Joshua Hayes'  Instablog

The market was able to pull back in lighter trade coming off a positive quadruple witching Friday.  Leading indicators showed a gain of .6%, but consensus estimates were for a gain of .7%.  Stocks were already showing a lower open and the release of the leading indicators did not help out stocks.  From the start volume was running well below Friday's levels, it didn't come as a surprise coming off Friday's action.  Mid-morning stocks were able to find footing and began to move higher as volume increased.  Finishing up the day the major indexes were able to finish above their mid point just off the highs of the day.  The intraday price action, was positive once again showing the underlying strength of the market.

What is interesting about this market are the market pundits crying this market is well overbought.  Flash back to last November through March where we heard the market was constantly oversold and we had to go higher.  Mighty interestingly how things swing back and forth.  The market does not care whether or not you like it, hate it, love it, scold it, or swear at it.  It will cotninue down the path of least resistance and at this point in time the path of least resistance is higher.  Much like a rip current you swim against it the current will simply tire you out and take you out to sea.  Fighting the market trend will only widdle down your portfolio until you lose all your money or give up.

Leading stocks were able to fend off sellers as the index outperformed the S&P500.  The NASDAQ got a boost from the NASDAQ100 as the index was able to close in positive territory.  Overall, every index I follow had positive price action on the day.  Even more importantly the NASDAQ and NYSE Composite indexes do not have a distribution day.  The Dow Jones Industrial Average and S&P 500 both have only one distribution day.  The lack of distribution on the indexes while at these levels lead me to believe we are going to move higher not lower.  Back in August we saw the market stall, but we have yet to see this action.  All signs are pointing for this market to be higher and I am not going to fight it.

The only way my stance would change if we start seeing more and more leading stocks act like STEC.  In addition, if we start seeing distribution days pile up on the indexes then I would certainly change my mind.  Note that the distribution would have to be heavy distribution days coupled with leading stocks collapsing.  In June we saw minor distribution days and many called the top back then.  Not only did the market rebound, but the NASDAQ shot up 200 points.  If the market has its own ideas it is best to follow it.

If the above isn't enough the amount of new lows set on the NYSE and NASDAQ was FOUR.  Only four stocks hit new lows while 363 new highs were notched.  There is nothing bearish about that unless of course you say that isn't enough new highs.  No matter how the market isn' t this or enough of that it continues to march higher.

Do not fight the market and take the approach of one stock at a time.  No need to get cute with your positions.  As always keep your losses in check by cutting them short!

Video One: Is available to subscribers on the forums. I do not know where my video technician is but he did not render the video for FREE/SILV subscribers. I apologize for this and I hope he can get a video up tomorrow. I tried to contact him but I had no luck. I do apologize. Aloha.

By: BigWaveTrading Team

It finally happened, stocks could not find the muster to continue their march higher.  Volume was running hot during the first half of the session.  Sellers stepped up and hit stocks, but volume began to ease and it continue to ease into the close.  Stocks simply can not go straight up EVERY day and there will be normal reactions and today we were handed a normal reaction.  Even with positive economic news including a big jump from the Philadelphia Fed Factor index couldn't help stocks continue their winning streak.  Regardless, the market had other ideas and was simply far too extended to continue the winning streak.

There was one blow up today among leading stocks as STEC dropped nearly 17% on an analyst's note the firm would face competition in the near future.  The analyst dropped its price target and the stock followed suit. Volume was massive on the decline and if it weren't for STEC the leading stock index would have been flat on the day on lower volume.  If more leading stocks suffer the same fate this market will not go any further.  However, before we sound the alarm on the market we only have one big blow up and it isn't time to get skittish.  On the flip side, we had plenty of nice stocks move higher on nice volume.

I do expect the market to have natural reactions as we move higher, it is apart of the natural cycle.  We still do not have ANY distribution days on the NASDAQ so any pull back here is not concerning to me in the slightest.  If we did have 5 or 6 and with leading stocks acting like STEC I would be a bit nervous.  Until we begin seeing more leading stocks breaking down and distribution pile up this market will want to continue to move higher.

Interestingly enough Point and Figure chart for the NASDAQ shows a price objective of 2500.  Here it is:



As you can see this point and figure chart price action is indicating higher ground.

At this point in time, if you are going to chase a stock that has broken out you are going to be too late.  Chasing stocks is a terrible habit to get into, getting stocks as they breakout or bounce off support is the ideal entry.  Volume is an important key to the picture as it tells you the strength of the move.  Without volume you are not increasing your odds on grabbing a stock that could be a Monster Stock.

This market will continue to be elusive to those who are trying to outsmart.  The market will always be the winner in the end and it is best to play along rather than fight it.  Remember the golden rule of speculating:  do no harm.

An overload of economic data had the market rattled at the start as volatility ruled the first half hour of trading.  Once the market settled it was off to the races again as leading stocks and volume raced higher.  The story is repeating itself with leading stocks continuing to outperform the market.  We have witnessed this same story since Monday and those who are going to fight the trend will pay dearly.  Today was just another example the strength that is underlying this stock market rally.  Another great day for those who are long leading stocks.

Fears over the dollar drove precious metals higher Wednesday as Gold closed above 1020 an ounce.  Silver ripped along side gold as it soared above 1740.0.  Remember, as the 200dma for S&P 500 has a positive slope precious metals always lead the market higher.  It is no surprised given the monetary policy of the Obama Administration and Federal Reserve that precious metals will continue to go higher.  In addition, China has lifted a ban on its citizens holding gold.  Thus, creating more demand for the precious metal.  There are plenty of metal stocks moving and once again we continue to be on top of the game at Big Wave Trading.

Once again we had another explosive day as far as New Highs again with 702 on the NYSE and NASDAQ.  New Lows were non-existent with only 4 stocks hitting the new lows.  If this doesn't strike you as bullish, then you need to go study history.  When you have the number of New Highs versus New Lows that is bullish.  Especially with leading stocks continuing to outperform by breaking out of bases.  This isn't the end of the rally we may see pull backs, but this market will be higher.

I've already repeated myself, but the point here is that this market is bullish.  We'll see pullbacks as they are apart of the natural movements of the market but this market will be bought.  Always keep your losses small and your winners run.  Be smart and keep positive.

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Positive news regarding retail sales and a surprise tick higher in Empire manufacturing helped set a positive tone for the market.  It was another session where stocks were under heavy accumulation.  Price gains weren't overwhelming, but the amount of volume that did show up suggests the big boy institutional players were supporting stocks.  Volume was much higher across the board and above the 50dma a good sign showing the appetite for stocks remain.  Leading stocks, again lead the market higher on volume confirming the move higher.  Once again the market continues to march higher as all the ingredients for gains continue.

Our approach continues to be stock by stock and not letting any bias influence our trading.  We may be overbought, but we can remain in overbought conditions for a very long time.  This does not mean we do not take profits along the way, but just because we have gains we don't simply take the entire position off the table.  We have the makings for stocks to run higher and we want to be able to take advantage of that.  Trading scared will only leave gains on the table and could lead to chasing performance later on down the road.  The greats like Wychoff, Livermore, Darvas, Dryfus, O'Neil all had the ability to hold for gains.  Remember, it is wise to take profits, but unwise to take the position off the table if it shows you strong gains.

As I stated in last night's commentary we are seeing the number of stocks over their 20dma near extreme overbought conditions.  Today it is now over 81% nearing 82%.  This is suggesting we will experience the market pull back and consolidate its gains.  We are pretty darn close to extreme overbought conditions and it would not surprise me to see the market take a rest here.  With the market having very little distribution days, the NASDAQ having 0 we will not see a significant pull back.  Until we see heavy distribution days piled up in close proximity we will not see a significant pull back despite calls from market pundits for a pull back.

There were 7 new lows today, but on the flip side there were 538 New Highs (NASDAQ and NYSE).  Five new lows were made today compared to yesterday, but this is hardly anything to get excited over.  The fact that 538 new highs were made on the NYSE and NASDAQ far outweighs the number of stocks hitting new lows.  A few market pundits like to point to the fact that we have a lack of new highs compared to 2007 or even 2005, but we forget we are coming from one of the worse bear markets in our history.  Things will simply not be as you'd expect for a bull market.  In time, if we can see a healthy correction we may begin a more "normal" bull market.

Remember, to keep your losses small and let your winners run.

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News a trade war between the United States and China brewed as the United States slapped new tariffs on Chinese tires.  Global stocks did not act well as many sold off prior to the US exchanges began trading.  As the futures indicated stocks opened lower while volume was lower as well.  It appeared stocks would meander around negative territory, but buyers had something to say about that.  As the day wore on we began to see leading stocks pick up steam as well as the entire market.  Volume picked up slightly as stocks were under a bit of accumulation, but it wasn't enough to push volume above Friday's level.  Once again, we see leading stocks take hold and positive price action continues to point us in a higher direction.

Although today's action was positive we are seeing the number of stocks over their 20dma reaching above 80% showing an extreme level.  This does not mean we are immediately going lower but it could suggest we might see stocks rest for a bit.  What this doesn't mean is that we won't see any stocks moving higher and they all have to pull back.  In addition, we are now seeing the number of stocks over 200dma it is now over 90% of stocks.  The number of stocks over their 200dma is indicative of the move off the lows we have experienced since March.  It appears the market has been able to re-price the economy ahead.  Remember, the 2008 bear market that lasted until March 2009 was pricing in a complete and utter collapse of the United States financial system.  Now, we've repriced those assets that have been beaten up the most lead us off the lows and now with the leading stock index taking charge it appears we'll see growth stocks in favor.

Outside of leading stocks and price/volume action another key statistic I like to review is the number of stocks making new highs versus new lows.  What was interesting today was the fact the NYSE and NASDAQ only saw one new low each.  Last year at this time we were seeing many more stocks hitting new lows signalling weakness in the market.  Today, we are not seeing the new lows, but the new highs.  Both the NASDAQ and NYSE saw 352 New Highs today signalling STRENGTH.  Taking into account the percentage of stocks we have over their respective 20dma it is likely we see a bit of weakness in some names, but longer term this is bullish for stocks.

It would have been nice for stocks to have pulled back on light volume clearing a bit of overbought conditions.  However, the market simply will not cooperate with our wishes.  One thing to keep in mind is not to allow your opinions to get in your way of trading.  If a stock setups correctly and moves you can not simply ignore the action.  Opinions mean absolutely nothing to the market and it will move according to the way it moves and not to your opinions.  Keeping to a cut-loss strategy in place will keep you focused on winning stocks.  Stay positive and focused.

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