And now a gap up....

At one point yesterday the market looked very vulnerable to more downside. The breadth was decisively negative and many stocks were having big down days. But then the picture changed in last hour with a big buy program.

The ability of the market to repeatedly bounce back from selling and to hold up well in light of constant negative news is a bullish sign.


Another gap down

The market is stuck in a narrow range and a powerful buy or sell thrust is needed for it to get out of it. As of now the probability still favors upside breakout.

Breadth has been steadily improving and bad news tends to not leads to much selling or follow through selling. Considering the extent of negative headlines from Europe the market has held up very well.

More churning at this level would lead to better move down the road. 


Gap down Monday

The market gapped down on Monday and then recovered part of the down move later in the day. The selling was focused on some of the sectors like energy. The drop in oil price  has resulted in most of the stocks in the sector going down 20 top 25%.

As of now around 350 stocks have Trend Intensity above 105. These stocks have held up well during this correction or some of them have rallied from bottom in last couple of weeks. Many stocks have settled in range and setting up for breakout whenever  the market breaks out to the upside. The underlying setups are not exceedingly bearish as of now. More and broad based selling can change that picture. 


Renewed sell pressure

The small bounce in last couple of weeks looks like is now under renewed sell pressure.

A follow through day with breadth of 300 plus to downside would put severe pressure on the uptrend.

The move so far looks like the last year July to October period.


All breadth based indicators showing a turn

The market had a big up move from September 2011 to around April2012. After that it corrected around 10%. In the face of persistent bad news from Europe and Asia the markets have held up extremely well. In last 2 weeks markets have started bouncing back from the correction.

The surge in buying in last 2 weeks has resulted in all breadth based indicators showing a turn.

The $BPNYA has climbed back convincingly over its 5 day MA.

The Stockbee Market Monitor is showing burst of buying pressure in last 2 weeks. The buying pressure has resulted in the secondary indicators going positive. The Primary indicator is on the verge of going positive if buying continues for few more days.

The Worden T2108 indicator (% Stocks Above 40 Day Moving Average) has climbed to 51% after reaching zones below 20.

As a result of breadth improvement, individual stocks have started breaking out. The last 2 months of correction has resulted in many stocks forming bases. From these bases slowly they have started breaking out. This is favorable phase for momentum based swing trading styles.

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Large stocks are outperforming small stocks

Gradual improvement in breadth continues.

After a 10% correction the market is attempting to start fresh rally. The retail stocks are the leaders as of now.

Large stocks are outperforming small stocks. The small caps have been struggling for last six months.


Steady improvement in breadth

There has been steady improvement in breadth in last 10 days. Few more days of buying might lead to breadth thrust. The buying has been steady but there has been no big 500 plus kind of day.

The beaten down stocks have found bid and and some heavily shorted stocks have reversed quickly from bottom. 

This action is similar to action we saw last year. The momentum stocks started going up only after few weeks of such action.

As of now as long as we do not get big down day, this is constructive action.


Holding Pattern

News is bad but the market continues to churn at this level. There has not been a undercut of the June 4th low as of now.

Some stocks have dropped to levels from where there is no more selling. B ut at the same time the rank of stocks that are holding up well keeps on declining as more stocks continue to breakdown.

There has not been a panic during entire duration of this move. Sentiments have bounced back quickly from bearish side. The AAII Investor Sentiment Survey is not at extreme level. There has been 6% jump in positive sentiment in last one week. Investor intelligence survey is also not in extremely bearish territory. In fact it is in bullish territory with 37% of manager bullish to 27% bearish.

At this stage one of the positive for the market is it has held up well considering the backdrop of the constant bad news.


Range bound action

A range is forming here. This action is very similar to last year where market spent couple of months in volatile range before a catalyst precipitated a rally.

Range bound action like that can lead to death by thousand cuts. Breakouts and breakdowns fail and shakes you out of position frequently. For swing traders it can be account killer. 

Eventually the range will resolve in a big move in either direction.  


Unless we follow through to downside

Not a really big selling day. It barely managed to reach 300 plus day in breadth term

During this correction we have see lack of aggressive selling. That indicates possible bullish bias.

So unless we follow through to downside with breadth and undercut the low, this might end up in range.

Considering the negativity this has so far been just 10% correction.


Breadth improves

Markets has undergone a brief correction in last few months. At one stage few weeks ago the selling accelerated.

However buyers have stepped in and in last few days the breadth has improved. A follow through buying in next week will confirm the trend reversal.

$BPNYA is showing possible turn on 5 MA. Rising $BPNYA reading would be good for rally.

On the Stockbee Market Monitor the 5 day breadth ratio has gone above 2 indicating a breadth thrust in last 5 days. But our primary indicator is still bearish and the Stockbee 401K Lemonade Strategy is still in cash.

Momentum stocks are not yet showing constructive buy patterns. The only momentum stocks that has had a b/o and followed through with gusto is PCYC.

Some of the momentum stocks setting up for possible upside are AOL, VRTX, and HTH. 

Overall the breadth picture is improving but market needs more buying for confirmation. 


Stocks to watch

A small number of stocks are showing good relative strength in this correction. These are stocks that have at least doubled from their low in last one year, are priced higher than 5, have 100000 plus shares traded daily , and are near all time high and within 15% of their recent 52 week high.

  1. mdvn
  2. regn
  3. mnst
  4. gnc
  5. sxci
  6. swi
  7. hain
  8. aol
  9. lqdt
  10. ll
  11. allt
  12. mlnx
  13. ddd
  14. wwww
  15. akrx
  16. optr
  17. ra
  18. avd
  19. geoi
  20. xpi
  21. elli
If these stocks continue to hold their gains, then they will be some of the first batch of stocks to breakout when weight of the market is lifted. 


T2108 at 18.64

One day of panic and selling does not make a bottom. We need to see more selling and extreme readings on T2108. Readings around 10 would be good. Toi get to that we will need more selling.

Absent fresh selling a volatile range may form.


Panics are always good...

We are getting a slight hint of panicky open today. I would like to see more panic. The kind of panic which leads to participants screaming get me out at any cost and that leads to margin calls.

We are not at those levels. But if the selling accelerates we might get in to that zone.

If that happens we will get good enduring tradable bottom..