Friday, May 01, 2009

A Weak Day For The Market Indexes Has A Silver Lining As Leading Indexes Outperformed The Market With The IBD 85-85 Closing Up 1.5%+ And The IBD 100 F

Commentary by John Ward

Well, Investor’s Business Daily published an interesting fact in the “Big Picture” column tonight:

“In the past 22 years, the Nasdaq has made eight-week win streaks only six times. Only three of those times did the streak extend past the eighth week.” So if the Nassy can eke out a gain today, my friends, that will make it eight straight weeks of gains. From there it’s 50-50. It could go either way.

Still, if you think that today marks the end of the rally just because the Nasdaq got rejected at the 200 day moving average, I would like to call your attention to the Shanghai Composite, to my mind the world’s leading index. Back on February 17 it too was rejected at the 200 day. It fell back to its 50 (roughly a 10% pull back), only to find support. Look at the chart today. It has since broken above the 200 day and run up about 20%.

Now, given that the Nasdaq’s 50 day has turned higher over the past month (just as the Shanghai’s had in February) it is not unreasonable to think that should the Nasdaq correct it will most likely be about a 10% pullback. Whether it would be supported at the 50 day remains to be seen. Yet it could very well be that we’re just a few of months behind the Shanghai Index. Frankly, I would love to see us pullback to the 50 day. That wouldn’t be bearish. Far from it. I’ll explain why:

In the April 16 Market Commentary, I pointed out that I was watching CANSLIM-quality stocks such as VNUS, VPRT, RMG CYBS, LL, BKE, POWL to see how the market treated these kinds of equities, as it would go a long way in determining the health of the overall market. Well, I don’t know if you’ve taken a look at these stocks lately, but they’ve more than held in there. Couple this with the likes of TNDM, GMCR, NTES, STAR, etc., and I just can’t see being afraid of a pullback here. It would actually be very healthy.

Think about it: if the market pulls back and these sorts of stocks can form handles or three week tight patterns or flat bases, this will cause RS Lines to hit new highs well ahead of price. Then if the market indeed follows the lead of the Shanghai Composite and rallies again, you will get some absolutely beautiful-looking breakouts. Tell me how bullish would that be? More than that, I have no doubt that a 10% pullback would turn many traders bearish, cause the VIX to spike and the Put-Call to rise. Nothing would make me happier.

Could it all fall apart, though? Could these CANSLIM-type stocks all get blown out of the water? Well, yes, but is that what your charts are telling you? So whether you want to call this a “bear market rally’ or just a rally, there is just no denying that it has been nothing if not strong. The rest is just semantics. Jesse Livermore eschewed the terms “bull” and “bear” because they foist upon one a bias that causes the mind to be less flexible. That’s why he used the term “line of least resistance” instead. I’m guessing a lot of people are dismissing this rally simply because they’ve missed it. Missing and then dismissing the gains is what they do best. You’d think it was beneath them to go long a “bear market rally.”

All I know is that my account doesn’t know or care to know the difference.


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