Number of stocks forming constructive bases

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Market had a vertical drop from last week of July to around first week of August. In 11 days market lost between 12  to 20% on key Indices. This was the sharpest drop in 11 days in 40 year history.

Since then the market has stabilized and form a range for last 5 to 6 week. The range has been very volatile with 2% plus moves on daily basis.

The low established during the correction has held and as of now we are witnessing breadth divergences. Fresh selling has been on lower breadth. Fresh selling has not had major follow through.

During the first phase of selling most stocks followed the market and had vertical drops. But now in last 4 to 6 weeks some are resisting fresh selling and forming constructive bases. Number of stocks have started to show signs of building compact bases. These stocks are likely to be leaders of next move.

If you run momentum scans currently and look at top 300 stocks by momentum you would see many signs of stocks settling in sideways bases and resisting further selling.  These are the stock to focus on for any up move. Some stocks have had recent breakout and follow through which is also a good sign. Time to start building a buy list and be ready.

Any breadth thrust here will see many of these stocks breaking out to the upside. If the range breaks to the downside then all bets are off.

But as of now a short term bullish patterns are in play.