It takes time and low expectations to kickstart a rally
Corrections in market take time to play themselves out. After a 8 month rally with no major correction, the market is witnessing major correction. While it is tempting to attribute the sell offs to things like sub prime trouble and China, none of those factors matters in the long run (the sub prime anyway is in panic mode, so survivors will be bargains). The market is correcting because it went up a lot.
The things to keep a close eye on is earnings trend. As of now the trend of estimate revision for 2007 is up. While earnings are expected to slow down, the slowdown is not dramatic. That sets the stage again for sometime in future for earnings lead rally.
A few months of weakness or sideways move can set up the market again for a rally. That is how rallies progress over a long run. It is always tempting to be too bullish or too bearish at such stages, but individual stocks action is primarily driven by earnings and earnings expectations. If you were following earnings lead breakout strategy, you would have found several stocks breaking out post earnings and making 10 to 30% moves in few days, even after the correction. Those are the kind of stocks which will again get rallying once the correction plays itself out.
The things to keep a close eye on is earnings trend. As of now the trend of estimate revision for 2007 is up. While earnings are expected to slow down, the slowdown is not dramatic. That sets the stage again for sometime in future for earnings lead rally.
A few months of weakness or sideways move can set up the market again for a rally. That is how rallies progress over a long run. It is always tempting to be too bullish or too bearish at such stages, but individual stocks action is primarily driven by earnings and earnings expectations. If you were following earnings lead breakout strategy, you would have found several stocks breaking out post earnings and making 10 to 30% moves in few days, even after the correction. Those are the kind of stocks which will again get rallying once the correction plays itself out.
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5 comments:
Do you think its a good time to play the IBD thursday list ?
Once the intense selling phase is over , it will be safe to play the list again. Intense selling days are normally bunched together. By that time composition of the list will also change to reflect sectors in play.
The way I look at it is that if a an falls down a long flight of stairs, he just can't get up and run upstairs again. He gets up, dusts himself, looks around, gets his bearing, gets his senses back and then tentatively tries to figure out what to do next.
I know, i know, the reasoning is not basedin market fundamentals, but that's how look at it :) In case of stocks they may just fall down another set of stairs.
I just follow and don't try to predict where it will go (in reference to your post some days back about anticipation and reaction)
Rahul
Rahul,
You've been reading Alexander Elder?
It's been a while since I read his books. Those were the first few i read when I got interested in trading..about 3 years back.
Now that you point out, I must revisit them :)
Rahul
tradernirvana.com
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