5-16-2016 at the open

I have posted new watch lists in the High Growth Stocks area.
IBD has the market condition as "Rally Under Pressure", a condition that historically is a poor time to enter the market on the long side. The Market School Exposure Model, however, has the market in correction. The final nail in the coffin occurred when the 21-day ema crossed under the 50-day sma. I remain in AYI and am in GLD on the long side, and I am short CMG; this makes me about 60% invested with GLD and CMG being bearish trades.

With the market in correction, I am looking for a new follow-through day (FTD) to become interested in new long-side positions. May 6 establishes the first day of a potential rally with the rally count today of 7 days. We look for an FTD on day-4 or later, so this can occur at any time. The rally count will continue unless the May 6 lows are undercut where we will look for a new rally day and start the count again. An FTD occurs when the NASDAQ or S&P moves up 1% or more on volume higher than the day before. To some, the 1% number might be confusing. The FTD threshold can change with market volatility and currently MarketSchool methods set the threshold at 1%.

The conversation last week about NASDAQ volume helped me understand that Tape C would be the best source of data to gauge NASDAQ Composite volume. I was able to take that understanding and have a constructive conversation with IBD. They are evaluating a shift in volume sources. I expect them to move and hope they do so while the market is in correction.

We are all waiting for the market to make a definitive move. We have been flat to down since last May. Pascal noted a head and shoulders pattern, which I see. However, I see that pattern in a much larger context of a head and shoulders pattern going back to September 14 highs of a left shoulder. The current smaller pattern is in a second right shoulder of the larger pattern. I am guessing that if the market is going to make a definitive move to the upside, it needs to make new all-time highs, taking these patterns out. Given the deteriorating earnings picture, I don't think this is probable. Bear markets usually discourage everyone with a price shakeout. Given the protracted nature of the sideways movement, I wonder if it is possible to discourage everyone by boredom. Discouraged investors place money on the sidelines, a necessary condition for a significant market rally.

I remember a claim made by Richard Arms in a book written in 1971, "Profits in Volume," that total volume in a topping structure is followed by an equal measure of volume in the subsequent decline. If so we need a massive shakeout to prove him correct. Richard Arms invented, or perhaps reinvented equal-volume charting methods.