5-25-15 Comments

Watch List have been updated.

As we move into late May one wonders if sell in May will become operative. If so there is scant evidence on the major indices as there is only a single stall day (a form of distribution) on the NASDAQ since the most recent follow-through day and none on the S&P500. The most clear negative evidence to me is seen in the Dow Transportation index. For the Dow theorists this is a serious non-conformation of the new highs being set by major indices. In 2007 the Dow Transports topped in July while some large caps continued to rally in September and October to new highs topping on October 31. Could we be witnessing something similar? If the transports have topped, they topped six months ago. I see this getting resolved in one of two ways: Either the transports will drag down everyone with them or the transports will be dragged up. The the Dow Transport index has become part of my current daily review.

One of the patterns mentioned on the long watch list is "Short Stroke". A short stroke is a two week pattern where in the first week the price closes up 12-15% or more and in the second week almost none of the gains are given up and the stock trades in a very short range bar. It is this second bar where the name comes from it is just a short stroke on the chart. In ZBRA below you can see the pattern.

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The buy point is as the stock moves into new high ground. Momentum buying in the recent period has been problematic but setting the stop just below the lows of the short stroke week manages the risk. The lows of last week is 3.8% below the highs or buy point.