End of Osama - Stock Market Update

Tracking the action of leading stocks, those exhibiting strong earnings growth and relative price strength, can provide insight into the health of the US economy and stock market.  It is one of a handful of data points I use to make investment decisions.  When the action of leadings stocks starts to deteriorate significantly it can be an important warning sign of a possible deep correction or worse.  Fortunately, it does not appear we are at that point. 

After finishing strong in April selling returned to the market to start May.  The selling intensified as last week progressed with volume rising during Tuesdays decline.

By Wednesday stocks officially entered a correction phase (based on Investor's Business Daily Methodology) as prices continued to decline on increased volume.  The U.S. stock market has been very indecisive this year, logging 11 changes in the Market Pulse section of Investor's Business Daily.  Last year it had only logged 5 changes by this point.

Stocks sold off in the final hour Thursday and market character deteriorated further as those stocks that did post gains remain stuck in recent trading ranges.

After a strong open on Friday, indexes gave up most of the day's gains by the close.  The one day advance was a welcome event even if it was on lower volume.  Overall technical action remains mixed.  The Nasdaq, S&P 500, and NYSE are trading near support or resistance levels.

While economic news continues to be mostly positive, the numbers have not been strong enough to power the market higher.  I track leading stocks by monitoring the Investor's Business Daily IBD 50 index.  One of the great features of this index is that I can look at the index performance as well as the performance of each of the individual components.  It is also updated weekly.  Some of the component stocks are listed below.

Not Investment Recommendations

• Lululemon Athletica - LULU
• Aruba Networks - ARUN
• Fossil Inc. - FOSL
• ACME Packet - APKT
• Amerigroup - AGP
• Netflix - NFLX
• Tibco Software - TIBX
• Carbo Ceramics - CRR
• Chipotle - CMG
• Mercadolibre - MELI

It is a nice mix of companies from different segments of the economy.  Last week's IBD 50 and general market action tells me it is a good time to hold-off on new stock investments until the market has confirmed a new rally attempt.

So far the start of this week has not changed market conditions much.  Stocks were able to generate gains on Monday even with negative debt news from Standard & Poor's on Greece, but on a sharp decline from Friday's low volume.  At this point two things need to materialize for the market health to improve and I will let you know if they have in my next weekly report.