Market Roundup

Market Monitor: Bearish

• Market continues to be in bearish territory based on all Market Monitor indicators.
• The bounce on Monday failed to cross 300 plus barrier. Any serious turn in this downtrend will start with a 300 plus day. It will probably be most likely 500 plus day.
• If you see a day like that then you can be reasonably confident of counter trend rally lasting few weeks.
• Volume on this bounce day was low, another negative.
• Overall nothing in Market Monitor, McClellan Summation Index, and Worden T 2108 as of now indicate a turn.
• This bounce will help for shorts as some of them will have weak rallies and will be shortable at those levels.
• For medium term and longer term traders this market is not worth risking capital till there is a clear buy signal on Market Monitor.
• For those who want to trade managing overall risk becomes critical , if you risk too much a whipsaw may lead to large loss. So keeping risk below 2-3% might be better as that level of loss is easily recoverable.
• Most of the readings on MM have not yet reached extreme, which indicates likelihood of more downside and failure of any bounce at this level.

Sector Trends:

Let us take a closer look at some of the sector trends clearly visible currently on both long and short side.
Sectors where breakouts are still concentrated in our sector tracking methods are:

Medical
Energy
Fertilizers
The Solar Energy stocks are the next set of stock likely to breakout. So if you are quick and nimble keep the stocks like FSLR, STP, SPWR, JASO, SOLF on your watchlist and buy intraday if they breakout. You might be able to catch 10 to 20% moves that way.

Farm Machinery is another group witnessing good action. Top 5 stocks in that group based on earnings plus momentum are ARTW, LNN, DE, CNH, ALG.

Medical Groups dominate the top 20 group list now. Medical group breakouts are the only breakouts which have had some follow through in last 10 -15 days. Medical group is a typical defensive group and it tends to do well in bear markets.
Energy stocks have had sporadic breakouts, but follow through is lacking and most seems to be heading in to bases.
Yesterday I said that the fertilizers stocks have recent good earnings, but most of them have stalled at this level. However in case of a bounce they may be first to bounce back. They bounced back smartly yesterday.

If you want to play during bear market on long side, focus on top 10 sectors in IBD sector list or the top 5. Plus you need to be nimble to enter intraday. Due to higher volatility when stocks breakout during such time, they sometime have large one day moves but no follow through. So buying next day is mostly late.