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Market Internals Saying Higher Prices

Wed, Mar 17 2010, 06:06 GMT
by Mike Paulenoff, Jack Steiman, Harry Boxer

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Jerome "Mel" Hickerson, On Bears' Fumble (MarketsPath.com)

The week began with mixed news. Overnight comments made about the U.S. budget deficit and the dollar from China's Premiere created some selling pressures in the futures. Before the open Monday, the Empire Manufacturing Index for March was reported at 22.86, which was above consensus expectations for 22.00 but below February's level.

The regular session opened with the familiar "deer in the headlight" look that we've seen all too often of late. Pressure from the futures caused a quick three point gap down in the SPX but within minutes the gap was filled painting the high of the morning at 9:50 as the indices tried to go positive. But in the following 10 minutes the index gave back the gap, briefly tried to bounce again, then fell eight points in an hour to put the low of the day on the chart at 11:23.
From that morning low, the indices traded choppily, mostly upward until the final 90 minutes. At 2:30, a buying spree hit the market as the SPX began surging upward into the close, putting the high of the day on the chart just ten minutes before the end of the session.

A high-volume advance with rising breadth should accompany a breakout above the 1150 area in order to confirm a legitimate breakout and emphasize that the primary trend of the market is upward. But breadth has been rising (see chart) while volume has been abysmal.

A failure to make a new high could create a double-top. The Wednesday FOMC announcement will likely clarify which way things will go.

Let's take a quick look at the bullish case: 

• The A/D Line/Breadth line has been leading higher. This will almost always carry the indices higher. (But has breadth turned downward?)

• The primary trend is upward. (But is it stalled?)

There may be more to the bullish case here but I really do not see it. But Price is King. And that alone is enough for the bullish case.

On the bearish side:

• SOX, small caps, technology all led the way upward. They all are pointing south here. SOX is often a market leader and it's been struggling for two weeks. 

• The daily trading range has seriously contracted; the 10 day average range is a mere 8.75 points. This is the third time in three years that we have had an extended period of the trading range averaging less than 10 points: October 2007, mid January 2010, and now.

• Volume has evaporated. The low volume shows a total lack of buyer interest; there is no conviction. 

• Overbought conditions can lead to sudden moves. When you stack the overbought conditions on top of the volume and range environment, we are ripe for a sudden 20-30 point move downward.

  
  

Harry Boxer, On 4 Charts to Watch (TheTechTrader.com)

There are a lot of good stocks out there. Let's take a look at a few of them.

Alkermes, Inc. (ALKS) gapped up Monday along with AMLN as they're both involved in the same drug and got some positive news in their FDA approval process. ALKS gapped up, ran and closed near the high of the day on heavy volume, up 1.80 or 14.74% on 7.3 million shares. That's the heaviest volume this stock has traded in maybe four or five years. So, this is a significant price-volume surge that basically has now taken out the March '09 high and looks headed for a quick run, towards 16 1/2, our short-term trading target.

Amylin Pharmaceuticals (AMLN) similarly gapped up, broke out of a trading range, and closed right on lateral price resistance. A heavy 29 million shares traded Monday, by far the heaviest volume traded in this stock in years, if not forever. It closed right on resistance. A run here could get this stock into the low 30s, but my short-term trading target is the 27 1/2 area, then followed by an intermediate target in the 34-35 zone, which is up against the '08 highs.

RINO International (RINO) had a good day and more significantly a good technical day. After coming down hard in January the stock based out, double-bottomed around 18 1/4-1/2, ran up to the moving averages, backed off, held support, and then came on Friday and then again Monday. It gained 1.75 or 7.3% on 2.25 million shares, the heaviest volume in two weeks. It looks like this stock has cleanly broken through lateral price resistance, back above the moving averages at this point. You may see a run that takes it up towards 29, my short-term target, 32 - 32 1/2, my intermediate target.

Lastly is Zoltek Companies (ZOLT), which has a long beautiful base pattern developing with the declining topsline broken on Friday. This stock advanced another 11 cents Monday, not a lot, but it did have a follow-through day instead of backing off, which is a positive. If this stock makes it up to retest the 11.40-50 zone short-term, maybe as high as 121/2, and breaks out of this base pattern, I would look for a move up towards the 17-18 range on an intermediate basis.

Other stocks featured in our Chart of the Day video analysis are Clean Energy Fuels (CLNE), China Valves Technology, Inc. (CVVT), Finisar (FNSR), Houston American Energy Corp. (HUSA), Impax Laboratories (IPXL), Mindspeed Technologies (MSPD), PLX Technology (PLXT), Pixelworks Inc. (PXLW), UFP Technologies (UFPT), Vanda Pharmaceuticals, Inc. (VNDA), Westport Innovations (WPRT). 

Jack Steiman, On Market Internals Saying Higher Prices (SwingTradeOnline.com)

We have to respect the fact that we are overbought still and can still sell at any time. The S&P 500 could stall at this 1151 level and just meander for a while thus there's no all clear here. You do, however, need some exposure at all times in a market such as this one simply because it refuses to sell a whole lot before buyers show up. This reality means there will be times when some plays are under water a bit and such is life. You have to be able to mentally deal with this reality and accept it for what it is with the understanding that good base set-ups, such as the stocks we're in, are likely to make a strong move higher over time.

The key to a bull market is those daily internals. We have watched this rally from the very beginning show characteristics that say this market can continue to climb. We have seen the advance-decline line stay strong throughout. On the up-days, we witness spreads of advancers over decliners that tell us the majority of stocks are participating and from all over the market place. On down-days, money finds a way to rotate in, keeping losses to a minimum and from keeping decliners down enough so as to not overwhelm the advancers. New highs continue to expand while new lows go nowhere. The momentum indicators continue to impulse or advance hard with price. Nothing on the bullish end of the coin is lagging.

Price is strong as are the internals, and until this reverses we have to trust the message being sent. It has worked so far and there's no reason to believe it won't in the near future. Some day the trend will change, of course, but for now the market internals are saying higher prices, above S&P 500 1151, are coming soon.

Support on the S&P 500 is near 1130 or a gap down to the low 1120's. Can we fall that far? Sure we can, although the market is showing no signs of wanting to do that. If the S&P 500 can break cleanly above 1151, it'll use that level as massive support on back tests to unwind future overbought conditions. If we start losing 1120, then something else may be developing, but I don't think that's in the market's future here. The Nasdaq has great support down to 2300, but I don't think we'll see that either, especially if the S&P 500 clears through 1151.

If the S&P 500 sees 1130 or so, then the Nasdaq can see 2300. The key here is the S&P 500 making the move through 1151. Again, this can then act as strong support down the road on pullbacks. Very interesting time for sure here as the bears are feeling the heat with the S&P 500 trying to clear 1151. Next few days will be very interesting.

Mike Paulenoff, On WAG's Bullish Chart (MPTrader.com)

My near- and intermediate-term pattern and momentum work indicate that Walgreen Co. (WAG) ended a significant correction at its Feb 5 low at 33.00 -- and a retest of that low was satisfied last week at 33.44. The upmove off of last week's low into Monday's closing high at 34.17 sets up a double bottom corrective low in WAG which should propel prices to test key resistance between 35.30 and 36.10.

If my work is correct, and WAG has ended a significant corrective period within a large bull market period that began at the Oct '08 to Mar '09 lows (21.28/39), then the price structure should waste little time before heading sharply higher in a hurry. We will know in the hours directly ahead if WAG has started a new, powerful upleg.

Published on  Wed, Mar 17 2010, 06:15 GMT

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