BDCO: Blue Dolphin Energy
An external event has resulted in market undergoing a rapid pullback in last couple of days.
Prior to the pullback the market was in extreme bullish breadth phase. Secondary indicators were at extreme. Absent the geo political troubles the market might have taken a different route. Extremely positive breadth typically results in blowout kind of moves with number of stocks going in to extreme bullish phase and many stocks making spectacular 2to 5 day move. That process got aborted due to the Libya trouble.
At this stage we have seen only one 300 plus day to the downside. A real correction will have more selling. Absent that this market phase might result in yet another shakeout move.
A clear sector trend has emerged due to the Libya trouble. The energy sector has found a bid as oil prices have spiked sharply. The oil and gas stock move based on underlying price of oil and they will continue to move as long as oil prices remain elevated. As always during such sector move some of the most speculative small cap stocks will make bigger moves than the well established player. You saw lot of those moves yesterday.
While it might be tempting to get excessively bearish at this stage, it would be prudent to keep your mind open to all scenarios. Such geo political events can often resolve quickly.
This is also the time to start looking at which stocks are holding up comparatively well and which are having orderly pullback/correction. They will be the first to lead in any rally phase. Many of the recent EP will have such pullbacks and in some weeks start their rally.
Such correction phases are ideal opportunities for mean reversion traders and support traders. Those kind of methods should work well in current phase. Especially the RSI2 method.
Overall it will be a volatile market. And the focus should be on sector that is working.