10% correction in Russel 2000.
The sellers continued to be in control of the market and we had another down day supported by negative breadth yesterday.
At 8 to 10% correction levels many markets can turn around if it is a correction in primary bullish trend. As of now the stocks up 25% in a quarter is around 300. Readings around 200 produce big and sustainable rallies. So in few weeks at current selling pressure we should be looking at a possibility of big rally developing.
Many times market do not go below the 200 readings but bottom in 300 to 200 range. Often the reading around 200 are achieved intraday and then market turns around. So you will not see many 200 kind of readings on EOD basis.
Three types of stocks to focus on for possible next up move:
1 Stocks which are near their 52 week high or making new high. These tend to be stock first to bolt out. Look at stocks that are within 5% of 52 week high and setting up well. e.g. SAPE. If this stock holds up like this, it will be very good candidate for 20 to 30% move on breakout. Or SWI which is setting up well.
2 Stocks with 105 plus Trend Intensity: Stocks that retain their trend intensity during the correction tend to bolt out first. For example VMW is setting up well for possible 20% upside.
3 IPO's that go sideways near high. Fir example ARX is setting up for possible 20% plus move if it retains its current pattern.
Each correction is different. This is a grinding correction where things are slowly grinding down. Typically most corrections tend to be more volatile and with much larger breadth days than what we have seen so far. In fast corrections you get series of 300 plus days followed by sharp counter trend bounces . The counter trend bounces offer shorting opportunities. In this correction it is just drip drip down selling for last 9 days.
That has been the characteristics of this market. Either it grinds higher or grinds lower.