A New Picture Emerging

• Posted by Derek
• on April 13th, 2011

We’re in the same price range as yesterday, with the same disappointment towards the inability for $SPY to hold a bounce.  But my stats show me a much different picture.  Not enough to switch from red light to green light, but significant enough that index shorts may be ripe for a squeeze.

Revisiting the theme from “Leaders Want a Break”,  the picture has not completely flipped but finally today the leaders have been resistant to the index declines.  Yes, $JPM couldn’t rally, but take a look at the following graphic:

It shows exactly what an objective tape reader would see…for the first time in over a week, the individual leadership stocks have more lift than the index.  This being a leading indicator, it bodes well for coming days.  No need to anticipate the outcome of an anticipatory indicator, though…the median stock($MMM & $DIS for now) still sits at only 35% of its range since the 4/6 pivot high.  On its own, this just means don’t press our luck shorting.  Combine it with the fact that many fewer stocks count made swing lows today vs. yesterday, and the makings are there for a sharp rebound.  I expect that tonight’s look at the Alphascanner intraday stages will show a contraction in Stage 4 stocks; that has also been dead-on in revealing the potential of the market to extend or reverse.

No matter the outcome, it’s not a buy breakouts phase.  I bought $COV and $PFE this week and got nothing but a drift lower.  As Zortrades has been saying, the best way to play a bounce in this phase is through ETFs…$XLY and $XLI are my standards because the options are usually cheap and I get great representation.   The weight of the evidence tells me the Leadership Break is ending, and with that the 5 day losing streak in the indices looks about to end.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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