A reflex bounce a possibility

Market has hit a purple patch in last 5 to 6 days. Before the rally could establish itself many leaders have run in to trouble.

One of the problems with the bounce attempt was that it started with below average breadth breakouts. As we have seen historically sustainable moves start on a 300 plus bullish day on Market Monitor. Most of the time bullish move in fact start with even bigger breadth day of 500 plus or even 1000 plus.

A big 4% plus breakouts day on Market Monitor shows buying interest. In most bull moves that start after a 7 % plus kind of correction you will see series of 300 plus day in first 5 to 7 days of the move. In this bounce we have seen that the rally has started on very low breadth and then continued for 16 days before hitting a wall.

At the beginning of the rally many leading stocks showed constructive patterns. In recent days some of those stocks have given up part of their gains after breakout and in many cases the breakouts have outright failed.

We are now in earnings season and new leaders always come to market during such period. So we will get some new earnings breakouts during this period. Earnings breakout on stocks that have been neglected for long time is what to look for during earnings period. Those are genuine surprises. Stocks that are already in their uptrend can also have earnings breakouts. Earnings breakouts work best if there is 2 month plus neglect or sideways move/ or base prior to the breakout.

After a 3 days of down move we might get a reflex bounce , but the key on reflex bounce is breadth. If breadth is present then it will show buying interest.

As of now I would prefer to wait for good setups to show up before committing. Absent that you might get another whipsaw.

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