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Michigan sentiment firms stocks

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This morning's PPI data seemed to have the market a little jittery at the opening of trading, but later released numbers from the University of Michigan consumer sentiment had stocks firming and edging higher. The University of Michigan consumer sentiment index rose to 83.5 in early November, which was slightly higher than the early October reading of 82.7. Today's number was much stronger than expected as economists were looking for a decline to 78.5. Today's consumer sentiment number has some believing that the impact of September 11th terrorist attacks is beginning to wane.

Northern Alliance captures Mazar-e-Sharif from Taliban

CNN and the Associated Press (AP) are reporting that the Northern Alliance has captured the key Northern city Mazar-e-Sharif from Taliban forces. The city has been a primary focus of Northern Alliance attacks. Subscribers should note that past historical reports coming out of the Northern Alliance has been rather unreliable in the past.

Dow Industrials starting to show some breadth

Since September 17th, after stocks began trading due to terrorist attacks, I thought it would be informative and interesting to track a portfolio based on a $1,000 investment in each Dow Component as of their September 10th close. Over time, I've been showing premierinvestor.net subscribers just how much rotation takes place in the Index, and how some of the stocks and sector association has been guiding some of our analysis on a daily basis.

Hypothetical Dow Portfolio

I didn't have time to complete everything I was trying to show in the Dow Industrials, but what I'm doing is this. I divide the Index in half with a red line. Those that are showing gains since September 10th close, are then separated with my green line. The LOWER the green line becomes, the more breadth of advancing stocks I find. So far, I have not seen more than 15 stocks show gains at any one point in time.

You can do a lot of things with the above information. I like to also "benchmark" relative to certain dates to make sure I'm on track. Using the Dow Industrials portfolio is what "turned be on" to General Electric (NYSE:GE) perhaps being a "key stock" in the Dow. On Wednesday, GE was unchanged since September 10th's close and was sitting in the #15 slot. Today, the stock has moved up to the #13 slot, and gives some near-term confirmation that it is a stock a bullish trader may be wanting to trade. On the far right of the chart, I've indicated some changes in "field position" since Wednesday's close. I like to do this more on a once a week basis, but I find the rotation interesting.

We can also "classify" each stock and perhaps be alert to potential moves in some of the sectors they are associated with. For instance, Intel (NASDAQ:INTC) would immediately be associated with "Semiconductor", while Wal-Mart (NYSE:WMT) would be associated with "Retail."

Try thinking outside the box and try to develop some rather simplistic, yet effective ways to build quick snapshots of the market that can help guide your trading and investment decisions.

I will note... when we first started this exercise after the terrorist attacks of September 11th, there were just three stocks showing gains at one point.

Jeff Bailey
Senior Market Technician
Option Investor

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