Two days in a row we had strong open but weak close.

Two days in a row we had strong open but weak close. Which is not a good sign. Looks like a buyer exhaustion move. Extreme breadth can correct in two ways:

1. by a sideways move where the level gradually drops
2. or by a correction

In the recent days we have seen some leading stocks taking a beating. Especially the Chinese gaming and Internet stocks. Chinese market also had a big 5% down move. While market has recovered from that drop, it has had trouble breaking out with conviction. So my current outlook is likelihood of correction. Most such corrections happen when traders are most confident. Last part of the move before correction is easiest to trade so that makes traders very confident and vulnerable to getting caught in correction.

Personally after a blockbuster few weeks, I am not in a mood to give up much of the gains. So tactically I have reduced exposure to very low level. I will watch how market behaves at this stage before deciding next course of action. As Jesse Livermore said every speculator should be alert about danger signals. As of now market Monitor is showing some of those signals , so I would rather be cautious that bold.

As of now i am still bullish on overall market. The primary market Monitor indicator is firmly in bullish territory but tactically for next few days I am bearish. What will make me bearish on overall market:

• A series of 300 plus negative 4% days will be negative for market.
• The #of stocks down 25% in a quarter going below 200 would be bearish
• So far we have not seen these things.
• So breadth is showing you a good bull market currently.
• Which is getting reflected in our trading.

While I am tactically bearish I would still be on lookout for a good Episodic Pivots candidate. A stock with explosive earnings is still a buy in my book at this level.