Excellent Day For Our Longs As Stocks Bounce Back Nicely With The Nasdaq’s Price Pattern Engulfing Yesterday’s Price Pattern

April 21, 2009

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Commentary by John Ward

The market was able to somewhat bounce back after Monday’s sell-off, albeit on lower volume. What I took note of, however, was that volume for both the Russell 2000 and S&P 600 actually came in higher than on Monday, according to Daily Graphs; no matter how you cut it, that’s pretty bullish. This shows the bid for those smaller, more volatile stocks hasn’t evaporated just yet. It was also encouraging to see that the IBD 100 fell on such low volume on Monday, while the volume for the IBD 85-85 index was also muted. Like the Russell 2000 and S&P 600, both the IBD 100 and 85-85 rallied on heavier trade Tuesday. So chalk another one up for the good guys.

There were some things about yesterday’s session that were less than encouraging though. One was that the top ten performing indexes were all laggards. Nearly all of them were big-time yawners too. You had groups like Leisure-Photo Equip/Rel, Insurance-Acc/Health, Textile-Mill/Household and Paper & Paper Products leading the way. Still awake? Good, because if you take a quick look at your New Highs for Tuesday you will find two stocks from the Computer Sftwr-Security group. Needless to say, BigWaveTrading has been all over these gems. We’ve seen setups like these before and the two stocks in question look primed to make big gains. And as if those weren’t enough, we had a certain stock from the Transportation-Airline group also make a new high: ALGT. This stock has been quite good to yours truly and if you don’t know what the bottom of a cup pattern should look like I suggest you study ALGT’s chart: support at the 200 day moving average (40 week moving average) and those tight closes hint that the stock had institutional sponsorship. So you see there were things to like and dislike about Tuesday.

Overall, the action was good in that it stemmed Monday’s selling, if only temporarily. Outside of ALGT, there wasn’t much doing when it comes to leading stocks. Both MYGN and NFLX pulled back, true, but they are perhaps starting to form new bases and I don’t view this as all that negative, to be honest. I view it as healthy and normal. We’ll see what develops; obviously, if they were to fall off a cliff that wouldn’t be good.

Meanwhile, another try at the S&P’s 875-880 resistance looks to be in order. If leaders start to sell off and breakouts fail then this rally will probably be in trouble. Going by my scans tonight, though, I think there is still some juice left and anticipate a move higher at some point. Still, stay nimble and protect that capital. There was a great quote in Investor’s Business Daily yesterday by William Mcfee: “The world belongs to the enthusiast who keeps cool.’ Sums it up, if you ask me. Keep your head. If we rally, don’t get too carried away. If we sell off and roll over be quick to act. Don’t get discouraged. Either way, be prepared. The last thing you want is to get caught flat-footed. Keep your cool.

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