Some Signs Indicate Improving Stock Market Conditions

It all started November 21st, to be exact. But by Wednesday and Friday of the week before last the market again saw institutions starting to buy shares of beaten down stocks by way of follow-through action, and we noted some solid action among breakout stocks.

Now, we've seen fizzled rallies before during the recent downturn, so before we break out the party favors, let's realize that a substantial, unfavorable news story or two could destroy all the glad tidings.

But the simple fact that the market rallied despite a horrid employment report indicating that 533,000 jobs were lost-- 1.3 million lost in the last 3 months-- indicates that the market is looking beyond the current headlines to potentially better times.

It almost seems as though the naysayers have beaten the same drum for so long, that the market is rallying on anything even remotely suggesting better times.

Still unsure? So are we. But consider this. We've seen unprecedentedly awful employment numbers, woeful consumer spending, plunging consumer confidence, contracting manufacturing and fears-- no, likelihood-- of a global recession, and still, here we are with a market that's following through.

Let's take a closer look at the "glass half full" part of the equation. We have the prospect of breakthrough negotiations in handing the "big 3" automakers their badly needed infusion, a democratic party-conceived stimulus package shortly after Obama enters the White House in January, drastically declining oil prices, interest rates near zero, and companies for whom the earnings bar has been set so low that they almost can't help but exceed expectations.

Perhaps one of the most telling harbingers of better things to come is the action of leading stocks, which, one by one are starting to set up in double bottoms, cup and handle patterns and such. Leading stocks are the proverbial canaries in the coal mine. They're typically the first stocks out of the chute when conditions start to improve. You've doubtless heard the old saw that the market tends to "climb a wall of worry." Well maybe. Just maybe, that's starting to happen.

Already, we've seen several stocks break out, and hold onto their gains. There are more lining up as we speak. Continued action along these same lines will tell us if the current rally has any staying power, so pay attention! Don't expect the market to give you any more by way of a "sneak preview" before it starts moving up again.