IBD decided not to call today's action the start of a new rally. See the article below...
Indexes Make Big Gains, But Signals Remain Ambiguous
BY JUAN CARLOS ARANCIBIA
INVESTOR'S BUSINESS DAILY
Posted 6/21/2006
The stock market welcomed summer by darting higher Wednesday, although the move left some doubt about its lasting effect.
The indexes quickly built on opening gains. The Nasdaq was up 1% within the first hour of trading, jumping as high as 2.2%. The S&P 500 stretched 1.5% at its peak before closing with a 1% gain.
Volume grew across the board as the Nasdaq finished 1.6% higher.
The composite's increase came up slightly short of what you'd like to see on a follow-through session, especially given the recent volatility.
The other indexes, such as the S&P 500, didn't come close to confirming the current attempted rally with an unequivocal powerful gain in heavier volume.
Why are big gains in price and volume so pivotal? A follow-through reflects a sea change among institutional investors in which they shift from being net sellers to net buyers. Think of the daily price and volume changes as their tracks in the battle of market direction.
The fact that some selling hit the composite late in the day dampened the tone a bit. Also, Tuesday's volume was light, making it quite easy for Wednesday's trading to show an increase.
However, the market showed some positive signals.
The indexes added some distance from last week's lows, and the leading stocks bustled. The IBD 100 sprang 3.2%. In recent weeks when indexes made big bursts, the IBD 100 had lagged.
The latest survey of market newsletter writers shows an equal number of bears and bulls.
That continues a pessimistic trend, but the convergence of bulls and bears is good news for watchers of this contrarian indicator. The bear market ended in October 2002, the last time the bear camp outnumbered the bulls.
If Wednesday's burst of buying turns out to be nothing, it will show up in a week or two with renewed selling.
The industries with the best gains included prior leaders such as steel, metals and machinery.
But some Internet and transportation stocks came out with big wins, too. Those are two areas of the market that may offer opportunities later. They've generally avoided big sell-offs or climax tops that beset some commodity-based stocks now deep in the dumpster.
J2 Global Communications (JCOM) jumped 8% to an all-time high after rebounding from its 10-week moving average. The provider of Internet fax services broke out April 26 and has twice tested its 10-week line.
But many leaders remain in bases and may need several more weeks before they are near new buy points.
The best conclusion from these mixed signals is that the stock market remains in search of a clear rally confirmation. If the market is indeed shaking off its correction, you will see significant gains on higher volume for the major indexes as well as top-rated stocks breaking out.
