Monday, June 18, 2007

A Look at the Stock Market to Start the Week

* Solid Momentum - On Friday, my Demand indicator (stocks with significant upside momentum) hit 161; Demand was 26. Given that momentum peaks tend to lead price peaks, I'd expect further upside this week.

* Broad Rally; Resilient Market - Just this past week, on Tuesday, we saw 1649 stocks make fresh 20-day lows. On Friday, however, there were 1388 new 20-day highs. These pullbacks in money flow toward the 200-day average, noted earlier, have been great buying opportunities.

* Strength in Small Caps - I notice that, on Friday, 80 S&P 600 small cap stocks registered fresh 52-week highs, the highest level in months. If this market were just going to turn around and crash, I wouldn't expect such broadening of strength. Fourteen NASDAQ 100 stocks also made 52 week highs on Friday, the highest level in months.

* Breakout Move in CRB Index - Note the multi-month upside breakout move in the CRB Index of commodity prices. Not something we'd expect from a weakening economy. The correlation between the move in stocks and commodities over the last few days is worth watching.

* Volatility Still Up - Trader Mike notes the whippy price action of late. Note that the VIX closed near 14 on Friday, well up from the low VIX numbers posted after prior price jumps. I continue to believe we've put in a long-term bottom in volatility.

* Rally in the Dollar? - Great weekend linkfest from Barry Ritholtz includes a perspective on a rising greenback. See also the excellent post on cognitive biases that affect our decision making.

* Good Reading - Abnormal Returns offers a view on the oversold bond market, a test of a popular trading system, and investments in wind as alternative energy source.