Tuesday, May 19, 2009

Ending in Mixed Fashion Stocks Fail to Close Out With Gains Seen Earlier in the Session; IBD Indexes Take the Lead

Following through on yesterday's gains stocks took the lead and moved higher as volume tracked higher. A very bullish sign to see stocks moving higher with higher volume especially right after a day where prices advanced on lower trade. All was well and good with stocks until the final hour of trading where we began to see selling pressure. The selling pressure was enough to send the S&P 500 and Dow Jones Industrial Average into negative territory but the NASDAQ was able to slip in a small gain. Preliminary volume indicates NASDAQ saw higher trade while the NYSE declined avoiding a distribution day. A positive sign is we saw IBD indexes lead the market and we'll await to see if volume on the IBD indexes came in higher. In summary, not a terrible day following yesterday's move, but signs of bullishness are appearing in the leaders.

We've been waiting to see if the IBD indexes would begin to show some light. Yesterday, the IBD 100 was able to see gains on higher volume while other exchanges saw lighter trade. Although it lagged, the volume compenent was important to see. It meant that leading stocks were being accumulated rather than see shorts simply covering. The probability of stock gains improve dramatically when we begin to see growth stocks lead the way. IBD is on the forefront of these stocks and a proven method to capturing these leaders. BigWave Trading is certainly on top of these and ready to pounce given the opportunity to get long leaders.

An interetsing note is seeing the put/call ratio rise today given the stock gains. Although the S&P500 and Dow Jones finished negative they were showing gains earlier in the day. While these indexes were green the intraday put/call ratio (overall) was sitting above .80 4% higher than the previous day. It shows that the move today was not being bought into by option players. The higher put/call ratio suggests the move is showing option traders not terribly confident in the move.

A favorite secondary indicator is the number of stocks making a new high versus making a new low. John Boik pointed out in his book "MONSTER STOCKS" the need to for this ratio to be positive for the market to show Monster Stocks. Today, the market saw (preliminary) 95 New Highs versus 15 New Lows. Again, this NH vs. NL ratio has been positive for quite some time showing us that there is strength to this market. Having a positive NH vs. NL ratio is certainly a welcoming sign that we may begin to see more MONSTER STOCKS on the way.

top longs/(shorts) w/ total returns since purchase making money today: KONG 42% ASCA 34% ISTA 29% (CYT 57% CHTT 17%)

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