Friday, July 13, 2007

Perspectives on a Stock Market Rally--And More

* Questioning the Rally - Several traders on Thursday asked me about the viability of the market rally, given that we did not see NYSE TICK readings exceeding +1000. One rather experienced colleague confidently told me that he saw a great opportunity to short the S&P 500 late in the afternoon--just before the big spike upward. It's a great example of getting caught up in details and not, as noted in the recent post, thinking in principles. The NYSE TICK distribution was considerably stronger (more positively skewed) than the distributions from the prior two days. Moreover, we saw an expansion of 20-day new highs on Thursday to 1434 and an expansion of 65-day new highs to 906, both eclipsing the levels of new highs at the prior market peak. Moreover, my measure of stocks closing with significant positive momentum (Demand) was 178, while Supply (an index of stocks with significant downside momentum) was 33. That is quite a positive shift from the prior two trading days. Markets that expand their strength and momentum tend to follow through with further strength in the near term. That's what we saw Thursday afternoon, though some, as noted by Barry, saw it as a bullshit rally.

* What the Weak TICK Really Signifies - We saw an absence of buy programs among the Russell 2000 stocks, keeping the TICK restrained. I will be watching closely to see if this rally gains participation from the small caps or if the small caps lead the way back into the prior trading range. As the Afraid to Trade blog nicely observed in its charting of the major markets, the Russell has been the laggard in this rise.

* Great Call From Kevin - The Dow exploded higher, just as he anticipated in his prior posts. Excellent work from a blog worth following.

* Another Fine Site - The VIX and More blog tracks record volume in the VIX options and examines new highs/lows for market timing. Great blog.

* More Fine Links - Some excellent readings from Abnormal Returns, including a look at some creative, new ETFs and ways that activist hedge funds are leveraging their influence. Also take a look at Trader Mike's recent links, including a discussion of a vitally important topic: risk of ruin. Adam weighs in with views on the running of the bulls and how markets behave during and between trading hours.

* Improving Your Performance - Here's a worthy post from The Kirk Report comparing the mindset of the golf pro to the mindset of the trader. Also check out this offering from StockTickr, illustrating how to use the program's journal and tagging to understand what works and doesn't work in your trading.