Emerging markets might be the pilot fish

There was a mini melt up in last 8 trading sessions after the market failed to follow through on a downside after a 400 plus day on 4% breakdowns. Stocks are moving in gaps. There are mini blowouts on some tech stocks. But leadership is narrow. As you can see the number of stocks up 25% in a month is nowhere near wildly bullish level. In a true melt up scenario we would be looking at 300 kind of number on it.

Yesterday was first day where there was some distribution. Some sectors are witnessing rotation out of them and that trend will continue. We are in a rotational kind of market. Retail and consumer stocks are where money has rotated in last 10 days. Money continues to be moving in to large cap stocks.

At this stage we might settle down in to another range or there might be another down move of 300 plus like we have seen in last 1 month. 8 to 10 days mini buying bursts have been followed by 2 to 3 days of distribution.

But because there has been persistent bid in the market downside follow through has been lacking. However individual stock shorts in some sectors that have seen rotation out of them have formed good bearish setups. Any weakness in overall market would have those stocks leading the downside.

On individual stocks on long side in last 2-3 days you would see many gaps and large range move. Typically when you see such gaps in extended market it tends to lead to 2 to 5 days of correction in short time frame. There are many stocks breaking out from extended setups, they go up 2 to 3 days and then dive back in to range. Often they start fading on second day by 11AM or mid day. So for short term swing trades unless you quickly sell in to the strength the gains vanish.

There are some stealth rallies happening on large cap stocks where they are breaking out on less than 4% moves and then going up. In the short run modification of the 4% b/o to 2% for Stockbee Power Breakout is better for catching such low impulse breakouts. Same thing applies on bearish side.

Most important things to watch currently are the Emerging markets and the BRIC markets. They are being taken to the wood shade. The same markets were the leading market after the bottom in 2009. They are the first to top out. Brazil, India, China are already in bearish territory. Watch Russia (RSX) for possible breakdown.

Those markets might be pilot fish.... As always I have one and half foot at exit door currently. Any hint of weakness and I will be out without waiting for confirmation... And I have minimal exposure to market currently...