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We are back in the range

Posted on 5/28/2009

Market Monitor  




TypeIndicatorValue
Daily# of Stocks Up >4% on high volume137
Daily# of stocks down >4% on high volume  319
Primary# of stocks up >25% in a quarter3146
Primary# of stocks down >25% in a quarter 357
Secondary#of stocks up >50% in a month56
Secondary#of stocks down >50% in a month2
Secondary#of stocks up >25% in a month332
Secondary#of stocks down >25% in a month35
Primary fast  MM 34/13 + 2461
Primary Fast  MM 34/13 - 1054


  • The missing piece in the market is follow through, so we go back to range.
  • It is  frustrating when such intra day reversal happen. Buyers step aside and so a good stock can also take a hit.
  • What probably happened was that there was a big asset allocation move by someone  big on Tuesday. It was followed by someone big deciding to take profit.
  • To look at where selling was concentrated I looked at top 50 stocks by dollar volume in 4% breakdown scan. ( 100 * (C - C1) / C1) <= ( - 4) AND V >= 1000 AND V > V1
  • What does it tell you, that selling was mostly in financials. Which to me is no big deal. Frankly most of them went up so much during first phase. They are not leadership stocks. They had junk of bottom rally and such big moves in them were anyway suspect. They do not have earnings fuel to take them higher. 
  • I don't see any major growth stocks in the top 50 list. Some of the stocks witnessing selling like APOL, MON, GME, DLB, etc were not big growth stocks. many of them were laggards or had specific catalyst for their down move. 
  • Lets look at same list sorted by "Year" column which basically ranks stocks by % change in a year from 260 day low. 100 * ((C + .01) - ( MINC260 + .01)) / (MINC260 + .01) . Again if you look at the top 50 stocks you do not see major break down barring in few stocks like ZLC, IOC, AAI, ZZ. Now again these are not stocks which should worry you. Most of them are junk stocks. 
  • I also sorted the same list by MDT ranking and looked at top 50 stocks ranked by MDT showing up in the breakdown scan. Again I see no major breakdown barring IOC. IOC has a specific news of dilution which is responsible for that move. 
  • Then I looked at "EP Short" scan. It is a reverse of EP Bullish scan.  (( 100 * (C - C1) / C1) <= ( - 8) AND V > 3000 AND (100 * V / AVGV100) >= 300) AND C > 1
  • 8 stocks show up in the above scan  OPWV, SEED, VRS, WOLF, DLB, NPD, CSA, GM. None of these stocks are rally leaders. 
  • So based on all this analysis I do not as of yet see any cause for big concern. When market starts breaking down after a big move, you see lot of high volume breaks down. Those kind of things I do not see in this tape currently. I do this kind of analysis daily and I see very measured and orderly pullbacks in this market. Looks like stocks are taking a pause after a big up move. The formations on charts are all continuation move formations , not topping formations. Market is forming a range here. Most likely move from such range is up move continued

Related Post

Why do you invest in the stock market? Part1

Posted on 5/27/2009

This is a guest post.

-------------------------------------------------------------

Christopher Colvin 

Chris is the Founder, CEO and Managing Director of JLCC Capital Management, LLC, a private investment company that provides investment opportunities through equity-based and private equity funds. JLCC Capital manages The Crucible Fund, a long-short US equities fund that focuses on ETFs. Chris founded JLCC Capital Management and The Crucible Fund with his partner, John Lee, in 2005, and they began trading operations in January 2006. Chris and John met when they worked together as stock brokers in New York City. They began to see fundamental and disturbing flaws in the transactional retail brokerage business that prevented clients from making money consistently. So, they developed a trading strategy and struck out on their own. Originally having designed their strategy for trading in individual common stocks, Chris began back-testing the strategy on ETFs in 2007. Chris and John switched over completely to trading ETFs in August 2007, when market volatility started to crank up. Their strategy was put to the ultimate test in 2008, and, despite the extreme volatility in the financial markets, they produced a net return of 36.4% for the year. Since their switch to ETFs, Chris and John have produced a total return net of all fees of 87.3% as of April 30, 2009.

Chris is happily married to Jessica Yunker, a licensed acupuncturist and traditional Chinese medicine practitioner, and they live in New York City.

----------------------------------------------------

Why do you invest in the stock market?

If your answer is anything other than, ‘to make money,’ then stop reading, because I cannot help you. A great percentage of people, tragically, invest to satisfy needs that have nothing to do with making money, and frequently have everything to do with losing money. This, incidentally, is why businesses like TD Ameritrade and MF Global will be around in one form or another for a very long time. …Bars too. So, what does it mean to invest? Unless a gain on an investment can be realized and pocketed, there is no point to investing. If Warren Buffett’s cost basis on 1million shares of GE is 25¢, and he gifts his GE shares to a charity when the stock is $50, he looks like a superstar because he ‘made’ all this money by correctly buying and holding the position. Buffett is the best at what he does and is truly alone in his class when it comes to long-term investing. However, if the charity simply holds the position with no clear plans to liquidate it, or, perilously, borrows against the stock on margin, and the position drifts down into the single digits, and then, at the worst possible time, the charity needs to sell the stock in order to fulfill their operational needs, the gifted stock position valued at $50million is suddenly just a fraction of the original gift size, and hardly what it seemed at first. Therefore, if you have no exit plan for your investments, you have no plan, period, and your ability to make money in the stock market becomes nothing more than pure chance.

Stocks are paper, and, therefore, each stock investment must be viewed as a trade – a position that you enter by putting money at risk, and at some point exit, retrieving more than you started out with. Simple enough. Really – it is. There is no need for complexity in trading. What most investors lack is a simple systematic approach to trading profitably. It is utterly hopeless to attempt to attain, understand, evaluate, and then act correctly on every piece of information that affects the equity markets. So what are we to do? What are we to rely on to consistently make money in the market? Since our goal is to take out more money than we put in, the only thing that matters is price. You go long because you aim to sell at a higher price, and you go short because you aim to cover at a lower price. So, one must be a student of the movement of the price of equities, i.e. price trends, in order to trade successfully.

Am I preaching to the converted? Let’s not pretend that we don’t stray from our core trading strategies from time to time trying in order to justify the position we’ve just entered. It starts out innocently enough: your system triggers a buy, and you go long the fertilizers…you’re up 3% – nice entry - off to a good start…quickly you’re up 5% – your system is working great - rock n roll…your position drifts down 2% – you scoff at those foolish bears, who’ve been wrong the whole way up anyway…back to break-even – it’s a natural pull-back - steady as she goes…-4% – you call a few friends who you know will reassure you that your position is solid…back up near break-even – look at those fools on CNBC wondering if this is ‘the beginning of the end’…+2% – slight bearish RSI divergence, but it’s no big deal – you’re back on track…-5% – let’s wait for the oil inventory numbers…-8%...um…-10% – but India and China are supposed to be consuming everything except anti-matter in ever-increasing quantities for as far as the eye can see!...-15% – but that perma-bear just turned bullish!!! -- what the hell?!... and before you know it your position is well below your ‘mental’ stop-loss, and your news-searching and rationalizing have steered you deep into the Crab Nebula, light-years away from your core trading strategy. We’ve all played that game too many times, and we all know how it ends.

Even if you have a workable trading strategy you will get taken off course. You absolutely know when you are straying from your core strategy – when you feel yourself about to stray, stop and ask yourself, “Should I be trying to scalp 2% out of this short-term move even though I trade weekly trends?”, or, “Should I really be holding onto my position for three days even though part of my strategy is to go home flat every day?” The solution to straying is to devise a system and test it rigorously for robustness in all types of market environments – this will give you complete confidence in your strategy. (I will leave the fundamentals of strategy generation for a future discussion, as it is an important topic unto itself.) Devising a profitable trading strategy is much easier than sticking to it, but it helps immensely if you have a system that you believe in.

Once you have a system in which you are confident, study what is important for the current trend in the timeframe in which you trade – each trend is always different from prior trends in some way, and you must correctly discern those differences, not the similarities, which are usually quite salient, in order for you to apply your core strategy correctly. That is, study what price levels/trend-lines/moving averages/oscillators, etc. that the market is reacting to in the current trend. Maybe in the last uptrend the market bounced every time it pulled back to the 30-day simple moving average (SMA), but this time it is bouncing at every test of the 15-day SMA. Maybe in the last uptrend the market pulled back every time the RSI hit 60, but this time it’s not pulling back until the RSI hits 70. News flow and fundamentals will always be different in different trends, and there is no reliable objective way to measure the impact of news and fundamentals on the market. We can say the average P/E of the S&P500 over the past 50 years has been 16, and currently the P/E is X – but how does this help you to make money? If the P/E is currently 22, then should we just short the market, assuming it will revert to the mean? What if it reverts to the mean not via a drop in price, but rather via growth in earnings? Then shorting would be a major misstep. Or what about the 4th quarter of 2008 when the P/E was Ø because there were no earnings for the S&P500 for that period? How does a P/E of Ø revert back to the mean?? Taken seriously, trading based only on analysis of fundamentals and underlying businesses assumes that others will eventually come to the same conclusions that you have come to. If others do arrive at the same conclusions, this will manifest itself in price movement – market participants vote their opinions by buying and selling, which determines the price of equities. So why not just cut out the guesswork and go straight to the price action so that you have an objective idea of when others have come to those conclusions and how strong their opinions are?


We have gone in to a correction/pullback phase in the market

Posted on 5/26/2009
 Market Monitor  
 
   
TypeIndicatorValue
Daily# of Stocks Up >4% on high volume112
Daily# of stocks down >4% on high volume  84
Primary# of stocks up >25% in a quarter3087
Primary# of stocks down >25% in a quarter 409
Secondary#of stocks up >50% in a month34
Secondary#of stocks down >50% in a month1
Secondary#of stocks up >25% in a month230
Secondary#of stocks down >25% in a month48
Primary fast  MM 34/13 + 2409
Primary Fast  MM 34/13 - 1278

 
  • The best part of the bullish move was from March 10 th to May 6th. That period was the most profitable period. During that period breakouts and EP had immediate follow through.
  • Since 6th May we have seen number of negative days an d ratio of negative days to positive days is 50:50.
  • We have gone in to a correction/pullback phase in the market. 
  • The correction at this stage looks orderly and most stocks which made a big move are having a orderly pullbacks.
  • The correction is not getting reflected in the primary indicator.
  • Primary indicator at 3087/409 currently shows that the breadth is overwhelmingly positive.
  • But because the market is not making upside progress b/o do not necessarily follow through. 

BPI makes a explosive move

Posted on 5/21/2009
This is earnings breakout. Here is how we handled it on Members Site. 

How to find explosive moves



Explosive moves in stocks are triggered by some episodes. The three stocks above were recent buys based on such triggers. They made explosive moves of 15 to 40% in few days post such explosive breakout. 
Everyday such explosive moves happen in the market. These moves are more common as Regulation  FD banned the earlier cosy relationship between big speculators and companies. 
As of now there are 5-6  stocks today with potential to make such explosive move today. 

Later
How to find and trade such explosive moves

Lots of opportunities in this market.....

Posted on 5/20/2009

Market Monitor  




TypeIndicatorValue
Daily# of Stocks Up >4% on high volume394
Daily# of stocks down >4% on high volume  135
Primary# of stocks up >25% in a quarter3146
Primary# of stocks down >25% in a quarter 304
Secondary#of stocks up >50% in a month66
Secondary#of stocks down >50% in a month3
Secondary#of stocks up >25% in a month394
Secondary#of stocks down >25% in a month27
Primary fast  MM 34/13 + 2714
Primary Fast  MM 34/13 - 897


  • Market is forming a range here. 
  • Volume is lower than normal.
  • While some sectors are having a pullback, new sectors keep breaking out and as long as you are in a right sector there are lot of profitable opportunities.
  • Select growth stocks are having breakouts and follow through and that is good sign.
  • The Chinese stocks are leading the market and list of stocks near 52 week high or all time high has some excellent Chinese stock with earnings.
  • There are so many opportunities currently in this market for both the short term and the long term trades.

Low volume surge

Posted on 5/19/2009
TypeIndicatorValue
Daily# of Stocks Up >4% on high volume907
Daily# of stocks down >4% on high volume  42
Primary# of stocks up >25% in a quarter3146
Primary# of stocks down >25% in a quarter 307
Secondary#of stocks up >50% in a month89
Secondary#of stocks down >50% in a month4
Secondary#of stocks up >25% in a month476
Secondary#of stocks down >25% in a month15
Primary fast  MM 34/13 + 2773
Primary Fast  MM 34/13 - 881


  • A big 900 plus positive day after a series of negative days.
  • Volume however was low.
  • What it tells you is we are most likely to form range here. 
  • This has quickly pushed the secondary indicator to 89. This market is very volatile.
  • One of the encouraging sign in recent days is that growth stocks have started moving.
  • The junk still continues to rally. But companies are quickly using such strength to issue secondaries. 
  • In the second phase growth stock should do well.

Cinese Stocks show promise

Posted on 5/18/2009
TypeIndicatorValue
Daily# of Stocks Up >4% on high volume124
Daily# of stocks down >4% on high volume  199
Primary# of stocks up >25% in a quarter2974
Primary# of stocks down >25% in a quarter 465
Secondary#of stocks up >50% in a month30
Secondary#of stocks down >50% in a month4
Secondary#of stocks up >25% in a month158
Secondary#of stocks down >25% in a month52
Primary fast  MM 34/13 + 2586
Primary Fast  MM 34/13 - 1448


  • In last 7 days we have seen 5 negative daily breadth days. 
  • The rally is clearly under pressure and fresh b/o will have tough time following through if the selling persists.
  • While the short term view is bearish long term this correction is good.
  • The move was becoming unsustainable and many stocks were making moves not supported by fundamentals.
  • This correction will separate the second stage leaders from the low quality stocks. 
  • Like in 2003 the Chinese stocks are the leading stock. 
  • NTES SNDA LFT ASIA CYOU are some of the Chinese stocks leading the growth stock rally currently. 

A correction after a big up move

Posted on 5/14/2009
The market had run up a lot in few months and so a correction was overdue. We are getting one here. This was not a big surprise, the Market Monitor was indicating this for sometime

TypeIndicatorValue
Daily# of Stocks Up >4% on high volume30
Daily# of stocks down >4% on high volume  1168
Primary# of stocks up >25% in a quarter2966
Primary# of stocks down >25% in a quarter 458
Secondary#of stocks up >50% in a month34
Secondary#of stocks down >50% in a month3
Secondary#of stocks up >25% in a month202
Secondary#of stocks down >25% in a month36
Primary fast  MM 34/13 + 2511
Primary Fast  MM 34/13 - 1558

If you compare the current readings to those in my earlier post, you would see slowly the breadth is coming to normal from abnormal levels.

Related post

The hundred year old art of swing trading

Posted on 5/11/2009
Swing trading is a very old trading technique. It has been around for 100 year or more. Most active traders trade some variation of a swing trading technique. The basic strategy in swing trading is to find a stock or instrument like ETF or Index or future which is having a strong trend and then enter in the direction of the trend on pullback or retracement.
This is a workhorse method and once you perfect it, it gives you steady stream of trades. The trick in swing trading is good risk management.

The basic principle of swing trading





  • Find a stock in a up trend
  • Find a area of consolidation or pullback
  • Enter when the stock starts breaking out of such consolidation
  • Use tight stops
  • Exit near swing high or when stock stops making new high
  • Do this over and over and over and your money compounds fast
This is the bread and butter strategy for those who want to make living trading. 

Variety of ways to swing trade

If you look around people use different techniques to swing trade. Some use simple techniques some use very complex technique. But the basic principle is same to capture part of a move in a uptrending or down trending stock.
  • Some use technical analysis
  • Some use charts
  • Some use indicators
  • some use support and resistance
  • some use chart patterns
  • some use MA, SMA, EMA, MMA, KAMA, GMMA, WMA
  • some use candlesticks
  • some use three line break charts
  • some use Renko charts
  • some use Kagi charts
  • some use Ichimoku charts
  • some use point and figure charts
  • some use Fibonacci 
  • some use Bollinger bands
  • some use Standard deviation
  • some use Keltner channel
  • some use oscillator
  • some use pivot points
  • some use mean reversion
But the ultimate objective is same to catch a swing move continued.....






Are you serious about your trading?


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Be warned it will take you time to learn to trade. Learning to trade is difficult art and unless you are willing to spend months or years to perfect your strategy and also develop your mental edge you are unlikely to succeed in this game. Unless you understand that no site, no service, and no mentoring is going to work.


Why traders come to stockbee?


The member site is one of the most recommended site for learning to trade by other traders and bloggers. You will see no advertising, no hard marketing, no promotions, no free offers, no affiliate marketing, no incentive to other bloggers to promote the site, no constant twits self promoting the site, no free trial  and no tall claims of making you instantly wealthy, and yet the site attracts new  members everyday. Members come from all walks of life and all kinds of trading size and trading styles.


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How to use Market Breadth to trade profitably

Posted on 5/09/2009
TypeIndicatorValue
Daily# of Stocks Up >4% on high volume719
Daily# of stocks down >4% on high volume  79
Primary# of stocks up >25% in a quarter3202
Primary# of stocks down >25% in a quarter 231
Secondary#of stocks up >50% in a month118
Secondary#of stocks down >50% in a month3
Secondary#of stocks up >25% in a month511
Secondary#of stocks down >25% in a month25
Primary fast  MM 34/13 + 3065
Primary Fast  MM 34/13 - 421
Secondary#of stocks up 100% plus in a year1556
Secondary#of stocks up 200% plus in a year537

Market Monitor is a overall timing model for timing the stock market. Market Monitor tells you when a primary bullish or bearish move has high probability of starting or ending. Market Monitor also indicates likely correction zones in a primary  bull or bear move. So it gives you both long term and short term read on the direction of the market. At simplest level it tells you when to trade methods like Episodic Pivots, Double Trouble, Modified Double Trouble, IBD 100 and 200.
Market Breadth is the basic concept behind the Market Monitor. Market Breadth simply tells you how many stocks are going up, how many going down, and how many are unchanged. There are variations of the basic breadth idea like measuring number of new highs and new lows, or measuring the up volume and down volume. But ultimately all breadth indicators mathematically are derivatives of :
A D and U
A= number of advancing stocks
D= number of declining stocks
U= unchanged
Different people have massaged this data in various ways by using variety of mathematical techniques like moving average, exponential moving average, ration analysis, standard deviation and so on to develop number of breadth based indicators. The book The Complete Guide to Market Breadth Indicators will give you a comprehensive picture of all imaginable breadth indicators used in the market. No matter your time frame of trading (day trading, swing trading, or investing) breadth based indicators can be extremely useful. If you are short term trader (day trader or swing trader) it is even more useful.

Market Monitor uses the basic breadth concept but with a twist. continued...

Task cut out for dip buyers

TypeIndicatorValue
Daily# of Stocks Up >4% on high volume237
Daily# of stocks down >4% on high volume  584
Primary# of stocks up >25% in a quarter3070
Primary# of stocks down >25% in a quarter296
Secondary#of stocks up >50% in a month133
Secondary#of stocks down >50% in a month3
Secondary#of stocks up >25% in a month551
Secondary#of stocks down >25% in a month20
Primary fast  MM 34/13 + 2949
Primary Fast  MM 34/13 - 600

  • 584 stocks were down 4% plus on high volume.
  • That is a minor scratch on the bulls back. 
  • This was mild action and not a very broad based selling. You would have seen numbers around 1000 plus for a serious correction.
  • So the task is cut out for the dip buyers. 
  • Most likely scenario is attempt at rally from these levels.
  • Action in the Episodic Pivots  continue to show junk still has buyers.
  • Sector rotation was in play with medical and health care stocks breaking out. So this market has more legs as of now. 
  • After a few days of attempted rally we might see another shakeout move.
  • A strong breadth like we have currently is not going to turn with just one 584 negative day. 
  • I will continue to focus on EP and good breakouts from IBD100/200 and Double Trouble and Modified Double Trouble.
  • I expect Double Trouble to be best performing method here onwards. It will continue to give  many more opportunities for next 1 to 2 months. 

How can you avoid days like today

Was a day like today a big surprise? No. There were lot of warnings of something like this likely to happen since last 2 days. In order to avoid getting caught in such reversal days, you have to study market breadth. 
Market Monitor our market breadth indicator was indicating a reversal zone since 5th May and we sold most positions in the opening minutes yesterday based on that signal.
This was my post at Members Site yesterday early morning:

        

 

TypeIndicatorValue
Daily# of Stocks Up >4% on high volume289
Daily# of stocks down >4% on high volume  212
Primary# of stocks up >25% in a quarter3056
Primary# of stocks down >25% in a quarter287
Secondary#of stocks up >50% in a month118
Secondary#of stocks down >50% in a month3
Secondary#of stocks up >25% in a month579
Secondary#of stocks down >25% in a month20
Primary fast  MM 34/13 + 2971
Primary Fast  MM 34/13 - 404

  • We are approaching a correction zone.
    • Market Monitor breadth is indicating that with #of stocks down25% in a quarter at 287 approaching 200
    • #of stocks up 50% plus in a month is at 118
    • Low quality stocks are dominating the EP list
    • Stocks like FIG, MGM, LVS, DRYS , etc. are having back to back gaps. These are low quality junk stocks at these levels.
    • Stocks are making 20% plus moves with flimsy catalyst.
    • Those who were on sideline till now are joining the party. If you have been watching the commentators or newsletter writer, they are "now" convinced of a real turn in market. After a 30% move.
    • Laxman Achuthan is all over channel telling you economy has turned corner. 
    • Ton of secondaries are likely to hit market in near future.
  • The correction is already in progress in some of the stocks. Just see the stocks showing up in #of stocks down 4% on high volume scan.
  • The question is will it be orderly sideways correction or a shakeout kind.
  • These are the situations in which you can give up lot of gains made during the rally. 
  • After giving up such gains couple of times I created Market Monitor to warn about such period.
  • Such correction most of the time does not give you time to get out without damage. It is like a ambush, things look fine for days, your MM readings will be elevated, nothing happens and then suddenly on some news the sell off starts. The reason is breadth deteriorates slowly, so professional keep selling in euphoria and then the buyers step aside at some stage. The last fool is left holding the bucket. 
  • The stocks in all the methods we trade are very volatile, so they can make big moves in either direction.
  • Things may not turn out as bad as anticipated but we don't know the outcome in advance. So I am very careful in my approach to market at this level. Even if it means giving up few profit opportunities. 
  • After the correction there will be many many opportunities. But at this stage the amber signal is on.
  • I would still look to buy a good EP with catalyst or good pullback , but with one finger constantly on exit button. 
  •  


4 Comments.. 
Posted by: easyguru
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Extreme short term breadth readings are not sustainable. Such readings result in corrections/pullback till the readings drop to sustainable level. The primary trend is still intact but in the short term the frothy moves were not sustainable. Such situations can resolve quickly , sometime in days or in weeks. But getting caught in such moves is no fun if you have built up lot of profit or holding profitable and overextended stocks.