Since my last post, Time To Short The Market, the stock market rally attempt ran into trouble right around the resistance levels as expected. Distribution increased and large capitalization stocks, especially technology, have been hammered on earning’s reports. But, new leadership from small and mid capitalization stocks has been a major positive signal.
The Nasdaq and SP-500 have registered 8 and 7 distribution or stalling days over the last month, respectively. Not exactly the action traders want to see during a stock market rally attempt. But most of the distribution has been related to large capitalization stocks, heavily weighted in the indices, getting hammered on earning’s reports. Netflix (NFLX), Google (GOOGL), Apple (AAPL), Starbux (SBUX), Microsoft (MSFT).
Stock Market Rally Attempt Grows Stronger On Pullback
Despite this negative action, the indices have managed to close near their intra-day highs on almost every occasion, the DOW and SP-500 are within 2% of all time highs, and the NYSE advance decline line is at all time highs, a leading indicator of strength.
Last night, Facebook (FB) finally reversed the trend of large capitalization getting hammered on earning’s reports. The company delivered a strong earning’s report and gapped out of a cup with handle base in strong volume. Let’s see if Amazon (AMZN) can continue the trend tonight.
Small and mid capitalization growth stocks have taken over the leadership. New breakouts occur almost daily from first or second stage bases despite the market pullback and high distribution. Exactly the action trader’s want to see in a new stock market rally attempt. These are the stocks that will grow up into tomorrow’s large capitalization stocks that will lead the market even higher.
Weibo (WB), the Chinese (TWTR), broke out from a cup with handle base in volume over 400% above average, and has advanced over 30%.
New Oriental Education (EDU) gapped up and broke out of a flat base on top of a cup with handle base, in volume over 100% above average, on a strong earning’s report.
Chemical Financial (CHFC) broke out from a cup with handle base two weeks ago in low volume, but volume is starting to build as the stock follows through.
iRobot (IRBT) broke out of a double bottom with handle base in volume over 600% above average.
These and others should be watched for pullbacks during market weakness for additional entry points. The market is not short of setups, but they are starting to dry up. Review the trading ideas page several times a day for new setups and the progress breakouts are making.
This is the most hated stock market rally attempt in recent history. But unless the new leadership starts to breakdown, the stock market rally attempt is in a position to follow through to all time highs and potentially even higher. Stay patient.