Stock Market Early Morning Insights – August 16, 2016

Stock Market Early Morning Insights – August 16, 2016

The risk trade is definitely still on. Take a look at the top 50 group inclusion report in the body of this report, and you will see that it is dominated once again by Semiconductor Devices, Biotech, Communications Equipment, and Application Software.

Of course, a few Exploration and Production stocks appeared in the list because oil was up for the third day in a row, and crude light futures are up another 1% this morning. If this continues, expect to see more Exploration and Production stocks in the top 50 list.

The pie chart views confirm what I am seeing in the top 50, but the Exploration and Production stocks dominate the $1 to $15 SmartGroup with 16% of the top 100. On the downside, Utility stocks were weak, and this was confirmed in the Broad Market Indices folder with the Dow Jones Utilities showing zero advancers compared to 15 decliners. All of this confirms that the risk trade remains on as it has for a couple of months.

The volume point of control crossed over to the positive side 33 days ago on the NASDAQ composite, and has only been challenged one time. If you look at the third chart below, the white chart of the NASDAQ composite, you will see how seriously volume has fallen since beginning of August. Going into August, there were multiple pocket pivot days, but volume has fallen since then.

We’re seeing that stocks can rise on falling volume if there is more demand than supply, and any attempt at profit-taking has been met with absorption buying. The last seven days in the NASDAQ composite show only two black candles compared to five white candles, and four of the five white candles closed in the upper part of their daily trading ranges. This confirms that any selling as quickly been absorbed.

There is no question that this is an overbought market, but I do not see any distribution yet. Today stock futures are down slightly, oil has given back its gains since I wrote the paragraph above, and actually has turned negative. Today will be another test of the bulls resolve to take this market higher. If early selling pressure is met with absorption buying, this run to the upside probably has further to go.


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