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The central theme of my video market recap on Friday was that the rally we saw to close last week differed in nature from what we saw last year when breaking out of a multi-month trading range. The traditional marquee names, leaders if you will, simply did not participate anywhere close to what you would expect when the Dow is up 267 points and the S&P 500 is threatening a major weekly breakout from the now-ubiquitous range. Contrast that with the idea that in the early-stages of a fresh uptrend, you expect there to be widespread energy in numerous charts.
From that analysis, many would deduce that the rally is entirely bogus and it is now correct to position aggressively short. However, the main issue with that argument is that the market may very well be telling us, instead, that just because it is ready to breakout from our 1120-1220 S&P 500 trading range, we are not off the races. In other words, we could still be within the confines of a more massive trading range, such as 1120 up to 52-week highs at 1370. In that scenario, you are looking at much more of a selective, stock/sector-picker’s market.
To support this notion, look no further than the increasingly constructive action in many of the transportation stocks. For much of 2011, they have been duds, often lagging the market. Historically, the trannies are market-leading indicators, and even when they have seen mini-rallies during the year, they were almost always short-lived. Recently, though, many of the key transportation stocks have seen strong buying volume come in to support sharp rallies.
Earlier last week, I created this PPT screen for members of the 12631 Trading Service, which isolates railroad firms under strong accumulation. The working thesis here is that the trannies should be one of those areas of the market that sees inflows, even if the hotshot names in the Nasdaq Composite take a back seat.
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CP is very attractive, thanks Chess!
you bet