Leaders Index 8-18-14

[Jerry Samet]

The market had a solid rally today as all the major averages showed good gains. The COMPQ led the way with a gain of .97% while the SPY was higher by .85%. The small and mid cap stocks continue to do well after their recent weakness. The RUT was higher by 1.47% and it regained it’s 200dma and is right on it’s 50dma. The MID was up 1.22% and it is now back above it’s 50dma. The COMPQ broke above it’s recent consolidation and is now at multiyear highs. The SPY also retook it’s 50dma. Volume was lower than Friday, but the action looks good. Leading stocks are acting well also and since the major averages are acting well I created a new leaders index. It contains 22 stocks in 17 different industry groups. The recent action of these quality growth stocks has been very good and they represent a good cross section of stocks that are doing well. The market is clearly rallying now and the long side is the place to be, but it is still probably a good idea not to get to carried away. Jerry

[Harry]

Hi Jerry,

First - thank you for your daily updates. I find them really insightful and useful.

I have a question regarding the MA's of the Leaders Index. I have noticed you place great weight of emphasis on the Leaders Index breaking MA lines and I wonder why? For a stock (or index,) I can understand how institutions (or algo's) will step in to defend a position at a relevant MA (e.g., 10 SMA, 21 EMA, 50 SMA, etc.)

However, the Leaders Index is uniquely compiled by you and I assume not widely followed by institutions (or algo's.) So my question is why place emphasis on 9 MA? Why not the 8 or 10? I recognize the Leaders Index will lead the market and a breakout/breakdown is confirming/damning. I also understand you need to use a MA.

So my question is: why track the 9? Why is breaking the 9 MA so significant?

Thanks,
Harry

[Jerry Samet]

Some friends and I have done a lot of research on moving averages for leading stocks. You are right that many holders support stocks and averages at moving averages so it is applicable to an index of leading stocks. The nine is along with the 17 because it has provided support for leading stocks for a long time. The difference between the 9 and the 10 isn't much and they both would likely work well. Jerry

[Harry]

Thanks Jerry!