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Thursday, July 11, 2013

A ‘V’ Bottom May Not be Enough to Sustain the Bull

Wednesday Markets fresh tomatoes for sale-1=
Wednesday Markets fresh tomatoes for sale-1= (Photo credit: Sheba_Also)
Larger indices must successfully attack their highs before we can declare the next leg of the bull market has begun

In after-hours trading, stock futures gained following what appeared to be more dovish remarks by Chairman Ben Bernanke.
At Wednesday’s close, the Dow Jones Industrial Average was off 9 points at 15,292, the S&P 500 was unchanged at 1,653, and the Nasdaq rose 17 points to a new 12-year high at 3,521. The NYSE traded 670 million shares and the Nasdaq crossed 389 million. Advancers led decliners on the Big Board by 1.14-to-1, and on the Nasdaq, advancers were ahead by 1.4-to-1.

Chart Key
Both the Dow industrials and S&P 500, indices of generally higher quality stocks, have failed to break their June highs. Both charts, however, appear to be in the process of forming “V” bottoms following the sharp sell-off that resulted from the June Fed minutes and Bernanke’s remarks.
Conclusion: Both the Nasdaq and Russell 2000 have broken to new highs and led the market. However, the higher quality stocks, represented by the S&P 500 and Dow Jones Industrial Average, have failed to even exceed their June highs. Until those barriers, as well as May’s highs, are successfully attacked, we cannot conclude that the next leg of the bull market has begun.
Few markets have been led to new highs by the lower quality stocks. If this bull market is to resume, then the major indices should be recognized by institutional buyers. A demonstration of higher quality buying with greater volume could complete a breakout. But the mere formation of possible “V” bottoms is not enough evidence to draw long-term investors into the market..
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