If you look at the Indices, most of them are crawling up at a very slow pace. The story on individual stocks is very different. Number of stocks breaking out on high volume has been above 100 for 7 days in a row . Number of stocks making 50% plus move in a month are at 11. Seven days ago it was at 3. On an individual stocks action basis periods between 11 to 25 are very good as number of stocks make blowout moves.
Much of that action is visible in individual stocks, where stocks are making 5 dollars plus moves on breakouts or are blasting on breakouts and making 25% plus moves in small time frame. As of today 113 stocks have made a 25% move in one month. 979 stocks are up 25% plus from their low in last 65 days. How much momentum is sustainable. Each market cycle is different. But certain things indicate a possible correction zones.
One such indicators is the number of stocks down 25% or more in last 65 days in my databases. This indicator indicates possible reversal in next short time frames when it goes below 200. As of yesterday close, the indicator dipped below 196. So on individual stocks we are at a stage where they behave very well and trend because circumstances are favorable for them. But then the momentum exhausts itself.
One of the risk of all momentum based strategies is that your maximum draw downs happen at such junctures either on fresh positions you enter or from the profit you have built up. When the momentum party comes to end all most all stocks in your portfolio experience correction at same time. So trading momentum blindly can be disastrous. Unfortunately there are no perfect indicators which tell you when the party will be over. That is why I vary my strategies based on probability zones.
The current probability zone has just turned cautious. In such period tactically capturing quick moves work. If you overstay the party you get burned badly. So one must stay long enough in the momentum party to enjoy the rewards but also keep a close eye on the exit doors.Momentum strategies work best after market corrections.