A Breadth of Fresh Air

Over the past few weeks I've been addressing market breadth and timing methodologies. In my two previous post I queried whether or not the market was putting in a near term bottom and whether or not there is the possibility of a broader topping formation as correlated with the O'Neil model as explained in “How to Make Money in Stocks.” The main intention was to keep aware of what the market is currently doing in order to increase my understanding of the underlying market breadth and where money was being positioned. Being in touch with the market on a daily basis and attempting to deduce what the market participants psychology was kept me focused and prepared as I awaited indication that I would find my rhythm and be able to participate in the next leg to the upside.

Over the past week the indexes have logged 5 straight upside days, with 3 of 5 up 1%+ on the SP and 4 of 5 up 1%+ on the NASDAQ. In addition 07/01 was a 9-1 upside volume thrust, an event that hasn't occurred since 12/01/10. What I'll be looking for over the next week is whether or not there is a secondary 9-1+ upside day indicating a cluster of buying pressure is supporting this move.

07/01 9-1 Thrust

Another indication that I was looking for to confirm an upside rally break was the $BPNYA which crossed the 10 MA this week.

07 01 $BPNYA

Additionally the 5 day accumulation of New Highs/New Lows is increasing and has eclipsed the previous peak of 721.

07/01 $USHL5

Lastly a look at the market monitor which is my primary market timing tool shows breadth increasing from .49 to .53 on 06/17, followed by buying pressure on 06/21 with a 366 to 26 day. The ratio has increased near daily since. Within the past three days all indicators have aligned indicating bullishness and a thrust of 2+ occurred. Using this indicator I began actively buying on 06/21 when the thrust peaked above 1.5.

07/01 Market Monitor

Across the board these indicators express the same sentiment, but in slightly different ways with nuances. Regardless of what my thoughts are about the movement of the indexes, the lack of volume, and whether or not there is a bottoming process to a near term correction, or if this is part of a greater topping process is moot. The simple fact is, I use a timing indicator as part of my trading methodology and when it triggers I take it. It just so happens that in this case there is confluence from a number of other breadth indicators as well.