Back to confirmed uptrend

The NASDAQ put in a higher volume reversal to the upside on Friday. The 2.5% move would qualify as a follow-through day in its own right if we had been in a correction. As such it represents a further confirmation that the market is trying to wake up. This also erases concerns about whether we had a distribution day on Thursday or not. Friday also qualified as a Eureka, a really strong upward thrust of internals on the NYSE as defined by Ian Woodward. Essentially a Eureka looks at all the components of the Richard Arms or TRIN index and analyzes for strength in all components as well as the TRIN. Eurekas are rare. These two impulse conditions together often accompany a rally with some legs. The third thing I look for is a weekly Coppock bottoming signal within 20 days of a FTD. I believe this is in the cards also, or appears so as I write. What the Coppock tends to do is not signal before the market has had time to consolidate a prior downmove. We have had a significant downmove and the consolisation could continue for a while but essentailly enough consolidation may be present now. The three factors place the odds of a successful bear-market rally around 57% based on my studies. It is no secret that I have been quite bearish lately. This is so and I remain so on a nine-month to one-year time frame but between now and the end of the year I suspect the market could be up or at least don't see obvious road blocks. Volatility remains high so this will not be an easy environment.

IBD's market pulse headline says "Stocks Rumble Higher, But Leadership Is Missing". This is a true statement. However below will be a list of approximately half of the IBD50 that are holding up. If something other than a junk off the bottom play ensues look for leadership on this list, as I will be doing. We could have of course a junk off the bottom rally with legs, there is no law against this. The lower risk play may be an ETF of your choice with or without leverage. There is a chart in IBD on page A11 that shines a light on Big Caps vs. Small Caps and Growth vs. Value. The strength on the charts seem to be Big Cap Value right now however at market turning points as we might be in this could change. If you look just over the last five days, small caps are outperforming with midcaps next as well as the NASDAQ 100. So small-mid cap technology looks like one of the bounce play grounds.
If you peruse the list of stocks below you will see more than a few defensive names as well as many stocks related to precious metals. I am in GLD, DGP and UWM as we speak. I selected the 2X UWM vs. 3X TNA based on volatility of this moment.

The interview below is Fred Richards. He is an economist and CANSLIM investor (and member of VIT) with experience that goes back to the 1950's. He always has valuable insight.

[url]http://www.moneyshow.com/investing/article/44/DailyGuru-24248/11-Stocks-to-Watch-for-the-Next-Uptrend/[/url]


Some stocks to look at:

ALXN, AAPL, PRGO, AUY, HANS, MA, ABV, GOLD, SLW, GG, DLTR, CERN, RGLD, V, SWI, TDG, NUS, NTES, IAG, SHPGY, EGO, JAZZ, WCN, BBBY, ABX, SSRI

Mike; Very nice summary. Thank you.
Best regards,
Robert

Mike, what's your take on GOOG? it seems to be back to leaders group...
F looks compelling with such valuation, but it doesn't look like institutions are interested.

Thanks for update.

GOOG has a low relative strength (RS = 70). This is not the stuff that great leaders show. It is in an industry group and sector that is lagging. IBD reports an E accumulation/distribution rating indicating heavy distribution.

GOOG may be going the way of Microsoft. In 1999 the talking heads were saying that MSFT was going to go on and on and on. Since then all MSFT has done is go sideways for 12 years. MSFT earnings have doubled since 2005 and the price has made zero progress. GOOG is a newer company its earnings have gone up 3-fold since 2007 with no price progress. This is positive anyway. The largest institutional owner of GOOG is the Fidelity Contrafund and they are net sellers of GOOG. Large player EV isn't bad however.

Here are characteristics of great leaders before they make their big run up in price:
Quarterly earnings growth in the most recent quarter > 40% above same quareter in the prior year (triple digit growth is much better)
Three quarters of EPS acceleration
Three quarters of accelerating instutional ownership
Relative Strength greater than 80% of all stocks
Stock is trading withing 15% of 52-week high (GOOG is below 200-day and 50-day.)
Good margins (I like to sum ROE and PreTax margin with sum > 50%)

GOOG doesn't measure up right now.

Ford (F)
I used to own F until it topped. Its last recognizeable pattern was a head and shoulders top. F is on my list of candidates to short if it can rally into resistance. It shows decelerating earnings and sales over the last few quarters. 2012 earnings projection is below 2011. I know F is trading at a rock bottom P/E ratio, there is a reason for this it appears. Going back to the characteristics of leading stocks, F doesn't measure up. It could work as a junk off the bottom play but with a relative stength of 15 and in new low ground. It looks too junky to rally off the bottom, at least so far. It sitting near the lows established by the 2010 flash crash, this could provide support and a place to create a bounce but my problem is that it just isn't bouncing and seems to be met with fresh selling. If you look at EV large players are not buying F.

Thanks for comments, Mike.

It seems to easy to draw quick conclusions with very few facts, until you step in and explain the basics.
Especially for me, as I am a new trader some things may not be obvious, like seeing Ford power ahead for 2 straight years, and then accepting the fact, that this was perhaps more a liquidity driven run-up than a prominent stock coming back into light.


Regards.

Mike

What are the period(s) of relative strength that you consider relevant?
Really enjoy your tutelege!! Many thanks.

1bullseye

The Relative Strength I am speaking of comes from Investor's Business Daily and is the 12-month measure of an individual stock's price performance vs. all other stocks in the database. A 40% weighting is given to the most recent quarter and 20% weight is given to each of the remaining three quarters. The rating is computed as a 1 to 99 figure coresponding to percentiles (99 means the stock is outperforming 99% of all other stocks).