Extreme readings on breadth

In 19 days the market has witnessed heavy buying. As a result most stocks have gone up in last 19 days. The secondary indicators on Stockbee Market Monitor are at extreme level. Such extreme readings indicate probability of pullback/consolidation in next 4 to 5 days.

However individual stocks will continue to breakout and most likely we will see money rotating in to stocks near 52 week high.

DECK (Deckers Outdoor Corp) is an example of kind of breakout that are happening near high.

18 day rally continues

This rally started after breadth went to extreme level 20 days ago. Extreme negative breadth often leads to explosive rally and this rally has proved to be like that. Breadth has steadily improved during the rally and there has been series of breadth thrusts.

The rally has been fueled by beaten down stocks. If you look at the top 30 stocks by price % change in last 18 days you will see most of those stocks started their rally from 52 week low.

VIT (Vanceinfo  Technologies Inc.) is typical of the kind of moves in this rally. Stock was in decline for months and then in last 18 days is up 213%.

Before that stock was in multi month decline ...

The bottom bounces have been really strong and as a result of these bottom rallies 522 stocks are up 25% plus in a month.

What next. Some of these rallies will fade. Some will go sideways or pullback and set themselves up for further upside. Watch the top 300 stocks that have gone up the most in last 18 days. They will offer further upside potential in coming weeks or days.

If the rally continues then at some stage stocks near 52 week high also need to start participating in it. So keep an eye on top 100 stocks by Trend Intensity. Bottom fueled rallies can only last for few weeks ultimately money will rotate in to high relative strength stocks. Some high relative strength stocks near 52 week high were breaking out yesterday and they might take on the leadership. 

Trouble in tech land

The Nasddaq 100 stocks were the early leaders of this rally. But in recent days things don't look too good for them.

Look at AAPL, AMZN, GMCR, BRCM, DELL, AMGN, SIAL, EBAY, WYNN and so on....

Market might rotate in to something new.....

Stocks up 25% plus in a month

The 14 day old rally continues. Many stocks are now starting to breakout near high. earnings are being currently rewarded with good b/o and follow through.

In just a span of 14 days 177 stocks are now up 25% plus in a month. 

Stocks up 25% plus in a month

AEL

AFL

AHT

AIRM

AREX

ARII

ARO

ASGN

ASIA

ATLS

ATX

AV

BANR

BAS

BC

BCS

BEXP

BGFV

BOOM

BWS

CETV

CHDX

CIE

CKSW

CLD

CMCO

CPX

CRH

CTB

CVBF

CVGI

CWEI

CYT

DAN

DDIC

DEL

DEST

DK

DNR

E

EIG

EP

ETH

EXXI

FELE

FIO

FMBI

FRM

FSCI

FULT

GBCI

GBX

GHL

GIFI

GM.WS.B

GNRC

GPOR

GT

HALO

HAR

HAYN

HEES

HGIC

HLX

HMA

HNI

HST

HSTM

HXL

IBOC

IMGN

ING

JCP

JKS

JOYG

JRCC

KBH

KELYA

KFRC

KFY

KNXA

KOS

LAD

LDL

LEN.B

LIZ

LPL

LPX

LRN

LZB

MAS

MDC

MDR

MHK

MMYT

MPC

MSB

MTRX

NBL

NILE

NNBR

NOK

NR

NSR

NTCT

NUAN

NX

NXST

OCZ

OIS

ONB

ORA

OSIS

OSUR

P

PAG

PCBK

PEBO

PGI

PHG

PKT

PLXS

PNFP

PPDI

PRSC

PTX

PXP

QCOR

QLTY

ROK

RRC

RRR

RTLA

RYL

SAVE

SCS

SCSS

SEM

SFD

SFLA

SFNC

SGNT

SHLD

SIMO

SIVB

SMBL

SRI

STBA

STT

STX

SWFT

SYNA

TEN

TEU

TEX

THO

TKLC

TKR

TOL

TOT

TQNT

TRAK

TSO

TZOO

UMPQ

URI

USAP

VLO

WBS

WLL

WNR

WTI

WTW

XPO

XRTX

XXIA

ZIGO

Many of these stocks are potential market leaders and will likely have further gains post a pullback/ correction. Unless we get sudden big breadth deterioration the rally has legs....

Rally leaders

This rally is 13 days old and it is time to look at which stocks have gone up the most in last 13 days. In Telechart it is easy to create a PCF to find this.

Buying oversold stocks and picking bottoms has been the best strategy so far in this rally. Stocks near 52 weak high have not been the leaders. Stocks near 52 week low are leading the advance.

Five of the best performing stocks in last 13 days are CPX, JKS, LIZ, IO, ASIA. They are up between 84% to 62% in last 13 days. 

Fading leadership is the overarching theme

Situational awareness (SA)

SA is a aviation term. All pilots are extensively trained in SA on ongoing basis. SA helps pilot to be in control of their situation all the time. 

For a pilot, situation awareness means having a mental picture of the location, flight conditions and intentions your aircraft within an area in relation to each other and to other factors that could be about to affect its safety such as proximate terrain, obstructions, airspace reservations and weather systems.

Same way good trading requires SA. We should factor in the environment we are in and continuously try and study the situation. Markets are dynamic and situation changes everyday.

Fading leadership is the overarching theme currently.

The stocks that lead the advance are breaking down or pulling back hard. That should make you cautious on bullish side.

The action in many leaders of rally does not look like garden variety pullback but breakdowns.

Implication is rally might have run out of gas. Unless we see new leadership I will be cautious on bullish side. There are some good short setups showing up currently. 

11 day rally continues

Situational awareness

Situational awareness is:

The perception of the elements in the environment within a volume of time and space,

The comprehension of their meaning and

The projection of their status in the near future.

It is a widely used aviation term. Pilots are trained in SA to avoid accidents.

Same way on day to day basis you need SA to be in tune with market moves. You should understand the context of any move.

Currently we have had a roaring 11 day bounce after MM reached extreme readings. Often such rallies herald start of new bull moves lasting months.

As of now however rally has some unique characters that make it not a typical bull market rally. Most stocks are bouncing from bottom. There are very few classic leadership kind stocks and setup. Which has many people believing it is a bear market rally.

On immediate basis we are extremely overbought and most stocks have V shaped bounces or rallies. A 2 to 3 weeks sideways moves or pullback on these stocks will create actionable swing setups.

One of the reason for worry is low number of EP showing up currently. It is too low a number for typical start of bull move.

The number of stocks up 25% in a month is pretty low at this stage compared to typical bottoms.

Implication you have to be cautiously bullish and play for smaller moves and keep losses small.

Market breadth pattern analysis

One of the Stockbee member has developed a comprehensive method for analyzing market breadth using a concept similar to Stockbee Market Monitor.

Read his guide here.

Rally hits turbulence

After nine days of big rally from bottom, some sort of correction is natural . As long as the pullback remains shallow, there might still be more upside for the rally attempt.

It seems a bit too obvious bearish setup. Everyone is skeptical of the rally. Investors Intelligence survey bearish readings are at record high. Everyone is itching to short. Obvious things often don't work in the market. We will see how the move progresses.

I would still be buyer of good bullish setups and put out few shorts if good setup shows up. Currently long STAA, LNKD, AAPL.

Myrtle Beach

Will be back on Monday. Attending the Mark Minervini seminar. 

A pause may not kill the rally attempt

Market is up in 6 of the last 7 days. After such big advance a pause or pullback will not be out of character. If the correction happens on low breadth it will not matter. If we get big breadth to downside then it will be cause for concern. We used the gap up open and strength yesterday to sell and book profit on many open positions.

If you forget about the indexes and look at individual setups, you would find lot of good breakouts. Momentum stocks are showing good breakouts currently. In periods like these using short term momentum calculation periods is better as it can capture new trends faster. A faster Stockbee Trend Intensity of 20 days is preferable to standard 65 days Trend Intensity.

 Another way you can look for momentum is by using anchored low. For example currently this rally is 7 trading days old. If you use that period to calculate momentum using the lowest price of the stock in last seven days, you can find stocks with above average momentum in last 7 days. Both the above approaches can be done very easily in Telechart using simple PCF.

Two of the better looking setups in breakout yesterday were LNKD and STAA.

LNKD

STAA

both the stocks breakouts I highlighted yesterday during the day on Stocktwits stream.  As long as good buy setups like these continue to show in momentum scans I am a buyer. If market bounce fails then will look for short setups.

Long: LNKD, STAA and couple of other positions. 

Tradable rally continues

As I said on 5th October, we are likely to get tradable rally. Since then the market has put on impressive reflex rally. At that stage market was extremely oversold and the Primary Indicator on Stockbee Market Monitor was at extreme level. Such extreme levels lead to bottoms or tradable rallies. In my Daily Market Analysis video on 4th October  night I made the call for a tradable rally lasting few weeks.

The Nasdaq 100 has been the best performing index since then. It is up 7.78% from the low.

There has been a wide spread buying since then with cumulatively around 2500  breakouts of 4% plus  in last 6 days.

The best performing stock in last 6 days is CDTI. The buying is focused on beaten down stocks.

As long as breadth trends hold the rally has potential for more gains. If we see a big down day in breadth term then it will be cause for concern.

Below the surface lot of stocks are showing nice breakouts and follow through in last six days. We currently have open positions in AAPL, CMTL, CMG, PANL, NILE.

5 day breadth ratio see big improvement

The rally continues with broad based buying. At this stage a sideways move or small correction will not be out of character .

Unless breadth deteriorates (500 plus days back to back or big 1000 plus day to downside) this move still has legs.

Skepticism about rally and sentiments being bearish will probably act as a fuel.

But moves are still volatile and you need to keep small profit target in mind.

If the move fails you will get ton of shorts.

Start of new earnings season

After reaching extreme readings on Market Moinitor market is attempting a bounce. The three day bounce experienced some profit taking on Friday.Breadth was below 300 so the rally attempt is still intact.

Today also marks start of new earnings season. Market will probably reveal its real move post earnings trends are clear. At this stage expectations are low, so any surprise to upside will be bullish.

Overall market continues to be range bound and volatile. Moves beyond 3 days are rare. But we might have put in a bottom last week and we might get last quarter rally from here onwards.

The most important thing to look for is Primary Breadth trend change in MM and breadth thrust of 2 plus.

Back in range

We are back in range and likely to now test range high.

Some sectors have been first to bolt out in this 3 day bounce and those are the sectors to keep an eye on. There are clues to which stocks are likely to dominate the rally for few weeks. Signs of potential new leadership are slowly emerging. This looks like a tradable rally for few weeks.

Reflex Rally

We are witnessing a reflex rally in the context of a larger correction after 2 years of bull move from 2009 onward . Most bear markets have several hope and disappointment cycle. You get stretch of time where markets corrects followed by relief rallies followed by drops to new lows.

The volatile up down cycle results in rinse and repeat. That tends to be bear market pattern.

As of now the rally still has more upside and probably last for few weeks. If leadership expands to small caps and new companies then that will lead to big move. Absent that we will have another failure. One of the big problem is complete absence of new leaders. Same old tired leader continue to attract buyers. Which puts longevity of rally attempt in question. 

Tradable rally possible

We had a big reversal once market reached extreme readings on MM. Such readings often lead to tradable rallies and signal long term bottoms.

However there are not many classic momentum kind b/o play setups as of now. They might appear in few days/weeks.

As of now  probability of tradable rally of few weeks are high. 

Stubborn range breaks

From July high the markets have dropped between 13% to 28%. The Nasdaq 100 is leader in relative performance as of now.

The first part of the move was swift. After that market has formed a wide and volatile range for last few months, that range is now broken on some indexes.

If the down move leads to panic and extreme bearishness then we might get a reflex bounce. Sentiments have remained bullish during most part of this correction. That is not good sign.

If you had good risk management strategy, you would not have suffered during this correction. The breadth based indicators have worked very well in anticipating this correction and have not been fooled by reflex rallies. When the market turns the breadth based tools will signal that. Here is what one of the recent member had to say about the market breadth based indicator Market Monitor (MM)