2/04/2011

Persistent bid in the market but the leadership is narrowing

There is persistent bid in the market but the leadership is narrowing. The rotation theme continues with new sectors breaking out and many sectors that were doing well topping or correcting.

So laggards are now breaking out. Low priced stocks are working. Speculative stocks are working. Earnings breakouts are working.

Gold stocks after a correction seems to have found a bid.

Unless the market quickly has a breadth thrust we will continue to be in range. A 2 to 4 weeks churn at this level would be constructive scenario. That kind of scenario will mean whipsaw territory.

The other possible scenario is narrowing leadership and over extended setup will result in a 5 to 10% correction at some stage here.

The third scenario is complete melt up with stocks going up like there is no worry.

All three are possible. At this stage evidence suggests the first and second scenario more likely.

Like in a stock one needs to look for a setup same way you need to look for a setup in overall market. Unless you are a day trader, you will find there are setups in market where it is extremely conducive to build concentrated positions and just sit in them. Then there are setups in market where you need to minimize your risk.

Whenever a market has 10% correction and then breaks out on breadth thrust is the time to build concentrated positions and sit tight.

Whenever market goes up 20% plus in few months is not a setup where you build concentrated positions and sit tight on them. Sometime it might work but most often it has a probability of your trading career being terminated.

When a market has 10% plus kind of correction the funds and large speculators are in cash or short. Most stocks at that level are down 25% plus in a quarter. Few stocks during that phase make 25% moves. Those that make those moves can often be counter cyclicals and not necessarily leaders.

Even the best of growth stock at that stage will be down 25% or more or would be going sideways. At some stage some of the growth stocks attract buyers and instead of going down they go in wide range or sideways pattern. When the market has positive breadth thrust at that level those stocks start breaking out. If you can at that stage identify the right stock and get in to it and sit tight then you are rewarded. That is what CKbergin is talking about when he says buy 4 positions of 25% each.

When the market keeps going up for some months and when breadth reaches extreme positive territory you have almost every stock up 25% plus in a quarter. Now not many stocks are left to make big move. At that stage whatever is still lagging the market has some reason why it is not being bought during the market advance. At this stage while individual stocks might make big moves overall the big speculators and funds who were buyers at the extreme negative breadth level start distributing stock to willing buyers at those levels. Needless to say there is never a shortage of fools on the street plus low skilled investors always keep entering the market.

While buying at extreme level of breadth negativeness is sudden and there is a stampede to get in to stocks by funds and professionals like CKbergin and his friends , the situation at extremely positive breadth level is very different. Stocks are very silently distributed to bag holders. At some stage once the large funds have done their distribution then the market breaks down.

Practical example of this you will see everyday. Couple of weeks ago I was talking to a member who wanted to build a big position in F , he asked for my advice and I said I would not do it. That time F was forming good sideways pattern and there was lot of coverage of F in media as successful turnaround. I think the CNBC jester was also pumping F. On blogs and Stocktwits many were bullish on the story. And this member bought the position now rest is history.

When was F a buy . When it was at 4 or when it had correction around 10. The story was now so apparent and the people who believed that F is going to further double from here and putting the stock in their IRA as permanent hold are the kind of people Wall Street loves at extreme positive breadth level.

Same story happened on Tata Motors. In 2008 and 2009 I was recommending Tata Motors to all my Indian friends and my relatives and I made my mother in law buy it at distressed level in her portfolio at that level. It was her biggest position at that time.Very few people bought it at that level. Last month I went for a birthday party at a Indian friends place where I had recommended TM two years ago and also last year and then one person after watching it go up so much and reading about it as successful turnaround bought it just before the drop.

Same way I was watching utter bullishness on FFIV few weeks ago as if FFIV is next CSCO and some were putting it as their single best idea for next year. What happened.

This story and cycle has been repeating for more than 100 years on the street. Stocks are accumulated at 10% plus bearish correction level when the retail traders and mom and pop investors are to scared to buy and then they are systematically distributed as market reaches extreme breadth level. The game never changes only the bag holders change.

Breadth based models like Market Monitor, Or CKbergin's timing model based on $BPNYA or Hectors Market Timing models try and identify such extreme levels and get out of market when risk of being bag holder increases. The tactics used in those models might be different but the underlying concept ins same.

At this stage after the August 2010 bottom from which market has rallied 25% plus , all such market breadth based models are showing the same thing. That we peaked at extreme breadth level . Most of these kind of market timing models have good historical track record of getting it right. But there can be exception periods where market does not confirm to the model or market confirms to the model after a lag period.

Life is wonderful when you have not spent time studying these things.Because then your decision making is not influenced by such historical precedent. If you know these things and if you experienced some nasty corrections in your trading life you become cautious and think and act differently. That is why as you age on Wall Street you become more and more risk averse and try and stay ahead of big funds and speculator as far as possible.

This is the kind of background which drives SA on day to day basis.

The objective is always to make lot of money but at the same time avoid drawdown to the minimum. Does the overall market presents compelling setup is always the fundamental question at back of the mind when looking at any profit opportunity.

At this stage my answer is it is not a compelling setup. So I am adjusting tactics and playing small.

Everyone has different risk tolerance and life situation. After having successfully survived this game for last decade today I am extremely risk averse. At slightest hint of risk I take my marbles away and get out of the game. That thinking applies to market as well as individual position. In my experience if a stock does not act right immediately after entry it is unlikely to work. Same way market should confirm a bullish thrust in few days otherwise alarm bells should ring.




Are you serious about your trading?

If you are serious about your trading and want to build an enduring edge the Stockbee Member site might help you. Members tell me they have tried lot of things before coming to my site and it has offered them the most extensive and detailed methods to swing and position trade.

It is only for those who want to develop their own self sufficient trading method. It is not a stock picking service. It is service for you to build your own scans and trading method to have your own daily pick based on your method.

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.

You will see that many trading bloggers have been using my market timing methods, scans , stock ranking lists and chart templates. They have developed their own methods based on my methods. Many paid newsletter site recommend my site to their subscriber for learning about trading and market.

Over the years thousands of traders have been members and those who benefited from the learning talk about the site to others or talk about the methods used and that is how new members learn about the site.





What will I learn in the members site?

The members site will give you in depth understanding to develop your own trading method. The emphasis is on making you self sufficient and confident of your own trading method and style.

As a member you will learn the basics of swing trading, momentum investing, growth investing and risk management.

You will learn about Stockbee Trend Intensity Breakouts method that uses momentum based swing trading to find 3 to 5 day swing trades for 8 to 40% profit.

You will learn about Stockbee Episodic Pivots Breakout method which uses Post Earnings Announcement Drift (PEAD) to find stocks that had a game changing earnings and that are likely to rally for 3 months to 12 months.

You will learn about  Stockbee Dollar Breakout method that uses momentum, range expansion and swing trading approach to find 5 to 40 dollar moves in high priced stocks.

You will learn about  Stockbee Lemonade Strategy for 401k which uses market timing and momentum to invest in 401k. You will get weekly update on how I am using the strategy on our 401k to do allocation decision.

You will learn about Stockbee Market Monitor method for market timing using breadth. It allows you to avoid risky periods in market and allows you to identify market turns. It is used for 401k allocation decisions.

You will learn about Stockbee Double Trouble method to find stock with confirmed upside momentum using anchored momentum and that are likely to continue their up move.

You will learn about Stockbee Night Time is Right Time method to find news catalyst based trade ideas for short term day trade and swing trade.

You will learn about Investor's Business Daily’s IBD 200 list and how it can be used to find swing trading candidates for explosive moves.

You will learn about Telechart 2000 and how to use it effectively to scan for swing and position trade ideas and to set up your 401k strategy.

You will learn about Jesse Livermore Range Breakout, Darvas Box setup, and many other member shared methods.

You will learn how to set up your own scans, select right kind of stocks, how to set up stops, when to enter , when to exit, how much to risk, how to track your trades and all other details about trading. You will learn about developing your own methods and not relying on others for trade ideas.

The site has hundreds of videos and trading methods and variation of methods. Members help each other in developing the methods and share actively their research and finding. A collaborative spirit allows you to get input from others on your trading ideas or problems.

The site gives you opportunity to interact with some of the most successful traders and learn from them about their trading methods. It is a vibrant community with members from different background and experience willing to help each other. The emphasis is on continuous learning and up gradation of market knowledge and setup knowledge. The members range from hedge fund employees, financial advisers, active swing traders, investors and new traders.

If you are looking to develop your own trading strategy the membership site might be for you. You have to be willing to put in the effort to build your own method. There are no silver bullets offered on members site. Every method, every scan, every nuance is detailed and all possible help is offered to design your own method.

Do you have a trial?

If you are just looking for trial you are better off trying thousands of other trading sites that offer free trial or one month trial and offer you promise of riches.

It is for those who are ready beyond the trial phase and ready to put serious months or years  of efforts to learn to trade on their own. It is for those who want to learn to find their own fish.

The free blog has all the details about the methods I trade and if you go through the posts highlighted in the sidebar you will learn about them.



How can I become a member?

To sign up go to www.stockbee.biz and follow the sign up process. The site uses Paypal for payment processing.

2 comments:

ataraxia101 said...

Fair enough. So, what stocks are you recommending now?

Pradeep Bonde said...

I already have 15 positions open currently. I buy whatever comes in my method. So if you setup the method you can generate your own recommendations.