2/01/2013

How is this rally different from other rallies


The rally so far has been a bit of slow going compared to historical tallies. Most of the gains in the market happened in 2 days between year end and New year.

This is also reflected in stocks. As of now we have 1560 stocks meeting our 65 days momentum criteria. At similar stages in other bull moves this number tends to be around 2500. At this stage only 54 stocks  are up 25% in a month, in comparison in other rallies the number approaches 200 by this time. Number of stocks up 50% in month is very low at 5 stocks, in other rallies numbers can be 50 plus or even more at beginning of the rally.

The rally has been characterized by low number of breakouts on daily basis. Our daily tracking of breakouts database shows only one 300 plus breakout day in this entire rally. Compared to that the first 10 to 15 days of rallies have series of 5 to 8 high number of breakout days. Most rallies start with 1000 plus breakout days and in recent years these numbers have been even higher at 1500 plus. That is followed by series of 500 plus days. In short rallies start with a bang.

This lack of aggressive buying is a distinct characteristics of this slow grinding move up. Breakouts have been few and the post breakout follow through has not been of high magnitude. The other characteristics has been the domination of stocks breaking out from 52 week low and making moves as against stocks near 52 week high making big moves. This kind of behavior has been a hallmark of rallies since 2009 bottom. the biggest moves happen on most beaten down stocks.

For momentum players this require adjustments in their momentum indicators and calculation and a bias towards anchored momentum is better approach in this market. Momentum anchored to recent lows used to rank stocks is better approach. Momentum trading requires such nuances in changing market.

In recent years overwhelming theme in the market is about Fed action and economic recovery as against growth. Every time the market has dipped there has been aggressive market intervention by worldwide Feds. This creates this kind of anchored momentum effect. In comparison growth stocks have been few and have not made big moves.

Historically momentum players have relied on growth stocks for explosive moves. The IBD kind of stocks with explosive growth characters and explosive price moves of 1000% plus in a year or two have been rare in this market. Many are giving up on growth approach due to frustration. Everyday I hear about this frustration from many long practicing growth investors. But as is the historical precedent, most of the time when a style of investing goes out of fashion and many people  give up on the approach, it keeps roaring back.

I am extremely confident in few years the growth stocks will again make big moves , the likes of which people have not seen in recent years. That is the nature of markets and trading.

However the first leg of rally has created number of possible breakout setups on stocks. The list below shows stocks that are at various stages of setting up for possible breakout. Some of them had breakouts yesterday.




Stocks with 65 day momentum that are good setups :

CRI
GNRC
CELG
GCO
LAMR
SIMO
RNDY
EMKR
ALR
INFY
CAB
ZOLT
ACAS
TEAR
STON
AWI
BYD
TFSL
COG
CASY
DAKT
HUM
VPHM
AIT
DF
JBT
OCR
VVI
CLDX
VRSN
GEF
MDLZ
WLL
TROX
SPWR
WMB
TDW
CLR
CEB
FF
PKY
BLOX
IM
XPO
ARCO
NUAN
DIS
ACHC
KR
RTEC
B
FORM
PNC
IRDM
FGP
WBS
XIN
OMEX
WIN
ANH
SIRI
MFA
FITB
GPN
BIDU
STE
CCJ
DD
ACHN
CIB
BERY
NUVA
CA
BMS
EGOV
ROST
CHUY
WST
SINA
JAZZ
CMG
FFIV


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