Amazing rally with caution

The stock market is having an amazing run-up this month with rarely ANY BRIEF pause. The breadth readings (advancing stocks vs. declining stocks) during the streak are similar to past bull markets of the underlying "internal" strength and could apply here again (as was the case in spring and summer of 2009) of continuation in higher stock prices 6 and 12 months from today.



But there is hints of negative divergence even though the major indexes are making new highs such as the Nasdaq, SP500, Russell 2000 (RUT). The above chart shows the Nasdaq rallying above the January 2010 highs. Thus far there are several other indexes such as the semiconductors, China Xinhua, hardware, internet, and Russell 1000 technology that are still below or at their Jaunuary 2010 highs. Unless they rally above their recent highs soon then this negative divergence could hint at least short term weakness if not medium term weakness.







So is this hint of negative divergence significant? This is the most significant divergence since a year ago when all the major indexes were making a new low in March 2009 (lower than their November 2008 lows) while the semiconductor, China Xinhua, hardware, internet and Russell 1000 technology indexes did not but instead made higher lows. Compare the charts above for the lows of November 2008 and March 2009. This was a significant positive divergence which resulted in the bear market low made in March 2009 and start of this current new bull market.

Short Term Alert: Mixed feelings

Part of my gut feeling says this is the top...but another part says maybe after the monthly job employment report on Friday. Two events I usually don't like to hold big positions the day before...options expiration (usually the 3rd Friday of the month) and the job employment report (usually the 1st Friday of the month.) As in this case, I have no position and if I do plan to trade tomorrow it'll be a small trade.

Short Term Alert: bullish pattern good for now

Last Thursday's rebound from an early morning big sell-off had a potential of a bullish pattern developing from several major indexes (like the FXI (China) and GLD (gold) indexes.) Should had posted this earlier but waited too late until Monday, yesterday's big rally for confirmation. The confirmation means there should follow-through upside for the remainder of this week. But like the February 9th post where another new low developed into a more constructive rally...this time around another new high could developed into a more constructive selling as early as next week.