1-23-2015 Comment

IBD shows a return to confirmed rally this morning. Even though yesterday's price and volume action qualifies as a follow-through sized event, this was not a follow-through day that zeros the distribution count. This was a move from market under pressure to confirmed rally on a show of market strength. We maintain the distribution count in a 25-day trailing window of 1 on the NASDAQ and 3 on the S&P500.

Leading stocks however lagged. The median stock on the IBD 50 went up 0.82% whereas the NASDAQ index went up more than double this amount at 1.78%. The NASDAQ 100 went up 1.87%. Essentially leading stocks have been lagging for months. I have owned NXPI since November and it is up just 7.7%. BIIB is up 1.7% since December 19. This is lagging performance. Others owned along the way have been sold at a loss.

The MarketSchool model mirrors the IBD situation and shows 30% long based on yesterday's buy signal. In an environment where leading stocks lag it may be prudent to buy market pull backs using an index ETF of your choice or wait for leading stocks to lead again. Leading stocks breaking out of sound bases and moving up is the final confirmation of a rally.

Mike,
What are your thoughts on the performance of the Russell 2000? It is consolidating nicely and shows some strong weekly up spikes on big volume over the last few weeks/month. And yet, being in the latter cycle of the bull market, small caps are typically unfavorable to institutions due to lower liquidity and higher volatility.

Thanks,
Mark

Mike, Thanks for your comments. They are always appreciated.

BTW, what happened to your High Growth List?

Regards,

Pablo

[QUOTE=barbados11;29329]Mike, Thanks for your comments. They are always appreciated.

BTW, what happened to your High Growth List?

Regards,

Pablo[/QUOTE]

Pablo, The HGS list is still at the same place.

Pascal

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[QUOTE=Pascal;29330]Pablo, The HGS list is still at the same place.

Pascal

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Thank you Pascal. For some reason it wouldn't refresh before.

[QUOTE=MTman;29326]Mike,
What are your thoughts on the performance of the Russell 2000? It is consolidating nicely and shows some strong weekly up spikes on big volume over the last few weeks/month. And yet, being in the latter cycle of the bull market, small caps are typically unfavorable to institutions due to lower liquidity and higher volatility.

Thanks,
Mark[/QUOTE]

Mark, The Russell has been going sideways for 10 months. It didn't get slammed yesterday like the NASDAQ as it remained above the 10-day moving average when the NASDAQ went below the 50-day. With the good AAPL earnings the NASDAQ situation may reverse. If you look at the last 3 weeks the Russell has closed in the upper half of its range. This is a positive sign. The one "but" is that it has done this before over the last 10 months.

I know of a study done by a friend who tracks every break out of every stock on the IBD50 list. This study goes back to April 2003 when it was the IBD100. Generally 50-70% of breakouts succeed over the bull market periods up until June 2014. Since July only 20% have succeeded. By success I mean that the breakout moves to 15% profit before it goes 5% negative. This analysis agrees with my own portfolio. I have not been able to make headway this year. 20% winning positions won't make money in the long term and may not lose money either.

When my own portfolio is not making headway there are two possible causes: I am wrong or the market is wrong. I was unaware of my friends analysis until yesterday, it has taken him years to do the analysis. Perhaps something fundamental is going on whereby high growth stocks (big earnings growth, big sales growth, big margins, large trading volume) are not being consistently bought by institutions. They aren't necessarily selling them but they aren't pushing them up either. Stocks like Clorox (CLX) a poster child for a defensive issue however is making new highs. This seeming rotation may indeed be institutional preparation for a significant under performing market going forward. It appears they are not preparing for a big high growth stock push.

In my own portfolio I decided to go to cash yesterday. I note that the late great trader Jessie Livermore said: "Drifting stocks cost money". My portfolio has been drifting on both the long and short side.

[QUOTE=Pascal;29330]Pablo, The HGS list is still at the same place.

Pascal

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Pablo, I did have difficulty uploading my list this week. The server was down for a while and Costas made a manual upload. That list had a typo and I tried to upload a file and may have inadvertently selected the wrong file. That file not being in the proper format caused more trouble. So depending on when you were trying to access the file it may have not been available. All should be well now.

[QUOTE=Mike;29334]Pablo, I did have difficulty uploading my list this week. The server was down for a while and Costas made a manual upload. That list had a typo and I tried to upload a file and may have inadvertently selected the wrong file. That file not being in the proper format caused more trouble. So depending on when you were trying to access the file it may have not been available. All should be well now.[/QUOTE]

Thanks for the thoughtful explanation Mike.