| stockbee

11/15/2007

Market spent much of yesterday going nowhere. That looked like a normal reaction after a strong one day bounce, however last hour saw a bout of selling which drove the market straight down. In last week or so, this kind of last few hours selling is regular feature in the market. The kind of environment is not very conducive to trading on long side. Sitting on cash and waiting for opportune time is the preferred strategy at this time. Which for many can be very difficult. But periods like these can quickly reduce your trading accounts with small losses adding up.

While the market action is dreary and there is lot of negativity around, one must remember such correction phases turn on dime. If you study reversals in market over a long time frame and over several episodes in the past, you will notice that on the bullish side the markets turn suddenly. Compared to that most tops are long drawn out process. Plus at most bottoms the logical explanation of economy and its future trends is most pessimistic. So the bearish argument always sound most tempting at all such stages. So current stance is cautious but ready to jump on to new up leg in market.

One of the very good thing about this weakness or any other weakness in market is, it leads to shuffling of the sector and stock themes and new themes and new stocks emerge from such correction phases and offer new opportunities. While some old leaders regain their rallies, most of the time you have new sectors which were not part of earlier rallies breaking out. As the correction plays itself out the sector trends will emerge. At this stage sectors like China, Aerospace, Alternative Energy, Medical Technology, Airlines and the likes are the ones showing bulk of breakouts in EP and 4% plus universe.

One trusted method which always works in such corrections is earnings breakouts. Earnings and earnings revisions are two things which always get the street excited. INOD and CSIQ are two examples of this from ysterday.

7 comments:

market operator said...

If market turns on a dime and your sitting in cash, is there large risk on missing the big move?

Pradeep Bonde said...

Big moves do not end in a day. Individual stocks big moves start once market turns.

catkevin said...

Pradeep - on the IBD followthrough day there are many 4%+ moves. Is there any way to handicap which of those will likely be the best running stocks for the next market upleg?

This strategy would be for buying concentrated positions near intermediate term bottoms and holding with minimal trading during a multiweek uptrend.

Thanks

Kevin

Pradeep Bonde said...

You have to sort by EPS growth, ROE, margin plus take stock with prior 65 day weakness out of that.
Better yet, you should anticipate which are good and likely to breakout by scanning stocks based on above parameters before the follow through day.

catkevin said...

Thanks Pradeep.

Mike said...

"As the correction plays itself out the sector trends will emerge. At this stage sectors like China, Aerospace, Alternative Energy, Medical Technology, Airlines and the likes are the ones showing bulk of breakouts in EP and 4% plus universe."

No idea why you include china stocks as breaking out now as they have been correcting HUGELY for weeks now during this general market correction. On great earnings and revised earning guidance China stocks have done nothing but tank...

Pradeep Bonde said...

Not all China stocks are breaking down.