Distribution Days Increase - Time to Sort Strength From Weakness
The major averages were well on pace to book back-to-back winning weeks, until Friday when stocks opened sharply lower. The indexes basically hovered around the lows for the entire session, never really recouping any of the morning’s abrupt losses. The positive was that volume totals were lighter than the prior session on the NYSE and on the Nasdaq. This was a sign that the institutional crowd did not increase their selling efforts on the last day of the trading week.
After being higher mid-week the Dow Jones Industrial Average closed with a net loss of -0.82%, and back below the 17,000 level which is actually rather meaningless. What is more significant is that Friday’s lows were squarely to the upward trend line which I first drew on the chart below last week. The index still remains in a clearly defined technical uptrend, which started with a successful test of the 200 day moving average back in early February. It also remains above its 50 day moving average (+0.7%). As long as that is the case, we should give it the bullish benefit of the doubt.
The Standard & Poor’s 500 index closed the week flat (+0.01%) and remains in more of a consolidation-like phase as it digests the four month +10% rally run which it has made from the mid-April lows near 1814.
Wall Street’s benchmark index did add another distribution day on Thursday. This raises the distribution day count to five. However, it still made new highs this past week and remains not too far extended from its 50 and 200 day moving averages, being above by only +1.7% and +6.8% respectively.
The NYSE Composite Index (+0.00%) also continues exhibiting some healthy consolidation-like action, as it remains above its 50 day moving average. Volume on the NYSE was below the normal rate every day this week.
The Nasdaq Composite was the only major index to close with a measurable gain which was +0.39%. It now has a total of five distribution days for the current rally, yet remains above the previous lows and above the 50 day moving average.
We had another buyable breakout on Wednesday as our TRN triggered its technical buy signal. It has thus far been a lack-luster performer, yet is holding up, and has not caused us any concerns.
I did add two new stocks to the watch list over the weekend, and we now have four buy candidates for the coming week. If at anytime throughout the week, I do find any additional stocks which match up with the winning guidelines, I will then add them to the High-Ranked Leaders Watch List table on the ever improving Premium Members Home page.
Second-quarter earnings season is now well underway. We have had several of our holdings affected by announcements this past week. Those with more volatile reactions include LSCC, MPWR, and RMBS.
If you own a stock which looks like it will be reporting anytime soon, keep an eye out for exactly when. Look for the press release in the Yahoo Finance news feeds, or check the company’s web site for an “Investors” or “Investors Relations” link/page.
In every case, you have to watch for the actual numbers announcement or results, and then wait for the dreaded conference call. Numbers can miss, beat or be in-line. During the call the company will offer forward looking “guidance”. If the company “warns” or if the CEO so much as sneezes at the wrong time, shares could then sell off.
Keep in mind that if the company is reporting before the open, you would need to make a decision to either sell or hold before the previous day’s close.
On a final note, the current rally may be preparing to take a much deserved “breather”. As always I will let any high ranked breakouts be my guide, while monitoring current holdings for signs of technical weakness or violations in a particular issue. I will take things on a stock-by-stock basis by holding my stronger selections and cutting the weaker.
Consider this analogy, if you were driving down the interstate at 70 MPH and it just started to rain slightly, you would not slam on you brakes and pull over to the side of the road. However, you would take some precautions, such as turning on your windshield wipers or head lights.
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