Long term range break

Each market cycle is characterised by different groups of stocks leading the market higher or lower. While most people are focused on the usual sectors and stocks, below the surface a very different dynamics are going on in the current rally. I have two or three scans which are based on a long range breakouts. I am witnessing a large number of high volume breakout in stocks which have languished in range for years. Normaly these scans have days without anything showing up.

Many established old companies or in case of some cyclical sectors stocks tend to languish in specific trading ranges for long periods, often years. These kind of stocks more or less stay within the upper or lower boundaries of their trading range for years unless something dramatically changes in the fortunes of the individual company or sector.

A breakout in such stock is often a harbinger of big change in the industry condition or supply demand dynamics. Many times these trends are not apparent when these stocks breakout but becomes more apparent after few months or years when the underlying conditions are recognised by everyone.Often these kinds of breakouts are precursor of earning acceleration or sales acceleration. The oil and commodities stocks started breaking out of long trading ranges much before their earning started accelerating. These stocks can have powerful moves once they breakout of such multi year ranges. After the move plays itself out they again settle in to multi year ranges.

It can be hypothesised that the big money, the smart money kinds drive such behaviour. Perhaps the reasons for such breakouts will be apparent in few months or quarters but the smart money already knows these things and is acting on the information.

The range scans I monitor are two/three/five year range breakouts and breakdowns and all time high breakout above two years. I mentioned some of the stocks I am finding in these scans in my earlier post today. Over the last one month I have noticed a flurry of stocks breaking out of their multi year ranges. Something is brewing in these stocks. The reason for which would become apparent much later after they have moved much higher.


walter said...

blow off top?

Pradeep Bonde said...

Doesn't look like one. Below the surface there is lot of selling and sector rotation. Probably rally has long legs and may continue or hobble till year end.

walter said...

i guess we'll see where the volume on the indicies winds up - that will give us a clue too... maybe...

happy dwali to you

Pradeep Bonde said...


There is lot of churning going on. So lets see.
Some nice breakout but in KO, WMT,JNJ, GOOG, HAS, IBM,MAT, AMR, CAL, etc that too on high volume.