OT: IBD calls Confirmed Uptrend

Investment Analysis Clubs Saul’s Investing Discussions
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From 6/30/16

Stock Indexes Signal Uptrend, But There Are Reasons For Caution

The three days of strong price gains in above-average volume constituted a rare, Day 3 follow-through. A follow-through signals that the market is in an uptrend. That’s a signal to investors to increase exposure to stocks

Meanwhile, additional positive developments emerged. The S&P 500 reclaimed its 50-day moving average, after retaking its 200-day line Tuesday. The Nasdaq climbed over both lines Thursday.
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Although quality stocks breaking out of solid chart patterns can be bought, individual investors should exercise some caution for several reasons.

First, a Day 3 follow-through is rare. The most recent previous case was Dec. 16 on the S&P 500. However, two sessions later the uptrend was back under pressure. All uptrends include a confirmation, but not all confirmations prove accurate.

Second, the charts of the major indexes are just plain ugly. Action over the past three weeks has been wide and sloppy. It would be best if the indexes would now begin advancing in a disciplined fashion.

Third, follow-through days in June and July have a history mostly of failure. (August, however, has historically been a better month for successful bullish signals.)

Fourth, the long-term picture cries out for caution. After setting a peak of 5231.94 last July, the Nasdaq has been in a rolling, choppy descent for 11 months. Lower lows were pegged in August and February on the Nasdaq. And lower highs on the Nasdaq have ratcheted resistance down from the 5200 area to around 5000.

Does that sound like a bull market?

There’s more: The S&P 500 has had lower lows in roughly the same period as the Nasdaq, but resistance has remained steady at just over 2100. That 2100 level is being tested now. The Nasdaq faces a longer hike to test the 5000 level.

Weigh all these factors and it’s easy to be cautious, maybe even too cautious.

See, this is why Saul does not time the market, he just “times” his allocations. By being committed to being 100% invested, all he can do is shuffle money between his stocks (or new ones). So these last few days, he indicated he moved money from his stocks that took small hits, to his stocks that took large hits. Now that all have bounced back, he is sitting pretty.

Of course, if this had been real and the market went down 20%, he would have had a bit of pain.

For LGIH holder, note that it broke out a little above $29
http://stockcharts.com/freecharts/gallery.html?lgih

Supporting a bullish thesis on LGIH, are the home building suppliers, which have been very strong. Today BECN (roofing) is breaking out on strong volume (that is already above the daily average)
http://stockcharts.com/freecharts/gallery.html?becn

There was another breakout in the building sector after Beacon Roofing Supply (BECN) topped the 45.82 buy point of a flat base in heavy trading. The chain of roofing and other building products has a lofty 96 Composite Rating from IBD.

Eagle Materials (EXP) rose as high as 79.75 but later pared its gain to less than 1% at 77.73. The building products supplier has climbed back above its 50-day moving average. It is forming a long cup with handle with an 83.10 buy point. LGI Homes (LGIH) climbed 2% and is extended from a 29.42 buy point.

But we don’t play that game here, Saul seems to make outstanding gains by picking good stocks and shuffling between them as prices changes. Not that that is easier :wink:

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7/6/16, yesterday registered the first distribution day (S&P) since the rally started. Today made up for it with a vengeance as we reversed off a worrisome low to a nice gain on slightly increased volume (Naz was down 0.8% then after Europe closed it rallied to about 0.75% up).

When the major indexes rise in higher volume, think of it as evidence of institutional accumulation. Every market rally needs the support of big funds, pensions, banks and other large investors. Such action seemed to drive three straight days of gains in healthy volume from June 28 to 30, the last day of which counted as a rare Day 3 follow-through that signaled a new tradable rally may be in motion.
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On a positive note, the Sector Leaders screen in recent days has shown as many as eight stocks, the most exhibited this year so far. Following Wednesday’s market action, five of the seven Sector Leaders went public in 2010 or later, including Five Below (FIVE) (2012), LGI Homes (LGIH) (2013) and Paycom Software (PAYC) (2014)
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Wednesday’s session also featured positive market internals overall. Winners beat losers by a 3-to-2 margin on the Nasdaq and roughly 4 to 3 on the NYSE. However, the new-high list still reflects a strong hunt for yield

On a personal note, ELLI broke out on good volume and I was able to buy in at a good price.

As noted above, our LGIH is highly rated. And SWKS is rated very poorly.

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7/12/16

Buyers were in control again Tuesday as the market uptrend, confirmed by the S&P 500 on June 30, showed no signs of letting up.

The Nasdaq composite extended its winning streak to five sessions, rising 0.7%. It also gapped up for the third straight session and took out the 5000 level, a key technical development. The S&P 500 and Dow hit all-time highs with gains of 0.7% each. Small caps outperformed, with the Russell 2000 up 1.3%. The index closed above the 1200 level for the first time this year.

Advancing stocks topped decliners on both exchanges by nearly 3 to 1. The IBD 50 added 0.5%.

Certainly, the bulls have reason to be optimistic. Tuesday’s gains came in higher volume. Also, the new-high list has been expanding nicely in recent days, offering up more leadership beyond safe-haven, dividend-paying stocks. Much of the leadership has been coming from IBD 50 names. Big gainers Tuesday included Cambrex (CBM), U.S. Concrete (USCR), GrubHub (GRUB) and MaxLinear (MXL).

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7/19

…it’s little surprise for the broad indexes to pause after mounting an impressive rally from the late-June lows. Any market needs to digest gains, lest it overheats and retraces its winnings.

The market’s moderation is about as good as can be expected. Indexes have given back practically no ground, and leading stocks have been well-behaved, if not exactly torrid. The IBD 50 on Tuesday fell less than 0.01%, so technically speaking it outperformed the market. It too is showing little elasticity at recent highs.

After three weeks into the market rally, three take-aways are important to help understand current conditions.

1. There’s been virtually no institutional selling to speak of since the lows. Each index has only one day of higher-volume losses since the June 30 follow-through, which itself was an unusual rally confirmation because it happened just three days into the new rally.

That’s uncommonly light selling by institutional investors, and it indicates these powerful forces are not using the advance to take profits or to make up losses from earlier weak spells in the market. A reasonable conclusion is that institutions generally want to hold shares.

The follow-throughs of February and October 2014 also saw pretty clean distribution in the early weeks. The uptrend that started in February 2014 resulted in an advance of seven months until the market got in serious trouble again. The October signal led to nine months until a market peak, although much of that advance came in the first couple of months.

2. The put-call volume ratio still works as a bottoming signal. The ratio has had an excellent track record flagging lows, and it did it again. The ratio spiked higher June 27, the day the indexes reached bottom. Although it doesn’t take the place of the follow-through, the surges in investor fear captured by this indicator continue to help find bottoms. (The ratio is plotted below the Nasdaq chart on the market trend page. Click on the link provided below this article.)

3. Breakouts abound but are not necessarily producing large gains. Dozens of breakouts have occurred in the past few weeks among leaders. But most of those are still close to buy points, not rallying a whole lot. Part of the problem is that some stocks formed the right side of bases as the market rebounded, and now that indexes are resting it’s been difficult for the breakouts to get much follow-through buying.

Leaders that broke out earlier have been able to extend gains, though. And, notably, sell signals have been relatively sparse among the top-rated stocks.

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