This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Restrained Rally Slowly Emerging

To anticipate trading over shorter periods, I rely on both the market's internal quantitative data as well as other technical signals. These have been modestly encouraging, with only a few exceptions -- including weak market breadth, which Helene Meisler has examined in detail.

This buying juncture is not ideal. Although it hasn't fully gelled yet, I am becoming increasingly more comfortable shifting toward a bullish posture, for however brief a time period that may be.

I would become even more aggressive if not for several fundamental factors that counterbalance these quantitative improvements. These include more restrictive monetary policy and increasing fiscal budgetary pressures, which suggests a rising likelihood of either higher taxes or less deficit spending, or both.

Despite this not-quite-perfect floor, most of the elements are slowly coming together to support at least a modest year-end rally. My analysis suggests that traders and index buyers can get long over the next few weeks, with a projected top in mid-December.

What's the basis for this? My key positive factors include:

  • Nasdaq short interest: This hit a record high last week. Historically, extremes in shorting -- most especially when done by odd-lotters -- occur fairly close to intermediate bottoms.
  • NYSE thrust sessions: A thrust session occurs when the New York Stock Exchange's decline-to-advance ratio is 2-to-1 or greater, and simultaneously has a similar ratio of up/down volume. Present thrust session levels are similar to those previously reached in May of this year, June 2004, and March 2003 -- all high-fear junctures that were near intermediate-term bottoms.
  • Nasdaq 52-week high-lows: As the chart below shows, the cumulative high-low index has reached levels that in the past have been good buying junctures. Do note, however, that this most recent peak is much less severe than prior periods that formed better bottoms. That implies a more modest bounce off of the lows.
  • Going to Extremes
    The spike in Nasdaq 52-week lows has reached levels that in the past have been good buying junctures.
    Click here for larger image.
    Source: Redwood Technimentals

  • Moderating bullishness: One measure of bullishness I like is the American Association of Individual Investor's sentiment index . It was 51.4% a month ago, sliding to 43% and then 32% this week. Ideally, I like to see this in the teens or even low 20s, but it is still apparent that some of the excesses have been rung out. The moderate number is why I can imagine the bottoming process taking a bit longer, and also why I am not looking for a monster rally.
  • 2 of 3

    Check Out Our Best Services for Investors

    Action Alerts PLUS

    Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

    Product Features:
    • $2.5+ million portfolio
    • Large-cap and dividend focus
    • Intraday trade alerts from Cramer
    Quant Ratings

    Access the tool that DOMINATES the Russell 2000 and the S&P 500.

    Product Features:
    • Buy, hold, or sell recommendations for over 4,300 stocks
    • Unlimited research reports on your favorite stocks
    • A custom stock screener
    Stocks Under $10

    David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

    Product Features:
    • Model portfolio
    • Stocks trading below $10
    • Intraday trade alerts
    14-Days Free
    Only $9.95
    14-Days Free
    Dividend Stock Advisor

    David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

    Product Features:
    • Diversified model portfolio of dividend stocks
    • Updates with exact steps to take - BUY, HOLD, SELL
    Trifecta Stocks

    Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

    Product Features:
    • Model Portfolio
    • Intra Day Trade alerts
    • Access to Quant Ratings
    Real Money

    More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

    Product Features:
    • Access to Jim Cramer's daily blog
    • Intraday commentary and news
    • Real-time trading forums
    Only $49.95
    14-Days Free
    14-Days Free
    AAPL $93.21 -0.44%
    FB $117.80 -0.22%
    GOOG $701.26 0.80%
    TSLA $211.34 -5.00%
    YHOO $36.94 2.60%


    Chart of I:DJI
    DOW 17,660.71 +9.45 0.05%
    S&P 500 2,050.63 -0.49 -0.02%
    NASDAQ 4,717.0940 -8.5450 -0.18%

    Free Reports

    Top Rated Stocks Top Rated Funds Top Rated ETFs