Tuesday, July 25, 2006

Solid Back-to-Back Gains

Today was a nice day for the market. Unlike past one-day rallies, the market was able to shake off mid-day weakness and rally into the close. Volume also rose today, making for a solid accumulation day.

Small and mid-caps led the rally. Energy and materials stocks were strong, but the leading sector was biotechs (BTK), which is a good sign that growth stocks may be on the mend.

Unfortunately, the price gains weren't enough to qualify as a follow-thru day. Too bad. Yesterday the price gains would have qualified, but the volume was too light. Today, the volume was there but not the price action. That doesn't mean this rally has to falter. It's just something we like to see to give us more conviction about the new uptrend.



That said, the technical action on the SPX was good. A look at the chart above shows how the SPX definitively recaptured its overhead 200-day average. With the index now above both of its key moving averages, it should be able to use them for support on future pullbacks.

This is the process of a change in trend. Former resistance gets converted and then becomes future support.

Earnings reports continue to be treacherous for stocks. Even some in-line reports resulted in the stocks gapping lower. In some cases, these are overreactions, but they can still hurt you if you are involved. Better to let the dust settle, and then sift through the rubble for bargains. Remember, one man's trash is another man's treasure.

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