Market Alert - The Close

The fight between buyers and sellers resumed. Tuesday futures gapped up, held the gap, stocks surged. Until they did not. Reversals gave back the gains, big volume, sellers won the day.

The question Tuesday night I posited was whether the sellers would have any staying power after another, this time quite serious, attempt to sell?

Not Wednesday. As fast as they appeared and as hard as the sold on Tuesday, they vacated the building on Wednesday. Futures started higher and trended higher into the open. Stocks started upside, continued upside through the morning, through midday, and to the last hour. At that point they slid back some, but the gains were impressive.

SP500 26.14, 0.94%
NASDAQ 74.59, 1.03%
DJ30 322.79, 1.25%
SP400 0.71%
RUTX 0.87%
SOX 2.89%
NASDAQ 100 1.09%

VOLUME: NYSE -18%, NASDAQ -6%. NYSE trade faded below the selling from Tuesday, but was still upside and the strongest outside of Tuesday since expiration. NASDAQ showed the same action. Rationalizing the upside? Perhaps; it was solid volume but it was still less than the selling trade and the sellers did not even show up Wednesday.

ADVANCE/DECLINE: NYSE 1.9:1, NASDAQ 1.8:1. Wow, not that inspiring after the -2.4:1 and -2:1 on Tuesday. Then again, not that far off either.

Indeed, SOX, old potential triple top SOX, exploded higher to new all-time high. Yes, SOX finally took out the early 2000 high. DJ30 26K? Who cares? SOX new all-time high is the key. Any mention on the post-market shows? Nary a one. Possibly THE most important index for the market as shown time and again in the rallies, now at a new all-time high from a problematic pattern. Yes, the buyers were definitely buying.

Now Wednesday was not an all-inclusive powerhouse. There were many stocks that did fall off their intraday highs once again after posting impressive early moves. They just didn't reverse that hideously. Others didn't show much upside at all, and some names you know well: NFLX, AMZN, FB -- some FAANG continue upside (AAPL with its $2500 bonuses, GOOG), but key names looked weak. On the other hand, the stocks that moved higher really moved higher, e.g. BA, IBM, WMT, HD, AAPL, MSFT, TXN, AMAT, LRCX. Strong.

Does the Wednesday move give the all clear, the green light? Is the smoking light now on? Certainly the response was solid: new high on DJ30, new closing highs on SP500, NASDAQ, NASDAQ 100, SP400. Only RUTX missed out, but its pattern is not bad, holding the 10 day EMA and bouncing.

Yes, Wednesday was solid, but volume was lower than the Tuesday selling. Not bad, but lower. Breadth was so-so, no surprise given RUTX lagged. Moreover, RARELY does one day make a consolidation, particularly with the kind of reversal and volume shown Tuesday.

In short, the action looked good, we bought some stocks that moved well from good patterns, we let most positions continue to run. Yet, the action was not as widespread to the upside as it was downside Tuesday, and perhaps we should have used the upside to bank more gain. Perhaps. There were some ugly reversals in the indices on Tuesday but many leaders did not look that bad at all. Wednesday the indices surged back up and stocks posted good upside moves. It is harder to run up hill (i.e. move upside) versus downhill (the downside), but they were doing it Wednesday.

The fight is still on. Do not be lulled into the belief that Tuesday was it, the sellers' one shot. It is surprising they did not show up Wednesday, as if the broke camp under cover of darkness and when the morning came they had melted away. That in itself, however, is reason to be skeptical even as you play good moves. As soon as you do not do that, then as Shoeless Joe Jackson said in 'Field of Dreams,' to paraphrase, it is in your ear. So, play the good moves, but watch for in your ear.

With that in mind, we did pick up some good movers such as WMT, UCTT, TSLA, ORBK, BITA. Looking ahead on the week there are others we like upside in chips, drugs, and elsewhere. There are some downside we are interested in as well: not everything looks good upside. More stocks show some weaker patterns worth having at the ready if the Wednesday rebound runs into another pack of angry sellers as on Tuesday.

That means we also continue taking gain as presented. Wednesday we could have taken more on many plays that we took gain on before and rallied higher yet again. Several faded off the early highs; thus if there is another move up that stalls, taking some more of the gain is not a bad idea.

Bitcoin: The horror, the horror. That is what you hear on the financial stations. 'Fast Money' on CNBC is seeing its bitcoin 'expert' burned on Twitter, etc. for not being on the show as BC gets pounded. Ah, perfect.

I told you that once that when BC got to the point of having patterns then I would get interested. It now has patterns. The current pattern is an ABCD upside that has retraced to the 61% Fibonacci retracement on the close, 78% on the intraday low Wednesday. Nice big hammer doji with tail close over the 61%, touching that 78% level. This is a classic consolidation pattern. If BC can close over the 50 day MA's, then we are looking to play it upside back to near the 17,500 - 18,000 level.

Have a great evening!
Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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