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Wednesday, May 9, 2018

Market Alert - The Close

A stronger open actually finished stronger as the stock market showed some strength it has not shown in quite a while. Futures gapped higher, rallied, but then started to fade into the open. They continued lower into midmorning. DJ30, NASDAQ, SP400, SOX, RUTX turned negative.

The market's attempt to show a character change, i.e. starting higher then closing higher, looked to be another futile effort. Bids returned, however, and by noon ET, SP500 broke past the early morning highs. From there it was pretty much an upside move into midafternoon. 1.5 hours of lateral move to a drop to the early afternoon highs ed to a last half hour bounce back to near the session highs.

Sellers tried after the open, but the dip was bought. Sellers tried again in the back half of the afternoon session, but that dip was bought into the close. Wow, success. A higher open closed higher -- er, with a dip to negative along the way. Still it was low to high action, right?

Moreover, volume was up, moving above average on NASDAQ, higher and above average on NYSE, and edging higher on DJ30. Volume higher, and actually above average, on an upside session. Refreshing for the bulls.

SP500 25.87, 0.97%
NASDAQ 73.01, 1.00%
DJ30 182.33, 0.75%
SP400 0.52%
RUTX 0.61%
SOX 1.42%
NASDAQ 100 1.14%

VOLUME: NYSE +3%, NASDAQ +8%. Rising, above average volume on both exchanges. Second day of above average trade for NYSE, first for NASDAQ in 5 sessions. Good to see upside volume on days where there is a key break through resistance.

ADVANCE/DECLINE: NYSE +1.7:1, NASDAQ +1.6:1. The weak link in the chain of internals for the market. Very positive breadth last Friday, just no volume. Can you mix and match sessions? To a certain extent; there was good breadth off the support, and now pretty solid volume on the break through a resistance level.

DJ30, SP500, SP400 broke through the upper trendline. Next target: the April lower high. That is always the case when moving back upside, but the key point is the break through resistance showing stronger volume.

NASDAQ, RUTX, NASDAQ 100 all moved through the April peak as they too cleared a resistance point.

Clearing resistance on solid volume is a very good upside indication of the kind of buying needed to sustain moves.

Leadership was also spruced up. Not only did software, drugs/biotech, and retail continue higher, but some chips joined in along with some FAANG. We bought some from software (NOW), semiconductors (LRCX), and FAANG (GOOG).

Other groups were not dogs, just not as solid. China stocks were mixed with HTHT, ATHM, CTRP rising while BABA, BIDU, BZUN took a breather. Oil stocks surged early but unlike the other leaders, in the afternoon selling they did not manage to rebound. That left them in some cases showing gains but with a tombstone doji, others giving up the gains. Not all was perfect, but it was much, much better action. It would appear that market that looked constructive to us on Tuesday was constructive.

Of course with this market it is always a move followed by a question. In this case, an upside move through resistance on strong volume. Question: will it hold, i.e. will the sellers return? The sellers have certainly remained quiet of late even with some issues they feed upon, e.g. higher interest rates (10 year closed over 3%, barely, at 3.006%). Trade has been a benign issue of late, and if that continues then the market has one of the clouds raining somewhere else for now.

We did not buy all stocks that hit the buy point. Some had volume support, some had very good price moves, some were just drifting. The latter were not entered, the higher volume moves of course (e.g. GOOG, NOW), the low volume in some cases (e.g. LRCX). Even so, we did not get AKAM, waiting for the gap to test and it never did; now we have to look for a test.

In any event, we have some really good positions working for us, taking some gain on some, buying more, and letting them work.

Have a great evening!
Jon Johnson, Chief Market Strategist
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