Stock Market Early Morning Insights – May 24, 2016

The indexes remain stuck in a trading range, but I could see more risk oriented stocks continuing to be accumulated. Semiconductor Devices and Semiconductor Manufacturing stocks along with Biotech and Specialty Pharma stocks were the dominant groups that moved up yesterday. Solar stocks also had a good day and is considered to be a highly speculative group.

These groups had shown strength on Friday, and they followed through yesterday which is a good sign for higher prices. The defensive Utilities sector was one of the weakest sectors of the day which means that it was being distributed while technology and healthcare sectors were being accumulated. The materials sector also had a good day.

Until we see more conviction and a break above resistance for the NASDAQ composite and the S&P indexes, the broader markets remain in a trading range. This is not to say that you shouldn’t be looking for opportunities in the groups that are outperforming. Look for opportunities in Semiconductors which includes the Solar stocks, and Biotech and Specialty Pharma.

Once again, the top 50 GIR is dominated by the groups mentioned above. Application Software is also holding up well. Materials also showed strength yesterday, but the Gold Miners and gold continue to be distributed.

Stock futures are up this morning following Europe’s lead. The DAX is up 1%, and is gaining momentum as I write this. Because the Bears have not been able to take control this market, and we are well into earnings season, I think the case is building more for an upside breakout of the trading range than a downside collapse.

The NASDAQ composite is building a sloppy W pattern and has to break and close above 4815 on strong volume to regain the upward momentum. Yesterday, it showed strength a good part of the day before collapsing at the end. The candle shows an upthrust which traps traders into bad positions because they were expecting the index to follow through to the upside, but the Bulls are going to try again today. If today’s early-morning strength dissolves and another weak candle forms like it did yesterday, I will change my opinion about the bias favoring the upside because it will be another distribution day. I will be watching that 4815 level at the end of the day to see if it has been penetrated and closed above on heavier volume.

STOCK MARKET EARLY MORNING INSIGHTS

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