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On Friday, the stock market finally put in that follow-through day I was looking for. The index that accomplished this feat was the Dow Jones Industrial Average.
The DJIA rallied 2.16% on Friday, which was day eight of the rally attempt that started on March 11 when the DJIA put in the lows of the current downtrend. Despite the strong gains made on Friday, there really were a lot of problems with the session. First, most of the volume was due to the options expiration, which skewed the true measurement of the market participants. Second, the stock market indices are still below the recent March highs. Third, the current batch of leaders are either laggards or late-staged. There are very few stocks that look great. However, there are a few stocks out there that have strong fundamentals and great chart patterns. I showed you two of those on Wednesday (Bruker (BRKR - commentary - Cramer's Take) and Buckle (BKE - commentary - Cramer's Take)), and on Thursday I showed you the new batch of leaders that I wanted to get long if this market continued to move higher. Keeping with that theme, more regional banks made impressive large volume moves on Friday, and it would be prudent to follow the smart big money as their billions of dollars flow into these stocks. Today, let's go over the industry group charts of the regional banks.
As can be clearly seen here, the groups are under some very heavy accumulation. The long-term weekly charts on these indices show that the accumulation the stocks are under right now is very heavy, unlike anything seen before.
The last time these groups all looked this good was back in March 2000. That is when they all made similar price patterns as they are now -- volume was not nearly as convincing -- which set them off on a 1½-year rally. They were the leaders during the 2½-year bear market.
This is not to say that we are going to have a bear market on the same magnitude as that on, but let's be honest with each other. When you look at the big-cap tech leaders -- Google (GOOG - commentary - Cramer's Take), Apple (AAPL - commentary - Cramer's Take) and Baidu (BIDU - commentary - Cramer's Take) -- and at the chemical-fertilizer group (one of the best industry groups during the 2003-2007 bull market) -- Mosaic (MOS - commentary - Cramer's Take), Potash (POT - commentary - Cramer's Take), Terra Nitrogen (TNH - commentary - Cramer's Take) and Monsanto (MON - commentary - Cramer's Take) -- and see them all break down or start to break down, it is usually not good for the market, as past leaders are never the new leaders. Our past leaders are not going to be our new leaders, and after a bull market of more than four years, it is going to take a while for a rotation into new leaders to fully develop. However, I am more than willing to play a bear-market bounce here with the few well-formed and green charts that I have in my scans. If it develops into a bull market (we will see more CANSLIM quality stocks setting up and breaking out of well-formed bases), I will have plenty of time to get extremely long in the leaders, not the laggards. Some of the stocks in these groups that currently have strong fundamentals with bullish EPS estimates and strong chart patterns (and that I did not highlight on Thursday) include First Merchants (FRME - commentary - Cramer's Take), National Penn (NPBC - commentary - Cramer's Take), First Community Bancshares (FCBC - commentary - Cramer's Take), Provident New York (PBNY - commentary - Cramer's Take), Northwest Bancorp (NWSB - commentary - Cramer's Take), and First Financial (FFIN - commentary - Cramer's Take).
This follows a quiet base where most of the action came on quiet volume. The quiet base was preceded by an uptrend that was full of strong constant accumulation.
If it does not move higher immediately, I'd cut my loss with a close below the 50-day moving average.
The rest need more time. But that is the theme in this stock market: more time. This volatile action is just too difficult for about 99% of active investors to trade in. If you are a seasoned professional, though, you know that there are some past leaders just breaking that will make good shorts and that there are a few defensive stocks with nice charts that make good longs. It is a very mixed and crazy market. That is why CASH IS KING for now. On Wednesday, we will take a look at a few more bullish chart patterns. Aloha!
At time of publication, Hayes was long Bruker and Buckle and was short Google, Apple, Baidu and Terra Nitrogen. Joshua "MauiTrader" Hayes is CEO, president and founder of Big Wave Trading LLC, a Maui, Hawaii-based stock market advisory service. Hayes also runs BigWaveTrading.com, an online stock market commentary and stock selection service for short- and intermediate-term investment strategies using CANSLIM and other strategies. Under no circumstances does the information in this commentary represent a recommendation to buy or sell stocks. Hayes appreciates your feedback; click here to send him an email.
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