Market Monitor Breadth Chart developed by a Stockbee Member. It shows breadth progression during the rally.
In the last three weeks markets had a 7 to 8% correction. Such corrections are not out of character . Before the correction market was up around 33% from August end low. So in effect market had 30% move in 5months.
The 30% move was characterized by no major correction of 3% plus. There were persistent buyer and every pullback was being bought. There was constant sector rotation. Technology sector was the leading sector.
When this correction started I had talked about various scenario and one was a 7 to 10% correction. That scenario might be most likely scenario. The market might settle down here in range till next earnings season, if there are no more geopolitical shocks.
During such phase new leadership will start to emerge. As of now we see some tentative signs of it. Some of the energy stocks have had b/o and follow through during this bearish period. GBX a railroad stock has had a successful breakout. GPOR has had few days of rally post b/o. CTCT was a good b/o yesterday on IBD kind of stock. But as breadth figures indicate there is more selling than buying.
The current environment is excellent for day traders. High volatility is day traders friend. Several stocks are making 3 dollar plus moves in a day. They should have no reason to complain and should be making a killing.
The last 3 days rally has many beaten down stocks rallying on weak volume. A few more days of rally like this will set them up for short.
Your approach to current market depends on your risk tolerance. Breakouts have lower probability of follow through till a breadth thrust . Many breakouts have higher probability of making smaller moves than in confirmed bull moves. If you want to buy breakouts then sector becomes critical as some sectors might rally due to specific catalyst. In range bound market strategies like RSI2 and pullback buying/selling works better .
If you are risk averse then you just have to wait out such volatile periods. Once market settles down there are always many opportunities.
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