Stock Market Health Report: The Green Light Is Back On (Or Is It Greenish?)

by Darrin Donnelly on December 6, 2010

Click on chart to enlarge.

Click on chart to enlarge.

On Friday, the NASDAQ hit new highs for the year, which means it has completely reversed from the downtrend we recently experienced. 

Technically, this puts us back in a Stage 2 Uptrend market. 

I say “technically” because there is good reason to exercise some caution here. 

While the market has shown tremendous resilience and climbed higher even in the face of negative news, this bounce back has occurred on decreasing volume.  Distribution days (market declines on higher volume) are still outnumbering accumulation days (market increases on higher volume). 

Normally, a strong up-trending market will see price increases come on higher volume.  However, just because we’re not seeing such volume action doesn’t mean we can ignore the clearly bullish price action. 

As outlined on the NASDAQ chart that accompanies this article, a clear trend higher is taking place.

This upcoming week should be telling as I see three possible scenarios occurring:

1)  If we can build on last week’s gains and continue into new-high territory, we’ll be in a much clearer uptrend. 

2)  If we see resistance here and the market can’t break higher, we’re probably still in a Stage 1 Flattening zone. 

3) If we see a sell-off on high volume, that means we’re probably finishing up a Double-Top pattern, which often precedes a downturn.

For now, the market is trending higher and we officially have the green light to EASE into new positions or pyramid into currently-held positions if the individual stocks warrant such action (which you can find here).

As always, the best practice is to follow the action of individual Darvas stocks.  Trust your stops for exiting and only enter positions at proper buy points.

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* Portions of this article appeared in the December 5th issue of Darvas Trader PRO.  You can try Darvas Trader PRO risk-free for 30 days by clicking here.

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