The market got an initial jolt from Potash who received an unsolicited bid for a takeover. In addition, weak housing data fueled speculation of a housing bottom as the numbers weren’t that bad. Volume didn’t get going until after 10 o’clock when buyers stepped up and pushed the market higher up until mid-afternoon. NASDAQ volume was up 7% on the day, but NYSE volume was up 22% thanks in part to the fertilizer group lead by Potash. Late day selling did put a cap on the excitement, but overall the day went to the bulls with stocks ending just above the upper end of the range.
Today’s bounce really shouldn’t come as a surprise given last week’s dismal display of price action. It was certainly nice to see volume come in on the upside. Late day selling did curb a bit of enthusiasm, but all in all not a bad day. We’ll certainly need to see a light volume pull back or the market just continue to blast higher with volume continuing to rise.
Leading stocks performed well today, even if volume wasn’t as big as we would have liked. All in all a good day for leading stocks as we approach options expiration on Friday. Wild intra-day swings will not be uncommon leading up to expiration so today’s sell off could be apart of it. The big question will be if we do pull back will volume stay tame and will leaders hold up. If the answer is yes then we may be building something much larger and we’ll need to be ready. However, if volume picks up to the downside it will suggest the last two days were simply a bull trap. Be prepared and take action as the action unfolds.
There are plenty of stocks we have in our scans looking very good, but there have been times we have seen this only for the market not to cooperate. Therefore, we will need to see the market build upon today’s action and give us the ability to get long these potential leaders.
One pitfall on the day was financial stocks giving up their morning gains. The XLF closed in the lower end of its range with volume jumping. While it was able to hold onto some gains the reversal shows a bit of weakness on the part of financial stocks and without at least stability from the group the market will find a tough time supporting gains. In addition, the NASDAQ was unable to retake its 50dma and was rejected at this important moving average. The S&P 500 was able to regain the moving average, but it too finished well off the highs of the day. This adds up to a mixed market and until we get some harmony amongst the indexes we’ll continue to be range bound and make very little headway. Until then, cash is king and patience will be rewarded when we do get a solid uptrend.
Stay patient and cut those losses short!
Top Current Holding: JKS +71% purchased 7/13/10
Disclosure: Long: PWER JKS