Leaders Index 10-21-14

The market continues to confound. We had a powerful rally today with all the major averages opening higher and rallying throughout the day. The COMPQ led the way with a gain of 2.40% while the SPY was up by 1.96%. All the major averages closed at their intraday highs. Volume was higher than yesterday and above average across the board. This was enough for a fifth day follow through on all the major averages. All recovered their 200dma’s today in the first real step in in improving the market picture. Leading stocks had a strong day as well and since we have had a follow through I put together a new leaders index. It contains 21 stocks in 17 different industry groups. The new index was up by 4.18% today on higher and above average volume and is in new high ground on both a price and a relative strength basis. I must say that it was very difficult to find enough stocks to fill out the index. This by itself is a negative sign as it shows that there are not a large number of quality stocks with good charts, which is usually what you see in the early stages of a good rally. (As a note, I went through a lot of screens and looked at a lot of charts today in putting together the index. I found two groups that had a large number of breakouts, trucking and REIT’s. I don’t really know if this means anything, but it is interesting.) Since we had a follow through today we look at the three confirming indicators that tell us how probable it is that the rally will be successful. Here the news is not good. So far we have none of the three confirming. The %E’s are 21% as of today. This is well above the upper limit of the range of this indicator for a successful follow through. There was no Eureka signal today and the weekly Coppock it still a bit above zero. The Coppock and the Eureka could signal in the next week and confirm the FTD and the weekly Coppock is close to zero and starting to curl. It is ok to start taking some positions but unless there is some more confirmation this would be a low probability follow through that has a high chance of failure. Position size accordingly. Jerry