If you watch the daily news headlines you certainly hear about hurricanes, floods, earthquakes, fires, and other natural disasters. You also hear about many man-made disasters, and when the Fed Chairman uses the phrase "unusually uncertain" to describe the economic outlook after all that has been done to prop things up, it might not be possible to stay very enthused about the stock market.  Incidentally, the major averages are down year-to-date, which also can curb investor's enthusiasm.  However, the fact-based system of investing we embrace keeps our emotions in check.  Moreover, the list of stocks matching up favorably with winning models of the past includes a deeper pool of high-ranked leaders with the characteristics required by strict practitioners of this system.

The major averages have yet to produce a fresh follow-through day (FTD) since the summer rally ended, and there is no assurance one is coming soon, but one is eventually coming. The good news is that a fair amount of leadership is coming from companies in groups including: Computer Hardware, Computer Software, Internet Networking, Health Services, Drugs and Biotechnology, Specialty Retail, Food and Beverage, and Mining. It would be discouraging if the worthy looking buy candidates setting up now were concentrated only in cyclical groups or defensive areas. 

Leadership in the above mentioned areas aside, the biggest area of concern now is financial stocks.  Financials have been again noted as a worrisome area of weakness, meanwhile, Foreign Banks have shown up in increasing numbers during my screening efforts in recent months. Perhaps it is early to blame the newly passed "financial industry reform" measures, but the market has clearly been voting in favor of Foreign Banks while demonstrating an obvious uncertainty over Domestic Banks. While we will continue routinely following the technical action in the Bank Index and the Broker/Dealer Index, the most important thing to keep in mind is that the major averages have a greater likelihood of suffering deeper losses when financial shares are weak.  Right now, they are weak.

BIASED TRADING ON MAJOR EXCHANGES
It has been a long while since we last took a look at the advance/decline lines for the exchanges. The graphs below reveal an obviously better environment on the NYSE versus the Nasdaq.  If anything, this data argues that if given an choice and all other things were equal, investors odds are more favorable when going with a stock that trades on the Big Board.

WHAT CAN FUEL A NEW RALLY?
One well-respected analyst termed the 2009 rebound a "massive liquidity driven bull market" after global governments coordinated their policies to stabilize the financial markets. Corporations are still hoarding cash though. And individuals are not likely to be tempted any time soon by great Money Market and CD rates. So, the sum of it is that a tremendous amount of sidelined cash is ready and waiting to find a direction to start rushing. Let there be no doubt, if a robust follow-through day occurs, that sidelined cash could easily fuel a substantial and sustained rally in the stock market.

What about all of those predictions for slower growth and a possible "double dip" recession?  For what it is worth, the technical action in the major averages is more important to follow than all of those talking heads on television. It would be very telling if the market can manage to shake off the negative headlines and rally in the face of bad news.  This is all the more reason to be a believer and have a bias toward buying sound looking breakouts when the next follow-through day provides a new rally confirmation.