Stock Market Early Morning Insights – August 12, 2016

Even though was relatively strong day yesterday for the stock indexes, a couple of things stand out: volume was very light, and the internals for both the NASDAQ and the NYSE were both less than 2 to 1.

The story for the day was oil, but this time on the positive side, with the USO, the oil ETF, up 4.5%. The UGA, the gasoline ETF, was also up 4.5%. Biotech’s and most of the Energy groups also rallied, but volume was relatively light across the board. We can attribute much of the light volume to August, traditionally a vacation month.

The Internet Media, E-Commerce Discretionary, the Healthcare Supplies, the Semiconductor Devices and Medical Devices continue to dominate the top of the most in demand groups. With yesterday’s strong push and Energy stocks, the Exploration and Production group moved up sharply with a 7.33 to 1 advancing issues over declining issues. Oil continues to be one of the most volatile commodities, and consequently, it seems like traders are getting whipsawed on a daily basis. On Wednesday, crude light formed a long black candle on heavy volume, and then yesterday those losses were wiped out with the over 4% gain. Overnight, oil futures pushed higher, but they have a given back those gains and are now trading flat.

To me, the strength in the Internet Media and E-Commerce Discretionary groups is a story of this market. The strength has been there for quite some time with the Internet Media generating an effort to rise flag 24 days ago. The E-Commerce Discretionary group has not been quite as strong, but both groups passed above their 10 day VPOC clear back at the end of June. As long as these groups, along with the Semiconductor Devices continue to move higher, I do not see this market rolling over. The risk trade is still on, although many traders and pundits are calling for a top.

There is no question that many stocks are overextended, but the SP 400 and SP 600 are holding steady in strong consolidation areas. Yes, it could be distribution, but for now, the trends remain up. The worst thing any of us can do is to hold rigidly to an opinion about market direction when our eyes tell us otherwise.

At the beginning of this year I sat in on a trading room for a couple of months and watched a trader give up profits of a couple hundred thousand dollars because he was convinced the market was going to fall further. The reason for his belief: the market had risen too much from 2009, and it just had to collapse. He is probably still short.

Have a good weekend.

STOCK MARKET EARLY MORNING INSIGHTS

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