Stocks Pullback On Lower Volume (Nasdaq Volume Skewed By JAVA) As Indexes Were Extremely Overbought; Was Anyone Surprised We Pulled Back?

April 20, 2009

Commentary by Market Speculator

On the face of today’s market it appears to have been a terrible day for those who have been long stocks. Big price declines are never a “great” thing for the market, even worse if volume is higher. However, the day’s price declines appears to have been tame. Volume across the board was lower, the NASDAQ’s volume is inflated due to ORCL’s purchase of JAVA. Remove JAVA from the picture and you’ll see big institutional investors were not dumping stocks. More importantly our leaders of this market either pulled back on lighter trade or even moved higher. Yesterday’s action should give you some pause, but on the whole it wasn’t as bad as it appeared.

One leader had a very nice day, ALGT posted great earnings and the stock was able to push higher by 3.8% and on bigger volume. It’s relative strength line hit a new high as the stock is nearing a high. A very positive sign when a stock’s RS Line moves into new highs prior to it’s price. ALGT is a leader and is showing us we could be seeing more gains ahead if the leaders continue to act the way ALGT is acting.

Leaders who pulled back on lower volume: NTES, SNDA, LFT, OTEX. I am cautiously optimistic about what we might be seeing from this market. Regardless of the economical/political environment the market will do its thing and if it moves higher we move along with it. At this point, although we had a hefty price decline during Monday’s market session we are seeing leaders acting healthy.

In addition to individual leaders, the IBD 100 and IBD 85-85 indexes did not suffer the damages the major indexes saw yesterday. These two indexes are very important indicators, I prefer to use leading stocks (see above) to gauge the market first then the indexes. The indexes are comprised of the market leaders, but you really only need between 5-15 STRONG stocks to lead a market. More the merrier, but in reality between 5 and 15 stocks are needed for a market to run.

Remember, this isn’t a brand new bull market like in 1999 or 2003 where we’ll have high fliers. We can not expect this after suffering the losses we did since the highs of 2007. We need our leaders to lead and so far there are glimses this will be the case.

Market Speculator

TOP SHORT POSITIONS: 20 OF 21 UP OVER 1% ON THE DAY.

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