Good Evening
A brief update that on Weds/Jan 7 and Thurs/Jan 8, the market rallied strong both days, with the Dow Jones making triple digit gains on both days, on above average volume. These are very positive and bullish signs, reflecting a possible reversal of the trend which started downward earlier in the week. I am especially pleased that the markets have rallied strong in the face of the unfortunate terrorist events in France and the on-going Greek situation regarding elections and exiting the Eurozone. Lets take a look at the NASDAQ, which is best reflects the bullish action:
As can be seen the NASDAQ “gapped up” today which means that today’s low is higher than yesterday’s high, resulting in a “gap” when charted graphically. Gap Ups are very bullish and reliable indicators, even more so, when coupled with above average volume which indeed occurred today. The action observed Jan 7 and Jan 8 is “classic bull market” action, in which Jan 7 closed higher than prior day, on above average volume, then on Jan 8, the market closed higher than Jan 7, on higher (and thus also above average volume) than the Jan 7 volume.
So we have numerous positives which have occurred the last two days. It is not known at this point what will happen on Friday/Jan 9, but if that day is at worse, flat, and at best, another good performance, then my fears earlier this week will be much subsided.
This week’s trading so far reflects that the “least worse performer” (considering the down days of Monday and Tuesday thrown into the analysis) is the C-Fund, with the next “least worse performer” being the S-Fund. I am personally 100% S-Fund, but this mature bull market, 50% S-Fund and 50% C-Fund is probably an equally good option. Note that historically, when a bull market finally tops out and heads down, the large cap stocks are the ones performing the best. So if we see behavior associated to large cap stocks/C-Fund outperforming S-Fund, constantly, this is yet another indicator of a bull market coming to an end. We are not seeing that (quite) yet.
Today’s action is testimony why I don’t panic nor advocate that anyone else panic, when markets have a one or two-day crash. We need to step back, breathe, assess, then take action. Part of my “assessment toolbox” is my chart analysis, volume/price review, and some other tools. In aviation, pilots are taught that the first thing to do in an emergency is “wind your watch.” In other words, numerous accidents have happened, many fatal, because a pilot panicked and responded incorrectly to an emergency situation, at times making the situation worse. So we must breathe, pause, assess, and wind our watch. And try to remove the emotion, theory, crystal balls, out of the process and use objective & sound tools and methods.
With that said, lets see what happens Friday/Jan 9.
Everyone have a great weekend unless we talk sooner.
– Bill Pritchard
