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Morning Cup of Jo: Pop or Drop

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...it is crucial to shore up the technical signs by seeing an increase in average new highs, accumulation volume and advance/decline ratios.

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"Trust only movement."
-- Alfred Adler



Market Comment:


Good morning. From last weeks 'Jo' until yesterday afternoon our new "Eye on the Ball" portion remained unchanged and looked as if the same short-term numbers were going to be reported. At that point the Fed's Beige Book was released and the current levels of resistance for the two eldest sisters – the Dow and S&P 500 – were broken and the Bulls officially took over those two indices; sort of.

The Fed's statement indicated little change in the economy's growth rate since the end of 2005. It also signified muted inflation for the last six weeks with no notable rise in labor costs; in other words, just enough growth with little inflation. The markets took this to imply a looser hangman's noose on increasing interest rates. Good, bad or indifferent; it is what it is and the markets rallied higher.

Even though the underlying strength of the markets is still relatively fragile, technically they are beginning to shape up by showing higher highs and lows. Now, more than ever, it is crucial to shore up the technical signs by seeing an increase in average new highs, accumulation volume and advance/decline ratios. Another key at this point, for a more meaningful and sustainable rally, is to see if the younger sisters follow the newly plowed road. We're also approaching the first quarter's earnings season and it will be not only important to see if the majority of companies meet expectations, but don't lower guidance for the second half of the year.

As for the new numbers listed above, the NDX and RUS remain the same but are only a dart toss away from overcoming. Conversely, the Dow's new resistance comes from almost 5-years ago. This is the last relative high before the debacle. On a grimmer note, the SPX short-term resistance number only moved up slightly to 1,310 because of the longer term resistance (shown below).

As plainly seen in the 2-year graph of the SPX, the market has broken new highs multiple times to only slam into the slightly upward sloping longer term resistance. I've also placed another arrow (gray) on the chart which points out another vital statistic, the volume rate. Yesterday the volume was 12% less than ADV (average daily volume). Traditionally a new market breakout high should be on 15% or greater ADV.

Click chart to see full page.



Because of yesterday's rally not beginning until there was only two hours left in the market, today's market action is pivotal to see if there is a higher volume follow-through and break of the longer term resistance. This will be an important road sign to help determine if this upward action continues. Assuredly, today will be a "Pop or Drop" tipping point to see if momentum can finally take over this seemingly everlasting resistance.

On a side note:

For those who haven't noticed, Tuttle Asset Management has designed and began distribution of an additional service called "Week In Review." This piece is available by 4:30 PM on each and every Friday which provides a concise recap of what transpired during the week. To further enhance our services, we are also going to be putting another weekly piece to complement the 'Jo' and our new service.

If there is any supplementary data our subscribers wish to see, please don't hesitate to let us know. You can contact our COO, Greg Collins directly at Collins@tuttlemgmt.com.

Until next time:

The KAT
No positions in stocks mentioned.

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