Market leadership has been rotating for the past several months. This became clearly evident in mid-February when the Nasdaq Composite Index (Tech) rolled over from an all-time high. As the Nasdaq declined and made a clear break in its long term up-trend, the Dow Jones Industrial Average (Industrials, energy, financials) continued to make higher highs. See the chart below that posted this morning to the Face Book Group.
After the open this morning, the Nasdaq exploded higher and closed the day above both its 50DMA and 10DMA. At this point, it looks like the divergence has resolved itself to the upside. The market SHOULD continue higher, in unison, going forward. We would have liked bigger volume on this follow thru day on the Nasdaq. Ideally, we will see volume increase as price moves higher going forward. Below is the updated chart showing the completed divergence.
The C fund hit an intra-day all-time high today and the technical indicators have turned positive. The only negative in this chart is decreasing volume as prices increase. If you look at the first 2 weeks of February, you can see prices increase on decreasing volume. This eventually led to the most recent correction. Definitely something to watch for the next few weeks…
At the end of the day, our goal is to be in the stock funds when the market trend is up. Today’s price jump on the Nasdaq ended the divergence and prices should continue higher going forward. Volume is definitely a concern. We want to see volume increase on up days. This will show confidence in this latest rally attempt. Investors Business Daily newspaper seems to agree with this analysis. Earlier today, IBD changed their Market Trend Indicator from “Market in Correction” to “Confirmed Up-Trend”.
We will talk about all of this in the Member Webinar this weekend. If you haven’t signed up, please check your email and get registered.