Does This Set Up January For A Big Breakout?

December 29, 2015

Mish's Daily

By Mish Schneider

Bull Phases Are Back .

(Today’s commentary is by Geoff Bysshe, President, MarketGauge.com)

This will be the last Mish’s Daily until Sunday, January 3^rd so I’d like to wish you a very Happy New Year from everyone at MarketGauge!

The New Year’s Party came early today with every sector rallying nicely.

Today’s strength pushed SPY, QQQ and DIA all back in Bullish Phases, and the IWM back over the 115 level it has tried twice this month to break.

It was a nice strong day, but a few more like it are still needed to push all the indexes through their more important resistance levels. It’s hard to tell if today’s strength is a result of the market’s typical year end bullish bias or real strength that will continue into 2016.

However two patterns are clear. First, today’s big up day created a pattern that often indicates a there is a good trend in place. That pattern is: 2 shallow down days followed by a nice big up day (that’s today).

Second, if you are paying attention to the New High/Low indicator I described in the first 3 minutes of the Training Video 1 on this page you’ll be glad to hear that in both NASDAQ and NYSE this ratio has turned up over the 30 level and both markets had the most new highs they’ve had in nearly a month!

That’s good news for the bulls.

Yesterday, I told you to watch the leading stocks to get another read on how bullish traders are intra-day. If you did that today there was never any doubt that the market had only one direction in mind – up. Just look at the intra-day charts of AAPL, FB, GOOGL, AMZN, and MSFT.

However, not every area of the market was convinced that it should be an up day all day. For example, IWM, KRE, XRT, and IYT all had their moments of doubt as they sold off to lows that tested or broke their AM lows.

The market leaders, on the other hand, never waivered.

For today’s analysis of ETF’s I’m going to give you and exercise that I typically do to make a quick assessment of how I should treat an index, ETF or stock. I simply reduce my opinion of it to a “leader up”, or “leader down”, or a “follower”.

A leader up or down is one that I’ll look to trade if the market is going in its direction and the other ETFs are following. For example, if the market appears to be going up then my “leaders up” should be going up and the “followers” and “leaders down” should be following them up.

On the other hand if the “leaders down” are going down and the “followers” are also going down but the “leaders up” are NOT going down by much, then I don’t expect the market to continue lower and I may look buy the “leaders up”.

By simplifying the analysis like this, is you can just focus on the leaders, don’t get distracted by the followers, and when the market ebbs like it did yesterday you can stay focused.

So with that in mind see what you think of my labels below!

S&P 500 (SPY) Follower

Russell 2000 (IWM) Leader Down

Dow (DIA) Follower

Nasdaq (QQQ) Leader Up

XLF (Financials) Follower

KRE (Regional Banks) Weak Leader Up

SMH (Semiconductors) Trying to re-gain its Leader Up status

IYT (Transportation) Leader down

IBB (Biotechnology) Leader Up

XRT (Retail) Follower

IYR (Real Estate) Follower