Thursday, June 05, 2008

New Lease on Life





There's nothing quite as bullish as a market that keeps going up -- except for one that keeps going up against an onslaught of terrible economic news.

Just 14 sessions after starting a correction, the NASDAQ printed a new, six-month closing high. In fact, the NASDAQ hasn't closed this high since the second trading day of 2008. Thursday's close extends the March rally to a 12th week, and gives it a fresh set of downs. While it doesn't make much sense now, for some reason investors are looking across the valley to the other side.

The chart below shows that the NASDAQ remains in the uptrend channel begun in March. Even though a gap remains below, the index has room to run, and New Highs are accelerating.

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One of the most encouraging signs for the market is its renewed appetite for small-cap stocks. Markets do best when riskier asset classes lead, and leadership in young, small companies is generally a sign of market health. The declining green line in the ratio chart below shows that, for the past 2 years, large cap stocks have predominated.

However, in May the small-cap ratio broke above its 26-month downtrend line, indicating a shift in trend to smaller stocks. This is an encouraging development, and an early sign that a new market cycle is trying to take shape.

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The chart below illustrates small-cap strength even further. The MID tagged a new YTD high in May, and the SML did so on Thursday. Large cap stocks lag far behind.

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Stocks are under accumulation by institutional investors, and gains can be made by following their footsteps. Watch for stocks that surge on heavy volume, especially those hitting new highs. Breakouts are growing more abundant, another good sign for the market.

Maybe not on Friday, but stocks look ready to eventually move higher. I'll continue to post when I can, but The dk Report Charts have been kept current. Check there for interim commentary.

best

dk

1 comment:

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