger on up-months, and all of the technical indicators suggest more gains ahead.

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A look at the subindexes shows important strength in critical areas.

--- The Transports hit an all time high on Thursday, as did the Brokers and the Cyclical Index.

--- Technology continues to flash important signals. Tech bears tend to focus on the SOX weakness, while ignoring the more important broader strength. For example, the Tech Index hit a record high on Thursday, as did Internet, Software, Networking and Telecom. In fact, Hardware and Semis are the only two tech subindexes NOT at record highs.

--- The Retail Index refuses to give up. It's climbing the right side of what appears to be a constructive base, and sits just 1.8% below an new all-time high.

Maybe not on Friday, but all of this suggests more gains ahead for stocks.



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