A day like today

Stocks with long term momentum plus stock with earnings/sales catalyst do not break easily. Their topping process is long drawn process. The reason being these are owned by institutions or are under accumulation by them. When they decide to sell, they because of the size of their holdings, sell slowly or distribute them slowly to gullible late stage investors. That is why stocks take long time to form top and selling short does not work immediately at top. While on bear side, stocks turn on a dime.

Stocks which are at momentum extremes breakdown because at some stage there are no more buyers , so the greater fool theory comes in place. The last bit of investors are left holding the bag.

In corrections like today, which I was anticipating, what happens is lot of weak and speculative stocks which also move in a broad based rally like we are witnessing , they reverse. Some of the stocks which were on tear have negative days, but they will consolidate/pullback, the trend is still up. What has broken down today is lot of stocks which were clinging to bottom of their range.

The bull market corrections are scary and sudden, shaking out lots of positions. New set of stock attracted buying interest today. It is also healthy to see profit taking in morning and buying in evening, which has been characteristic of this rally so far. That indicates big boys at play.

The market should have some healthy correction or sideways move here for couple of weeks, that way the rally will be healthy. But you seldom get chance to get back in bull markets easily. That is the nature of the beast. The best strategy in bull markets is to buy breakouts, if they are from consolidation or little weakness and supported by volume, it indicates big boys buying.

This move is not going to end without a fight.

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