Stocks Pullback from the Highs of the Day but Notch a Day of Good Accumulation

April 30, 2009

By Market Speculator

Once again late day action tempered gains from earlier in the session. Aside from the SWINE flu panic the notorious FOMC released their rate decision at 2:15pm EST. Leading up to the release stocks were showing steady gains and volume was running hot. Leading stocks were enjoying the day as well as the market was showing positive signs. Once the FOMC meeting hit it didn’t take long before gains were beginning to be given up. Although the end of day action wasn’t terrible it highlights the timidness in the market. Overall, the day was a day of accumulation and mostly positive just not great.

Small caps are leading the way as they should during the early stages of an uptrend. Both the Russell 2000 and S&P 600 indexes flashed big gains on bigger volume. A very positive sign for the market and its ability to continue to move higher. Although the IBD indexes are lagging/inline with the major indexes they were able to walk away with gains on volume as well. The small caps cannot be ignored, the move on volume is something that is very telling. Institutions’ appetitte for small caps stocks is now obvious and it appears there is more accumulation to come for those stocks.

Leading stocks faired well, handful of them acted really well. One stock that was in favor by me and some other CANSLIMer was OTEX. I had bought OTEX over a week and a half ago and dumped last Friday. The action was not favorable and led me to dump the stock. It pays to listen to your charts because OTEX broke down on volume from its 50dma ending the day down 3.9%. Listening to your charts will allow you to avoid these types of breakdowns.

Another positive sign is the New High vs. New Low ratio. There were 82 new highs and 19 new lows notched in yesterday’s trade. New Highs outpaced at a better than 4 to 1 ratio, a very healthy ratio. In John Boik’s Monster Stocks, he points out that a health NH vs NL is when Monster Stocks appear. We are certainly setting the stage for a few Monster Stock setups. We are focused in on a handful of them now and are looking for them to begin their runs.

This market has flashed enough positive signals to convince me we are moving higher. A pullback would be welcomed if we see leading stocks base out. However, given the strong moves on volume made by the small cap indexes I do not see how we sustain a larger pull back. At some point, those March lows will be tested but we may be acting how the 1938 acted after hitting its low. A 50% move off the bottom only to see the 1928 low taken out in 1942. History repeating itself?

Keep a tight game plan and make sure you cut your losses short. Stay focused on the leadership and leave the laggards where they belong, behind!

Market Speculator

Posted by MarketSpeculator | Filed Under Market Commentary, Market Commentary