Tuesday, August 05, 2008

Green Light

For the first time since early June, the market is giving an Intermediate Buy signal.

Not only did the NASDAQ poke above its 50-day EMA on decent volume, three of four timing indicators are flashing Buy signals. The 5-10-20, the TOF Ratio and NASI are all on a Buy (see The dk Report charts). Only the BPI Ratio -- typically a lagging indicator -- isn't a Buy yet. It's been a long time since this diverse set of timing indicators have pointed upwards in coordinated fashion.

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The chart below shows the NASDAQ is trying to make the best of a bottom retest. It's too early to predict an outcome, but in the past 16 sessions since the low, the Composite has printed just two distribution days.

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Even though stocks are gaining their footing, it's important to realize that the buy signal is still a little hazy. Stocks have endured a serious beating over the past ten months, and the NASDAQ has shed 25%. Viewed from a broader perspective, stocks remain squarely in a bear market. Making matters worse, this bear market is still young. It would be unusual for it to be over so soon.

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As the IT buy signal sets up, the chart below shows early areas of strength. Relative to their 50-day EMA's, small caps and tech stocks are off to the strongest start. The notable laggard is the MID. Its heavier weighting in commodity-related stocks now works against it.

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Good luck trading, and please continue to check in at The dk Report charts. In lieu of regular posting, this list is kept up-to-date.