Ride the bounce

Major averages have retaken their 50-day moving averages (Nasdaq has also retaken its 200-day) as market internals improve. The Nasdaq has shows relative strength vs. SPX as the percentage of stocks on Point & Figure buy signals breaks out and the number of stocks trading over their 50-day moving average pushed above bear market resistance.

As for Dow Theory, both the DOW Industrials and DOW Transports have printed higher lows. VIX has settled down and Put/Call remains neutral. We are also seeing higher lows on the Advance/Decline metrics and a high (albeit contrarily bearish peak) in the NYSE McClellan Oscillator. Strength in industrial metals (primarily copper) and a pickup in consumer discretionary stocks vs. staples reinforce the bullish tone.

Skeptics remain, particularly from the camp of the wave theorists. We will respect that skepticism; given the continued weak economic headlines, we will set stops on long positions and hedge with index puts, but will not refrain from adding partial long positions in strong relative strength stocks and ETF's.

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