Monday weakness is not a surprise

You should not be surprised by this weak open. Since first week of August the Market Monitor has been indicating a possibility of a correction. As I have said before tops/corrections are long drawn out efforts. This correction has followed that script perfectly. See my previous posts explaining why this is the most likely scenario. If you are surprised by market action, study Market Breadth, it will help you stay ahead of the curve.
I have extremely low amount at risk and would not hesitate to close positions here.
This market has seen repeated dip buying, so we will see if the dip buyers step in today or not.
See old posts from this month:


What is market breadth telling us

• A short term top is in the process of forming here. That is my reading and hunch based on MM data and my cumulative trading experience.
• As indicated in last Market Monitor update the risk of market getting hit was extremely high.
• If you were slow to act on that signal, you would have watched with stunned disbelief as many of your open positions got hit.
• I have heard lot of sob stories today, my message is same, which I have been repeating for days here, "if you want to anticipate market turns study and understand market breadth".
• The Market Monitor is breadth based indicator which I designed after lot of research and thinking and it has saved me tons of dollars.
• All the long term members will tell you how we avoided the entire vicious bear market due to MM signal.
• We were out of the market long before the bear savaged account.
• The MM signal market turn on 17th March and we made lots of money in March, April, and May doing tactical hit and run trading.
• The reason for hit and run tactic was at that time it was not clear whether this was a real rally or just counter trend bounce. Plus junk was leading the rally.
• In second phase my strategy was different as I had clearer idea of sectors and stocks. Plus some growth stock were leading.
• In last couple of days all the MM indicators were approaching their extreme zone and it was time to be cautious.
• The index yesterday and today may not show much damage, but I am not trading indexes, I am trading individual stocks.
• You will see lot of damage on individual stocks.
• There are some big volume reversals in number of stocks which were rallying till now.
• Just see the bearish EP scan and Bearish EP monthly scan.
• Such ugly reversals typically happen at turns.
• At this stage both possibilities exists:
  • another correction followed by a rally
  • or a reversal
• At this stage we do not know how this correction will grow.
• Tops take long time so expect lot of attempts at rallies and gap ups and sell offs.
• It will be volatile for few days or weeks.
• My strategy is to watch market from sideline for time being, but I will keep my option of getting in to a outstanding EP. But will probably play with beer money.
• Shorting pre maturely can be trouble. So unless breadth confirms downtrend I will not look at short opportunity.
• There is still opportunity to make money on long side but for that I would like the extreme MM readings to reverse to normal.

	Market Monitor Market monitor is market breadth based market timing tool		Current Readings A short term top being formed Earnings season currently on
Type	Indicator	Value	Comments
Daily	# of stocks up >4% on high volume	179
Daily	# of stocks down>4% on high volume	289	Not much damage. But below surface ugly reversals.
Primary	# of stocks up >25% in a quarter	2134
Primary	# of stocks down>25% in a quarter	296	This indicator did its work as intended. Perfect timing in terms of signal once again.
Secondary	# of stocks up> 50% in a month	98	At extreme level
Secondary	# of stocks down>50% in a month	1
Secondary	# of stocks up>25% in a month	705	At extreme
Secondary	# of stocks down>25% in a month	7
Primary fast	# of stocks up>13% in 34 days	2723
Primary fast	# of stocks down>13% in 34 days	490
MMA+	% of stocks in confirmed uptrend	73	This is in bearish territory.
MMA-	% of stocks in confirmed downtrend	11
10 day cumulative breadth ratio	#of stocks up> 4% in last 10 days/ #of stocks down>4% in last 10 days	2.09	A reading of below .5 on this will confirm bearish trend.

When pigs begin to fly

• Based on Market Monitor readings, price action in rally leaders, and the action in laggard stocks, a correction is in early stage of development here.
• Markets will try and make repeated attempt to breakout but a breadth climax happened this week and that has to get resolved.
• That means two possibilities either a slow grinding sideways move or a series of 500 plus downside days on stocks down 4% or more.
• The action in laggard stocks like C, AIG, and other financials suggests the second scenario is most likely.
• When market runs out of good stocks to run, there is a intense set of 3 to 5 days of speculative frenzy in beaten down names, Chinese stocks, heavily shorted stocks, and some random stocks.
• When pig begin to fly it is time to be cautious.
• One of the problem with such corrections is the side drama of these speculative stocks can suck you in to staying fully invested and then a big 1000 plus down day on 4% breakouts traps you.
• I have seen this or very similar movie before.
• In fact I developed Market Monitor after twice getting caught in such topping process.
• Twice after building the account by 70 to 80% in the bull phase by being excessively bullish at end I ended up giving up 20 to 30% of that profit when the market turned.
• That is when I developed Market Monitor as a overall filter to tell me when to be aggressive and when to run to sidelines.
• In the last 15 or 16 trading days we had a bull market which during normal market conditions would have been 3-4 months bull market.
• There was no correction during the entire move.
• Stocks with growth characters and future growth prospect were the leader unlike the first phase of the market where junk was making big moves.
• Chinese stocks were the early leaders. They have the best financials in the market currently. They started topping out couple of days ago some like UTA, RINO, CGA continued their move. But now look vulnerable. The early leaders like CYOU, NTES, PWRD, SOHU , BIDU, have gone sideways or are churning.
• Stocks in top 3% by MDT ranking are way overextended and some are showing early signs of reversals.
• In last 5-6 days there has been a steady increase in number of stocks down 4% on a daily basis. In the beginning of the move they were in double digits, now they are in triple digits daily.
• So if you look carefully there are signs of distribution and selling in to strength.
• My personal objective here is to protect profits made last month. That over rides all other convictions. I am ready to go to full cash if I see further weakness.
• Once i figure out the nature of correction, I can always get fully invested in a jiffy.
• As of now if you want to play the market, your best bet is short term day trades.
• But I will still be looking for quality Episodic Pivots with outstanding earnings and catalyst and will still put money to work if I find good EP.
• One of the things you must mull over and think a lot about is the nature of moves in the market currently.
• Market moves which take year to happen are happening in weeks.
• Historically there have been periods where such behavior has happened for some years.
• In such trading environment, if you are slow to recognize opportunity or market turn or trading pullback based or mean reversion kind of methods,or waiting to add to positions, you are likely to be a toast.

	Market Monitor Market monitor is market breadth based market timing tool		Current Readings Market in a rally mode. Earnings season currently on
Type	Indicator	Value	Comments
Daily	# of stocks up >4% on high volume	257
Daily	# of stocks down>4% on high volume	160
Primary	# of stocks up >25% in a quarter	2272
Primary	# of stocks down>25% in a quarter	249	Approaching 200 indicates extreme bullishness Intraday readings were around 230 levels .
Secondary	# of stocks up> 50% in a month	118	At extreme level
Secondary	# of stocks down>50% in a month	1
Secondary	# of stocks up>25% in a month	831
Secondary	# of stocks down>25% in a month	5
Primary fast	# of stocks up>13% in 34 days	2855
Primary fast	# of stocks down>13% in 34 days	359
MMA+	% of stocks in confirmed uptrend	74	This is in bearish territory.
MMA-	% of stocks in confirmed downtrend	10
10 day cumulative breadth ratio	#of stocks up> 4% in last 10 days/ #of stocks down>4% in last 10 days	3.15

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