So far selling is muted

Market  is in correction/consolidation mode.

What we are looking at is growing breadth divergence. As markets continued to go up, fewer stocks are leading the advance. That in itself is never a rally killer.

If you see the T2108 you will see this divergence clearly. The T2108 made a high in January and since then it has been in downtrend. For a broad based rally the T2108 needs to start going up. The Nasdaq stocks continue to act well.


Divergences in themselves do not indicate end of rally , but they indicate pause in rally and momentum in some sectors.

So far selling is muted. So breadth on MM is holding up , but if we see series of 300 plus days to downside, it would indicate more deeper correction.

As of now the longer term trend is intact but shorter term trend is pullback/consolidation. Stocks continue to hold up well.

So let us see how the move progresses.

Short term picture is murky

Short term picture is murky with no follow through on breakout in index. As I said earlier the key will be follow through. Instead we saw participants using the strength to lighten up. Breakouts on individual stocks are also having tough time following through.

There is quarter end in next few days so one more rally attempt might be on card.

The longer term picture still looks good with many stocks forming orderly bases after first up leg. A correction of few weeks would be an ideal scenario.

Unless there is sustained selling the primary trend might reassert itself again.

Follow through will be the key

Finally after 33 days the range on Russell was surpassed. Now follow through action is the key.

Number of stocks were mirroring the index in terms of establishing a sideways range. Some of them had high volume breakout yesterday. 

Stuck in a RUT

For last 6 to 8 weeks the small cap index is range bound. Need to see breakout on it with breadth support. Absent that it is a sideways consolidation in to coming earnings season.

There is a rolling correction happening in many sectors. Sectors like Energy and Commodities are reversing and giving up part of the gains during the move so far.

In a long running bull market there are many tops

In a long running bull market there are many tops and then ultimately "the top". Every dip in a market is a top till the market does not take out the high. As of now market is extended and so a dip will not be out of character. But it may not be the signal of "the top". For that we need to see lot of distribution and failed breakouts.

The underlying moves and accumulation patterns look extremely good and similar to patterns I have seen on long running bull moves. Unless that changes I will continue to believe in buying dips. A correction will setup stocks for next up leg as long as it is mild correction. 

Low volume dip

At some stage overheated market was due for pullback. The news from China might be just the catalyst market was looking for. The selling was muted and selective. Energy sector was one of the sector taking hit. The gold sector had lot of reversals. That might put NUGT in to play for possible bounce from this level.

Overall the market continues to hold on to its gains and many stocks continue to setup for possible next up leg. 

When a market breaks out of multi year range

Market continues to be in bullish mode. Buyers are active on any dip. Breakouts on upside continue to dominate the action.

There is no sign of top or distribution as of now. There are not many break downs and most bearish moves are resulting in sideways moves.

Any pullbacks at this stage will likely be shallow. The market is extended so profit taking will probably lead to dips.

The most important thing as of now is the quality of moves in this bull market. Underlying setups continue to look attractive. Stocks after making first up leg are consolidating or having orderly pullback. Any correction will create more pullback candidates.

The other thing to note is Index after Index is breaking out of multiyear range. As Livermore said when a market breaks out of multi year range it is telling you something.

Mixed action

Market dip was quickly bought. But breakout follow through is not as aggressive as we saw from mid December to January.

Many stocks after making first up leg are going sideways. So a more aggressive breadth thrust will likely results in next legs higher. But at this stage the breadth indicators are again in extended territory so a consolidation/pullback  will be better.

Goldman Sachs on Top of the World

Goldman Sachs made it to the cover of Economist in 2006 April. After that it kept going up for a year and then has been in down trend.

Now it has become a pinata for everyone to beat up on. Short term bearish but the letter might be the bull signal on Goldman Sachs. The worst is priced in.

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.

If your 401K is under performing the market

Markets tend to move in the direction of breadth thrusts. This you can see for yourself on both longer term and shorter term. 

In the last 5 days there were 4.44 breakouts to the upside compared to 1 to downside. That indicates a build up of  buying pressure.  Breadth thrusts happening after a negative breadth thrust in last few weeks are good sign. 

For over 100 years market participants have studied market breadth. Hundreds of breadth tools have been developed over the years. Market breadth remains one of the best tool for market timing. They offer you objective data on underlying buy and sell pressure in the market.

Breadth based timing models are especially useful for longer term trading decisions. If you have a 401K and interested in making good returns in it then you should study market breadth based models for timing your purchases. Breadth based models can help you avoid the bear markets and get you in to market right at the beginning of bull moves. 

At the beginning of a bull market there is a breadth flip. Breadth flips from extremely negative readings to extremely positive readings . The market had such breadth flip on 3rd October and that is when the Stockbee Lemonade Strategy for 401k went bullish and got invested and has remained invested since then. 

If your 401K is under performing the market , you might benefit by studying and developing breadth based timing tools. The results might surprise you......

A breadth thrust of 2 plus will indicate start of new up leg

I see no evidence to change the hypothesis that this is a bull move with probability of more upside. I expect higher prices in the months to come if the  market continues to hold well.

The stocks that had first leg of up move are likely to setup and make second and third leg of up move. The Stocks showing up in Darvas scan are the stocks to focus on for growth investors. See my recent post on Darvas method. You can setup Darvas scan in Telechart or any other scanning software very easily. The market correction or individual stock correction gives you enough time to research these stocks.

While many growth stocks broke out in January, more new growth stocks will break out and join the party. New IPO's and new sectors will breakout in next couple of months.

Short-term picture is however not so rosy. Lack of follow through on breakouts near high or 52 week high indicates that the next few weeks will be more challenging than the past few. Expect market to go sideways or pullback for some weeks. A breadth thrust of 2 plus will indicate start of new up leg.

Breadth has been slowly deteriorating

Markets have been correcting near the range high. Breadth has been slowly deteriorating in last one month.

After a big move in January a period of sideways move and consolidation is not a bad thing. If market spends few weeks/months in consolidation then probability of up move increases. Below the radar lot of stocks are still setting up well.

Newark Bootcamp

There will be no posts for next 3 days.

 I am conducting a 2 days intensive Swing Trading Bootcamp for Stockbee members in Newark.

Nicolas Darvas and the stocks that double

The market is having a pullback after a up leg that started in December. During the move around 100 stocks have doubled from their 52 week low. Some of these stocks will setup for further up move during the correction phase.

Nicolas Darvas popularized a very simple trading method in his book " How I made $200000 in stock market" to trade such stocks. Darvas was interested only in stocks that doubled from 52 week low. His logic was they are proven horses. The logic also makes sense based on empirical research . Empirical research shows that stocks with momentum (3 to 1 year out performers) tend to go up in next 3 to 1 year.

Nicolas Darvas would further reduce the universe of stocks that doubled by looking at stocks that have made all time high. That reduces the universe of around 100 stocks that doubled from 52 week low by half to around 30 to 40 stocks.

The next criteria Darvas used to reduce the universe was sector. He was interested in what he called "infant industry". His logic was a stock making all time high in a static or dying industry was not worth his time and effort as it is unlikely to make a big subsequent move. He was interested in a young sector with potential for substantial growth. If you use that criteria on the 30 to 40 stocks you would be left with 10 or so candidates to focus on.

On those 10 stocks Darvas used further criteria to narrow the list. He was interested in only stocks with best earnings growth or stocks with great earnings expectation in future. That would further reduce the universe of stocks that he was interested in to 4 to 6 stocks. On those stocks he would look for capitalization and float and prefer smaller stocks. He would also look for volume during the doubling of price and was interested in stocks that had substantial volume surge during their up move.

Nicolas Darvas was basically playing a probability stacking game. Each of his criteria increased the probability of finding a big mover. Combined all those probabilities and you have a very high probability stock with potential to make big move.

Once he identified a stock like that he would wait for it to form what he called a "Darvas box". Darvas Box was nothing but a sideways consolidation of few days to weeks or months on such stocks. He would buy the stock when it broke out of that consolidation on high volume. He would use a limit buy order to enter above the consolidation. Once in the stocks he put his stops near the box high. His logic was that if the high volume breakout out of the box indicates start of new up leg then the stock should not go back in to box.. If that happened it was a mistake to buy the stock. He was willing to get stopped out several times with small loss.

Once the stock started going up he would put his stop near the new box low and keep raising it as the stock moved from one consolidation area to another. He would also keep pyramiding in to stock along its up move. He aggressively used margin. At some stage the stock would reverse and take out the box low and he would be stopped out of his open position.

Dravas called his method "Darvas Method in Rising Market". He traded it only in bull market. He sat out bear markets. Darvas method is a momentum+fundamental based stock selection method. It is a good method for working people or people who can not watch market in real time.

Darvas method can easily be setup in trading software like Telechart. All that you need to do is setup a scan that looks for stocks that have doubled from 52 week low and that are within 15% of 52 week high. Once you get the list, you can manually eliminate stocks that are not near all time high. After you have the list you can use free sites like MSN money, or Yahoo Finance, or Finviz to research the stock further and create 4 to 5 stocks prospect list.

Nicolas Darvas Criteria List:

1. Double from 52 week low
2. All time high
3. Infant sector
4. Current earnings growth or expected growth
5. Low capitalization
6. High volume surge
7. Box or range near recent high

Nicolas Darvas summarized his  momentum based approach very nicely :

My only reason for buying a stock is that it is rising in price. If that is happening, no other reason is required. If that is not happening, no other reason is worth. 

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.

Keep an eye on earnings winner

Corrections are part of the bull market game. Some corrections are brief and shallow. Some are deep and shake you out of long term position and some can turn in to full blown bear markets.

At this stage the market is down 2% or less from the high. But if you see and read what people are saying, it is as if it is the end of the world and time to stock up on emergency supplies and hit the bomb shelter.

A correction was due for sometime as we had a big move without any meaningful pullback. Now we will see how it progresses from here onward.

It is time to look at stocks that hold up well during the correction. There are many stocks that had big earnings surprise in last earnings season and had Episodic Pivots. Most of them are now pulling back. Keep an eye on them. They will likely rally in to next earnings season.

In earnings there is a cockroach effect. If you find one roach, you are sure to find more roaches. Same way one earning surprise tends to lead to more earnings surprises and same way one earnings miss tends to lead to more misses.

The Bluefin tool developed by http://patientfisherman.blogspot.com/ is a very good tool to find stocks with big earnings surprise. He maintains a database of stocks that reacted positively to earnings surprise:

Many of these stocks go up immediately after earnings and then pullback or go sideways. Few weeks before next earnings season they rally again. In many of the cases the earnings is a major game changer and in those stocks the rally can last for couple of quarters. 

Another way to play the earnings pop is by using the Zacks ranking. The Zacks rank factors in rising earnings estimates by analyst. If analyst earnings estimates are rising then the stocks get ranked no 1. Such stocks tend to have earnings surprises. Many rally in to earnings based on analyst trends.

Ideal scenario in an earnings play is earnings acceleration, earnings surprise, sales acceleration and higher earnings and sales guidance. Stocks meeting all the above conditions can have explosive moves in bull markets.  

Drip drip selling

Stockbee Market Monitor

Market is experiencing drip drip selling for last 2 weeks. The selling was preceded by extremely positive breadth. Breadth extremes like that tend to be unsustainable and often result in a phase where the breadth comes down to more sustainable level.

In the last 6 month TYH was best performing ETF and yesterday it was down 3.4%. The inverse of TYH is TYP. The tech sector is now likely to pullback. 

Market in low intensity correction

Market in low intensity correction.

The primary move is still bullish and underlying setups indicate likelihood of further upside once this correction ends. The correction is so far is concentrated in small cap.

The leaders of the rally will  hold up well during correction and will breakout ahead of the market.

The breadth has been holding up well. So far there has been no 300 plus day kind of selling. 

Underlying setups look good. 

Sector Rotation

Breakouts near 52 week high and on extended stock are failing rapidly.

Look for sector rotation themes and new (not extended) breakout.

What we are witnessing is slow correction in to extended stocks and sector rotation in to new set of stocks. 

Money was flowing in to financials, retail. Earnings lead breakouts were another hot trend. 

There are still buy opportunities in the market:

GS: Goldman Sachs

ZNGA: Zynga Inc.

Small cap market in correction.

Small cap market in correction.

We want to see small cap leading the action.

Short term action is cause for caution, but most leading stocks are holding up well.

Many stocks which had Earnings Episodic Pivot in recent months are having orderly pullbacks.

That indicates possibility of another leg higher after a correction.

On Market Monitor I would like to see the primary indicators drop down to around 500. Similarly on stocks up 25% in a month would like to see numbers below 25. That kind of pullback with breadth still positive might be very good setup for another leg higher.

There is strong reason to believe we have not yet reached the top for this year. 

Stocks after stocks are breaking 3 , 5, 7, 10 year high, that kind of action points to a long term range breakout scenario for the market. Heavy selling can change that possibility.