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Thursday, July 21, 2011

Follow Through Day

The bullish scenario I laid out a couple of days ago has unfolded as if read from a script. A big move off the bottom, followed by a light volume pullback, and an even bigger volume move up, the classic ingredients of a follow through day. the market now appears to be ready to test 1356 very soon, and may well be on it's way to 1370 again.I can't find any reasons in this chart not to give the market the benefit of the doubt.

One minor problem, although it might amount to nothing, was the weakness of both the Nasdaq and Nasdaq 100. You really want to see the leaders lead during a rally, and today it seemed the rally was lead by lagging areas. While the SPX closed miles above yesterday's high, the NDX did not. 

The laggard status of the Russell 2000 is cause for concern as well, but a couple of more days like today will erase that. Lagging or not, this has reversed it's downtrend and appears to have lots of room to move before hitting significant resistance.

Well, this is unpleasant. Normally about the time we get a follow through day, the percentage of stocks on the Nasdaq above the 50 day moving average should be going above 50. Not only is it not, it actually dropped today. Now, it is too early to press the pani button, but I will be keeping an eye on this. Any rally based on narrow leadership won;t last long. 

The NYSE is not exactly a screaming buy, either, but at least it is going up. I reallyn would like to see these in bullish territory before I'm convinced.

The real reason for my skepticism is not the technicals, it is the calender. As I have mentioned before, IBD's research indicates a very poor track record for July follow through days, but even if the really is short, it can still yield a decent gain. As I said, I have to give the market the benefit of the doubt.

I will have the new highs update shortly.

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