In late morning trading on Thursday, the bears were out in force as I received an urgent email to sign up for a “Crash Alert” by the end of the day. The major averages once again held the key monthly support as they had earlier in the month. Focusing on key price levels, as I discussed two weeks ago The Week Ahead: An Investor's Best Friend in Volatile Times, is the best approach in these volatile markets.
Though the market internals finished 2-1 positive, the market is not out of the woods as today’s weekly and monthly close is likely to tell us much more. Despite the explosive after hours rally in Amazon.com (AMZN), the S&P futures are down double-digits in early trading. The very high 3.61 reading in the ARMs Index on Wednesday is typically followed by a strong rally like we saw in December.
The Dow Industrials and Russell 2000 led the major averages higher with gains of 1.31% and 1.28% respectively. The home construction stocks were strong as the iShares US Home Construction (ITB) was up 3.32% in reaction to strong earnings from PulteGroup (PHM), which was up over 6%. As I noted in Are the Homebuilders Still in a Bear Market?, it will take more positive action to turn this industry group around.
The strongest market correction in this bull market was the 19.4% decline in 2011. As we finish January, the question is whether the monthly charts of the major averages are giving us any strong warnings?
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