March 24th, 2009

Market’s Internal Health Continues to Improve

If there was any doubt that the market is working hard to solidify a bottom it was dispelled today. Today’s 7.1% move was the fourth largest daily increase over since 1963 (that’s how far back my records go). Unfortunately, your going to have to put those champagne bottles away again because you won’t guess when the other days were:

October 13, 2008 11.58%
October 28, 2008 10.75%
October 21, 1987 9.10%
March 23, 2009 7.08%

One was after the 1987 Crash and the other two were last October. Those huge moves in October didn’t lead to a recovery (the Index is currently still below those levels) and today’s move might not materialize to anything more than an echo of those earlier giant moves.

But there is a big difference between the market today and back in October – the improved health of individual stocks as reflected in their stock charts. As regular readers know, I’ve been tracking the number of stocks crossing above their 90-, 180- and 300-day moving averages plus the number of charts with “Golden Crosses” (where the stock is above the 90-day and the 90-day is above the 180-day moving average):

The S&P 500 Index is about where it was on both January 30 and February 15 but, this time, 30-50% more stocks have crossed their 90-day moving averages than did then. Today, over 45% of stocks have crossed above their 90-day moving averages. (This probably more from the fact that the MA has declined than from the stock moving up in price. No matter, it is a healthy precursor of a turn.) The same is true for stocks crossing above their 180-day moving averages (currently 13% of total). But, so far, there’s no significant increase in the number of stocks crossing above the 300-day MA or in the number with “Golden Crosses”.

Last week, I offered a spreadsheet of 65 stocks with excellent chart patterns and, as of today, 37 stocks have crossed above these trigger prices. I keep adding to the list and it has nearly doubled (I’ll create a link to this update Google Spreadsheet in the next several days but for the time being, you can click here for the previous list).

The market knocked off two more hurdles leaving only 4 of the “8 Hurdles to Cross” outlined on March 13. The four remaining are more challenging and will required another stock market move of 20% or more to clear them all. I recently wrote:

The next four all bunched together within the the next 8.3% move up to 860. Only the market dynamics (the relative momentum between buyers and sellers) will tell us whether these hurdles can be jumped or not. Until that happens, no one is safe.

How much risk are you willing to take on to make 8.3%? I know it’s potentially the quickest and easiest 8% if we learn by the end of the year that March 9 was the low for the year. And if it wasn’t, there will be other, less risky opportunities to get into the market and still make lots of money.

We found out with today’s 7.3% move how easy it was for the market to make the jump across two more hurdles. Even though I bought several of the stocks that triggered (or were about to), I still think it’s too early to commit funds (we’re now only about 35% stock, 65% cash). The market will probably retreat and test earlier resistance/support levels. While I salivate at 7% up-days like today and stocks that cross above moving averages or resistance trendlines, I firmly believe that there’ll be several opportunities between now and late-June (my current target for the “all-clear” signal) to get fully invested at prices not far from current levels.

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