Stocks Looking to Go Higher; Ride
the Gains & Take Some Profits
Monday, May 2nd, 2011
By George Leong, B.Comm. for Profit Confidential
It has been a great few weeks for stocks. The major indices have edged higher in nine of the last 11 sessions to April 28. The upward moves to the highest levels since June 2008 are impressive and indicate what appears to be a potential breakout on the price charts after the multiple tops. The DOW and Russell 2000 are up over 10% this year.
My investment advice would be to ride the gains, but also take some profits.
Investor sentiment is extremely bullish and points to additional gains.
Take a look at the new-high/new-low (NHNL) ratio, a measure of the number of stocks touching a new 52-week high versus the number of stocks that have declined to new 52-week lows. The theory is that, in a bullish market, investors quickly bid stocks up, and you see a rising NHNL ratio. When investors get nervous, fewer new highs are made and the NHNL ratio will tend to decline, thereby giving you a warning. At the other end of the spectrum, bear markets have more new lows than they have new highs.
The trend of the NYSE NHNL had been edging higher, with 190 of the last 202 sessions being bullish. In the technology area, 144 of the last 160 sessions have been bullish. The trends on both the NYSE and NASDAQ are edging higher.
My near-term technical view is bullish, but you should watch the overbought technical condition.
A technical view of the key indices is as follows:
NASDAQ
The near-term technical picture is moderately bullish on above-average Relative Strength (RS), so there could be more gains in the near term.
The index is holding above 2,800 and its 50-day moving average (MA) of 2,756.
There is still some near-term topping on the chart, but we are seeing a breakout higher.
DOW
The near-term technical picture for the DOW is moderately bullish on above-average RS, so there could be more gains.
The index is above its 50-day MA of 12,210 and 200-day MA of 11,352.
S&P 500
In the broader market, the near-term technical signals for the S&P 500 are moderately bullish on above-average RS.
As we said, there was multiple tops on the chart, but the index has broken higher.
Failure to hold at its 50-day of 1,315 would be bearish.
RUSSELL 2000
The near-term picture for the Russell 2000 is moderately bullish, but on above-average RS.
The index is above its 50-day MA of 820 and 200-day MA of 731.
The key is to ride the profits but to also make sure you have some protection against weakness via Put options.
Next Post: May 2011 Technical Outlookfor the Stock Market
Previous Post: Great Numbers Reported by Caterpillar & Merck—Why the Trend Should Continue
Tags: DOW, investment advice, NASDAQ, NHNL, NYSE, Russell 2000, S&P 500, technical picture, technical stock commentary
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George is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.
