Leaders Index 4-24-15

Yesterday was a day of contradictions. The major averages gapped up at the open and after climbing for a while flattened out and held their gains for the rest of the session. The major averages closed with solid gains and in the upper half of their intraday trading ranges. The Nasd stocks led the way with the COMPQ gaining .71% and the SPX higher by .21%. The gains for the day were concentrated in a small number of big cap stocks. AMZN, GOOGL, and MSFT all gapped higher on earnings and sent the NDX up by 1.33%, by far the strongest of the major averages. On the other hand the small and mid cap stocks lagged with the RUT and MID down .31% and .41% respectively. Also the semiconductors fell 1.66%. Early in the week the semis were the strongest area, but in the last two days of the week they sold off hard. Leading stocks had a generally tough session. While the Nasd averages and the SPX made new highs many leading stocks of the last month or two sold off pretty hard. My positions were down yesterday and so were the positions of a couple of other good traders I spoke to. Many quality growth stocks that have led the advance broke down. I said on Thursday that I was going to create a new leaders index with the move to new highs in the major averages. I got an interesting email from John Mackel asking if I was worried by the fact that seven stocks in the index broke down in the previous two days. I am very concerned about this and I have put both the new and previous leaders index in this update. The last index shoes a pretty clear break of the important 17dma. The new index looks strong, but I had a hard time time putting it together. This is usually a sign to be careful. The new index gained .29% on below average volume and is in new high ground on both a price and a relative strength basis. You would expect this in a new index. The previous index declined 1.12% on the session on lower and below average volume and is below it’s important 17dma. The fact that many leaders are breaking down while the major averages move into new high ground is troublesome. The new index consists of stocks that are pretty extended and they should get hit quickly if the rally gets into trouble. This is the purpose of the leaders index, to warn us of problems in quality growth stocks. We must see this divergence corrected quickly or the market will likely get into trouble. I am going to monitor both of the two most recent leaders indices to see if this divergence corrects itself. If leading stocks continue to have trouble the overall market will likely not be far behind. Jerry