Leaders Index 1-26-16

The market rallied strongly today, recovering most of yesterday’s decline. The major averages opened higher and climbed for the rest of the session. The SPX gained 1.41% while the COMPQ rallied 1.09%. Both finished at or near their intraday trading highs, a sign of strength. Volume was slightly higher across the board, producing a follow through day on the SPX. Leading stocks were strong as well. Since there was a follow through I put together a new leaders index to better reflect the best of the quality growth stocks. This index contains 19 stocks in 16 industry groups. The chart doesn’t look like most new leaders indices as it is not in new high ground as most are at the start. I must say that I had a very difficult time coming up with the number of attractive stocks to make a proper index. I included some that I normally would not and the most prevalent stocks in my screens were REIT’s, not what you would normally consider for an index of high growth stocks. This tells me that the odds of this follow through amounting to much are not good. The new index rose 1.49% on the session and is above all it’s short term moving averages, but is not in new high ground. The relative strength line is however in new high ground. When there is a new follow through I look to the three confirming indicators I use to let me know how likely this one is to succeed. This time the Eureka indicator confirmed today but that is the only one. The weekly Coppock is in negative territory but is still headed lower so there is no confirmation. Also the %E’s are very high at 32.5%, much above the level we look for to confirm a follow through. It is rare for a new rally attempt to be successful when the %E’s are this high at the beginning. In addition to this there are very few attractive stocks set up to provide buy candidates. When a follow through is going to work there should be many good looking stocks to choose from. The market is extremely volatile right now and most follow throughs in bear markets fail. This follow through is poorly confirmed and I would treat it with a good deal of caution. Jerry