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Breadth bounces back a bit

Posted on 4/30/2012
The market continues to be in a range bound correction phase. The Worden T2108 indicator dropped to 20 from a high readings of 88. In last few weeks it has climbed back to 60% level. So as of now 60% of the stock in Worden universe are above their 40 day moving average.

On our breadth model the breadth has been below average for a sustained rally. As of now we do not have a breadth thrust. Most rallies start with a big breadth thrust of 2 plus in their first few beginning days. A series of big breadth days can change that.

On individual stocks some setups look attractive on selective basis. Some of the stocks likely to breakout in next few days are:

  1. RDEN
  2. AAPL
  3. VAC
  4. TWER
  5. CKEC
  6. PHH
  7. ACTV
  8. XPO
  9. RUTH
  10. AMCX

Under the hood lot more selling

Posted on 4/25/2012

Under the hood lot more selling and breakdown on leading stocks.

Stocks holding up well are now crumbling.

There seems to be absence of buyers.

Not much aggressive selling, but the dwindling number of stocks holding up well does not look good.

This will likely be deeper and extended correction.

The AAPL induced bounce will likely fail.

Some of the stocks holding up well are:


A sideways correction

Posted on 4/23/2012
Markets made a big move from December 2011 to around first week of February 2012. Since then they have settled down in to sideways range. The correction so far has been less than 5%.

The underlying action on many stock continues to be sideways, they continue to hold on to bulk of their gains. Some have reversed , but that is to be expected.

For intermediate term swing trading it is not a good market on long side. Breakouts are having selective follow through. 

So far indexes have corrected around 3%

Posted on 4/16/2012

So far indexes have corrected around 5%. The Russell is the only one to correct 5% plus. Others are in 3% range.

Selling has not been heavy. We have had only one 400 plus breadth day to downside  so far.

So is this a correction in primary uptrend or start of big down move?

Underlying stock setups continue to show sideways move on lot of stock.

Unless heavy selling changes that this might prove to be a 7 to 10% correction.

The European trouble is wild card and can lead to panics like we saw last year.

PEAD: post earnings announcement drift

Posted on 4/11/2012

Currently we are in a earnings season. Alcoa kicked off the earnings season and lot more stocks will be announcing earnings in next couple of weeks. The bigger and more established stocks tend to be first to announce earnings. The smaller stocks announce earnings later in the season. So for next 4 to 6 weeks you will get everyday some companies announcing their earnings.  

Earnings offer  lot of opportunities for profitable trading.Most big stock moves start with an earnings surprise. Behind every major mutli month or multi month  move  there is a earnings story. PCLN, AAPL, LULU, SCSS, ULTA and many other long term movers have been primarily driven by their earnings trend. The earning season provides you with the ability to identify such stocks right at the start of their possible multi month move.
When earnings is announced if the earnings is a major surprise to the market then the stocks reacts immediately to that news. Most of the time the stock will make 8 to 40% move on earnings day itself. First or second earnings surprises and significant earnings surprises lead to big moves. After a few quarters of earnings acceleration, everyone notices it and the reaction is more muted as the earnings get discounted.

While there is a vast effort by many institutional speculators to anticipate such earnings acceleration and take positions in anticipation, for small speculator the edge is in small , unknown stocks that no one is following. In these stocks the earnings effect is more pronounced. In these stocks even if you react to earnings and enter after the earnings announcement, you still can catch bulk of the move.

There is a cockroach effect in earnings trends. One earnings surprise is typically  followed by many more earnings surprises. When you focus on first earnings acceleration there is good chance your stock will have more such earnings. So effort spent in researching stocks during earnings season can pay you off for many quarters. The structural factors which contribute to earnings
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Today marks the beginning of next earnings season

Posted on 4/10/2012

As expected the market did not follow through on downside after overnight gap. That indicates likelihood of sideways market.

Today also marks the beginning of next earnings season. During the earnings season fate of many stocks might be decided. Lot of stocks that gapped up last earnings season have not had follow through post the earnings day. Many in fact had breakdown after brief rally.

The correction has narrowed the leadership considerably and we are back to handful of stocks setting up for possible upside.

Any breadth thrust here will be buy opportunity.

Task cut out for pullback buyers

Posted on 4/09/2012

Market is in correction mode.

So far we have had only breadth divergence , we have not seen big day of selling. No big 300 plus day to downside yet.

Today might change that as the market is gapping down. But I would not hang my hat on that. Would not be surprised if the dip buyers step in aggressively. So far that has been the pattern.

We will know by end of the day. I woulds be surprised if pullback  buyers do not step in to stabilize the market here.

On individual stock level, as of now the setups still look bullish with most stocks going sideways after first up leg. 

Correction mode

Posted on 4/05/2012
Market has entered a correction mode for some weeks. As of now breadth is still holding up well and there has been no major breadth thrust to downside. The next earnings season is upon us so we will likely go sideways in to it. The individual stocks earnings will determine their fate.

This correction is good as it will result in the overbought condition getting corrected. A series of 300 plus breadth day to downside will put rally under pressure. Underlying setups still look attractive.

The Fed giveth and the Fed taketh away.

Posted on 4/04/2012

This rally started in December with Fed decision to pump in liquidity during the European crisis. A multi country easing operation was co-ordinated by the Fed. That started yet another liquidity induced rally in the market. We have seen this script before in last 3 years.

Now Fed has indicated as of now it is not keen on QE3 and so market is reacting negatively. But anyway market was doe for correction and was showing momentum divergence for sometime. This might act as a possible catalyst for a much needed pullback.

But the underlying setups and action still look god on number of stocks, so as of now this still look more like pullback/shakeout and it will likely be followed by another leg up.