8/19/2009

Many factors at play...

  • When the second phase of the rally started around mid July, we had stocks with earnings power like STEC, NTES, PWRD, UTA, CISG, BIDU, FUQI, GMCR, FIRE and other Chinese stocks leading the rally.
  • Rallies need stock with earnings power to propel them forward.
  • In last few weeks all these rally leaders have come under severe pressure. When stocks with good fundamentals run in to trouble, it is usually a hint of impending correction.
  • When leaders come under pressure, lower quality stocks take on leadership for few days or weeks but such moves cannot last long.
  • The second factor which acted as a catalyst for the rally was the earnings season, where earnings were better than expected.
  • Now bulk of the earnings are out of the way. So there is no catalyst till around mid October.
  • Another thing, if you have noticed so far in this earnings season is that, there have been very very small number of stocks with blowout earnings compared to last earnings season.
  • FIRE and HITK are the only stock I remember from this earnings season which had good earnings and then they had follow through.
  • Can the rally continue on the back of just turnaround stocks and near bankruptcy companies rallying? Anything is possible in the market, but I have my doubts.
  • The emerging markets were on steroids for last 5 months or so, many of them almost doubling from the low. But most of them have run in to trouble.
  • The Chinese market has had series of distribution days.
  • If you see the number and kind of breakouts happening in top 25 stocks by Dollar Volume in last few weeks, you would see not much action in good stock.
  • Rallies have higher participation by 100 million plus Dollar Volume stocks.
  • So in addition to the Market Monitor signal there are factors at play here which are likely to act as a drag on the market.
  • So does it mean start of a bear market. No. Till Primary indicator is bearish or 10 Day Cumulative Breadth Ratio goes below 0.5, I will treat this as a correction in primary trend.
  • It has been the nature of this bull market so far , where bulk of the gains have happened in two intense burst of few weeks.
  • If you did not catch those bursts you had very slim pickings.
  • A correction is a good time to put your affairs in order to catch the next big burst which is likely after this correction plays out.
  • At this stage my primary focus is on three things:
    • Episodic Pivots on stocks with explosive earnings
    • Top 20 Sector stocks (for hit and run)
    • Modified Double Trouble (fr hit and run)



Market Monitor
Market monitor is market breadth
based market timing tool

Current Readings
Market in correction.
Earnings season currently on





Type IndicatorValueComments




Daily# of stocks up >4% on high volume203 Dip buyers were active early. But the 203 numbers show
that they were not very aggressive.
Any change of trend would be signaled by
a 500 plus day on this indicator.
Daily# of stocks down>4% on high volume 34
Primary# of stocks up >25% in a quarter1817
Primary# of stocks down>25% in a quarter354If more selling does not happen or if market does not go sideways and attempts a rally,
within days this readings will again start approaching 200.
That will result in lot of volatile moves.
Secondary # of stocks up> 50% in a month30These readings have dropped significantly in few days.
Few days ago it was at 172.
So extreme breadth readings are coming down,
but need to see below 20 readings for becoming bullish.

Secondary # of stocks down>50% in a month2You want to see this climb to 20 for a real correction. That will be bullish.
Secondary # of stocks up>25% in a month232
Secondary # of stocks down>25% in a month15No edge on short side as of now, for those attempting it .
Primary
fast
# of stocks up>13% in 34 days2424
Primary
fast
# of stocks down>13% in 34 days750
MMA+% of stocks in confirmed uptrend61
MMA-% of stocks in confirmed downtrend 15
10 day
cumulative
breadth
ratio
#of stocks up> 4% in last 10 days/
#of stocks down>4% in last 10 days
1.01A reading of below 0.5 on this will confirm bearish trend.







Several things pointed to corection
Post a Comment