I want to believe in this rally, I really do.
But Mr. Market isn’t making it easy, flashing mixed signals about its underlying health. On the one hand, major averages flashed a buy signal exactly one week ago with solid percentage gains on the fifth day of its rally attempt that started on Nov. 16. On the other hand, major averages flashed a higher-volume decline Tuesday — not good to see in the early stages of a rally.
HEADLINE VOLATILITY
A market obsessed with daily fiscal cliff headlines is as volatile as ever. The story remains the same: It’s hard to be long with conviction and it’s hard to be short with conviction. Usually during times like this, I don’t much in the way of buying. But the fact remains that the market trend is up until proven otherwise.
NEAR RESISTANCE
Overall, I’m encouraged by the Nasdaq Composite’s recent price action — up eight up days out of nine with closes at or near session highs. But the tech index is fast approaching a possible resistance level at 3,027 — its 50-day simple moving average. I wouldn’t be surprised to see this level be a ceiling in the near-term, but that doesn’t mean I’ll be quick on the trigger to close some long positions. Some short-term softness, maybe, but I still believe the chances are pretty good for a rally into the end of the year.
DISTRIBUTION IS A CAUTION SIGN
I’m embracing the nascent rally but not necessarily with a strong grip. I didn’t like the action in the market Tuesday when comments from Harry Reid brought sellers into the market late. It’s not good to see distribution (professional selling) so soon after a market buy signal but it happened Tuesday when indices fell and volume rose from Monday’s level. It was mild distribution but distribution nonetheless.
STOCK PLAYS
I’ve nibbled at some stocks in recent days, including HDFC Bank (HDB), eBay (EBAY) and Mednax (MD). So the far, the market is telling me that my timing was right. I’m in no rush to buy more stocks at this point but if indices show higher-volume gains and lower-volume declines in coming days, I’d expect what I currently own will continue to work and new buys will continue to present themselves from our Ultimate Growth Stocks watch list. Learn more about my newsletter here.
[Editor’s note: Do you believe in the rally? What levels or indicators are you watching? Post a comment below to share your thoughts.]
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