Nothing has changed

Buyers were falling over each other to buy the dip at open yesterday. Which indicate lack of follow through selling. The late reversal lacked selling punch. Buyers more likely to try their luck again.

Which brings us back to the sideways range scenario...

996 stocks down 50 cents plus

And then the dam opened....

For last few days there was slow distribution build up and then we saw the real selling. It was broad based sell off.

It was second highest sell pressure day this year based on Market Monitor data. 628 was the highest sell day on February 22, 2011. Yesterday was 620 day to the downside.

One of the ways I look for sell pressure or buy pressure is to look at stocks down 50 cents from open or stocks up 50 cents from open (only on stock with last 3 days volume of 100K plus). Yesterday we had 996 stocks down 50 cents plus from their open price. That is approximately 46% of the stocks that have 100k plus 3 day volume. All in all a broad based sell off.

The key is to see if we get follow through. 

This market has been in range since February and that range has been tough to break out of.

From the 2009 bottom we had 2 big up moves. So a period of sideways churn is not something unusual. 

The last long duration swing in this market was from December 2010 to February 2011. If market has those kind of long duration swings then swing trading methods that rely on finding intermediate terms swing work. In chop fest you need to be extremely nimble or trade extremely small time frame. Or be very selective in trade selection. But overall preserving capital is key.

Swings on bullish side in this market this year have had 12 day maximum length. Sharp rallies that petered out is the story so far this year. 

But if you zoom back and look at the market on a quarterly time frame you will see market near high.

At this stage it is still a range bound market.......

Clear signs of distribution in last few days

As of now market moves are dictated by the political drama on debt deal.

Clear signs of distribution in last few days.

However market still within 5% of this year high.

Bottom line...

It continues to be a sideways market.

Look for 300 plus day on either side to play in that direction.

How to use IBD sector table

IBD Sector Leadership

Part of the IBD philosophy and method is based on sector momentum. It looks for growth/momentum stocks in top ranked 40 sectors.

Some year back IBD changed the layout of its stock tables to focus on top ranked sector. The stocks are now shown by sector ranks.

This is convenient way to focus on leading sectors. You can quickly find stocks in sector with momentum.

Within the sector listed stock, IBD further makes your life easier by highlighting some stocks in a box at top of the table.

The highlighted stocks have the best growth characters. Does not necessarily maen that they will make big moves. Sometime by the time the stocks make it to the table, they have peaked or their growth has peaked.

Those stocks are selected based on historical precedent analysis. They match the characters of biggest moving stocks in IBD database from past many years.

If you want to be primarily a position trader then you can focus on these kind of stocks. Overall only 20 odd stocks are highlighted. These stocks often make long duration moves.

You should keep your own watchlist of these stocks as often they make a move several months after they are highlighted in the tables.

They also make good shorts once they top out.

Today we will focus on the sector relative strength in our ongoing series of posts on IBD 200

The past post on IBD 200 series can be found here:

http://stockbee.biz/blog/tag/IBD%20200/

New high in Nasdaq100

The Nasdaq 100 was at new high on Friday. It had finally broken the range. The futures are down so it might retrace from that level. But this market has held u very well so far. It has established a long 6 month range.

The Dow Jones 30 is 1% from its this year high.

Overall as of Friday most indexes were within striking distance of their new high.

The political game play over debt talk might make next few weeks volatile. But so far this market has held up well in the face of negative news.

Understanding the IBD setups

Essence of IBD setups

Everyday IBD publishes this box. Study it in detail. It is the essence of IBD setup idea.

The first setup is classic breakout setup. Where a stock that is in uptrend (or has momentum) that has formed a base or pulled back (slow momentum phase) and then breaks out to the high of that consolidation. This is similar to what we look for in Stockbee Trend Intensity Breakout (STIB). IBD guideline is stock should be up 50 cents plus on breakout day and volume should be up 40% plus above 50 ma volume on breakout day. 

Do buy in proper buy area essentially means do not buy a stock which is extended from the base/consolidation. In STIB the stock should not be up 3 days in a row and should have narrow range or negative day prior to b/o is one of the condition for avoiding extended stocks.

The pullback to 10 week moving average (10 week =50 days so essentially 50 day moving average) is another IBD setup idea. The qualification is buy if it touches 50 day MA first time after breaking out of base.

The most important part of the IBD setup idea is "Do learn when to take profits of 20% to 100% or greater" This is critical. Most momentum stocks move in price bursts of 10 to 20%. Rare stocks make bigger moves. Not every growth/momentum stock is capable of 100% move. So 20% profit target is realistic. But if you read O'Neil book in detail, he further qualifies it by saying that you should not allow a profit to become loss once you have profit. How can you translate that in to practical practice think about it.

These setup ideas work on any momentum stock. They don't have to have the earnings and other things for these setups to work. 

Lot of IBD devotees take everything IBD says as gospel truth. Get in to microscopic details of things and form your own judgement. It will allow you to develop your own methods.

IBD offers a possible template for trading growth/momentum stocks. You should break it down in to component pieces and study it and then put your own method together.

Wide range continues

Range is difficult to break. So we continue to churn. Below the surface lot of tech stocks had drops. But it is still a range at play. We need big buying to get moving out of range. Absent that we may continue to be range bound. 

Near recent high

Market were up big yesterday. The recent highs are within striking distance for the Nasdaq 100 and we are on verge of new high. So far rallies this year have not had very long life. Can this time be different.

The breadth was not  overwhelmingly positive.

FTK nice setup

Also watching GNOM which I highlighted some days ago.

The market remains within striking distance of recent high

The market remains within striking distance of recent high. The Nasdaq 100 is 1.97% down from its 2011 high. Other indexes are withing 5% of recent high.

The market has been dealing with lot of negative news and yet it has shown very good staying power. As they say the market climbs a wall of worry. 

Net net the range established in last 6 to 7 months continues to dominate the action. When the range breaks there will be big move.

The Stocktwits Edge

Range bound action continues

As has been the trend in this market since beginning of the year, rallies last for brief period followed by corrections which do not get enough traction. End result sideways moves. There is an extended range that has formed and we keep bouncing between it.

This kind of environment makes holding swing positions difficult beyond few days. There have been constant whipsaws. The quality of setups have not been consistently good. It is challenging environment for certain style of trading methods. It is good environment for day traders.

Underlying breadth has fluctuated widely. But it is what it is. As IBD has been saying third year of bull markets tend to be choppy.

Three day weakness and a bounce

Market is down 3 days in a row. It typically leads to reflex bounce.

We are still stuck in range and some sectors are reversing hard. All in all a hit and run market.

RPTP good setup

Back to range

Market began a rally near end of the quarter and month. Unlike other rallies that start with a bang with huge up days on breadth the rally started with just one 365 up day. However there was continuous buying and it lead to a breadth thrust.

That set up the stage for Friday's disappointing action. Market went down but the breadth was positive (barely). On Monday the European worries lead to drop in market. However breadth was again below 300.

This sets the market for earnings season. The earnings will decide the fate of rally. If earnings continue to be good then we will have up move. Earnings disappointment will lead to rally failure. If the earnings are just near expectations then we will have same sideways move.

At this stage it is back to range.

Dramatic improvement in breadth

In last two weeks the breadth as measured by T2108 : % stocks above 40 Day Price Moving average has seen a dramatic jump.

From a low of 19.03% of stocks above 40 Day MA on 06/16/2011 today it has reached 77.56. That is a very sharp move.

Buying has been very aggressive. You will see that in the Market Monitor data.

GNOM nice setup

Wednesday watchlist

Stock likely to breakout soon:

ABVT
ACOR
AMRS
ATEC
BCRX
BIOS
CASY
CBST
CCC
CHTP
CIGX
DF
DYAX
FL
GNOM
HDY
HEK
HOTT
INSM
IPSU
MHLD
MLHR
NR
SAFM
SHOR
SMBL
SYY
VICL
ZLC

Hot sectors

New bull move , new sector leadership. In last one month there has been a new set of sector leaders that have emerged. Restaurants is clearly in favor followed by Automotive related stocks. 

Stocks likely to breakout: BIOS, GNOM, HOTT, INSM, IPSU, MHLD, VICL,

A breadth thrust

Since the beginning of this year the market has attempted to breakout to high 3 times and had trouble. This time we are witnessing a 5 day rally , will it break the range.

The breadth during this attempt has picked up in last few days and we are getting a breadth thrust of 2 plus. That is a good sign.

In few weeks the earnings season is starting. The earning season will decide  the fate of this move. If earnings exceed expectations then the move will take out high, if earnings are so so then expect more volatility. 

Personal Effectiveness Blog

As there is lot of psychology related discussion on this site which is not directly related to trading, I continuously get emails and requests for focusing on this subject daily or asking for books or resources on the topic.

As there is overwhelming demand for this topic the stockbeewp site site focuses on psychology for day to day life for Stockbee blog readers.

http://stockbeewp.com/

The site focuses on personal effectiveness, leadership, motivation, self efficacy, and other related topics.

The site is now fully operational.