Wednesday, March 19, 2008

Some Post-Rally Market Observations

* Tracking the Rally - We swung to very positive momentum on Tuesday, with my measure of Demand at 202 and Supply at 13. This means that about 16 stocks closed above their volatility envelopes for every one that closed below. Such extreme readings usually lead to follow through on the upside on a short-term basis. New 20-day highs across the NYSE, AMEX, and NASDAQ expanded to 479; new 20 day lows dropped to 943. My Technical Strength measure showed trend shifts across many of the 40 stocks that I track across eight SPX sectors. Specifically, we're now seeing 21 stocks in uptrends, 7 neutral, and 12 in downtrends. We're now seeing 53% of SPX stocks trading above their 20-day moving averages, up from just 17% on Monday. Following relative strength and weakness among the financial issues has worked well. If this rally is for real, we should see follow-through buying in this sector.

* Themes for This Market - Abnormal Returns tracks a number of current themes, including the prospects for investment banks and hedge funds and a look at a possible unwinding of a China bubble. See also the T-bills and gold theme followed by Maoxian.

* Prospects for the Rally - Trader Mike notes the lack of follow-through in recent rallies and sees the 50 day MA as the next test for the market.

* An Options Strategy for Gold - Daily Options Report explains their gold strategy and offers an observation on the BSC affair.

* Great News Summary - Between the Hedges tracks the headlines and notes greater confidence in the credit markets.