Patience and Discipline with The Bull

Can't argue with the stock market lately.  Up it wants, up it goes. By most measurements the stock market is overextended and overbought. The things is, at the beginning of every leg of the bull market, the stock market tends to get overbought and overextended quickly and stays overbought and overextended. Every sell program is matched by a bigger buy program.

We cannot completely ignore the overbought and overextended conditions. We must keep a close eye for stalling and low volume moves by the stock market and leading stocks. We just haven't had enough to worry about.


NYSE A/D line and IBD Mutual Index have made new highs already.  All, but the NYSE, major US Equity

So Far So Good for the Third Leg of The Bull Market

We couldn't have asked for better trading action in the stock market since the beginning of the year.  Leading stocks are breaking out daily, new leaders are working on their consolidations and preparing to breakout, bad news is shaken off within hours and bought on heavy volume, and economic numbers point to a growing economy.

Pullbacks in the stock market should be bought.  Based on the positive action, the burden of proof is on the stock market to prove it does not want to rally.  Otherwise if a stock is acting right, then sit tight.  If my analysis is correct about this being the third leg of the Bull Market that started back in March 2009, then we are still in the early innings of this uptrend.

Many continue to disbelief pointing to problems in Europe, the continued devaluation of the US$ by the FED, accelerating inflation, China slowing down, etc.  All this could be around the corner, but right now the stock market and its underlying stocks are acting like stocks and markets do in a bull market not a bear market.  They breakout on heavy volume, pullback on light volume, find support at moving averages, and continue higher on heavier volume.  That's what we got.  If the bad news is going to get worse, we will see distribution, stocks breaking down, breakouts failing, etc...  Then we will take action to move to cash and/or get short.

Many leading stocks have not yet broken out.  So there is still time to get on the train.  At some point the train will speed out of the station and you will then have to be patient to wait until the next stop (pullback) to get back on.  But you will once again face the negative winds of a falling stock market(pullback), bad news, but stocks acting right.  It is never easy to interpret fully in the beginning, only in hindsight.  Clues should always be taken seriously even when everything feels so bad.  That's exactly when things turn for the better.

Use the leading stock analysis section to start your research (explained).  Comments always welcome.  Good Luck.

Leading Stock Analysis Section Explained

Many have asked what all those annotations are in the Leading Stock Analysis Section (Updated 01-15-2012).  I'm going to try and explain it as best as I can w/o going overboard.  The list is narrowed down by me from multiple screens based on Historical Studies of Big Winners and tries to only exhibit the best of the best.  In a Strong Bull Market or UpTrend, the list will provide more then enough Big Winners.  Use the list as a starting point for your own Research.

The Ratings and Ranks Columns have to be used together.  The Reasons Column abbreviates various Pullback and Base Formations.

Ratings Column

G = The Stock has already broken out and is acting fine.
Y = The stock has exhibited a potential sell signal (generally minor), but, these type of signals occur throughout a stocks move and need to be monitored not necessarily acted upon.  If too many stocks are exhibiting similar sell signals then you may need to act upon it.
R = The Stock has exhibited a major sell signal and should be acted upon or watched very closely especially if you don't have a cushion on it.

Ranks Column

Top Reasons This Rally is For Real

I've been Cautiously Bullish for the better part of the last quarter.  I remain Bullish and even More so.  The Reasons for being Bullish continue to Grow while the Reasons to be Bearish Diminish by the day.  So what better way to start the New Year but to have Many Reasons to be Bullish.

Before I start, the Leading Stock Analysis Section has been Updated.  It contains what I believe are the Best Stocks to Watch.  I can't guarantee but I'm sure from past experiences, that if the Rally holds and continues, the List contains Many Stocks that should have Big Moves.  Read the Reasons, Study the Stocks, and hopefully it'll be a Happy New Year.  So what are my Bullish Reasons?

Stock Market View...Leading Stock Analysis Updated

Stock Market continues its indecisive non-committal action.  Considering all the bad news that keeps circulating around, the market & many strong fundamental leaders have held up quite well.

At this point of the year we don't really want to see much of a rally.  It will most likely be accompanied by low volume and setup a bull trap into the new year.  More constructive action would be continued sideways or downward movement with one last shakeout.  Of course leading stocks would have to continue holding their setups.  What's been interesting, for every leader that breaks apart, a new one takes its place.

The short side is too extended, wild, and more susceptible to headline risk.  While there are many old leaders setting up classic short patterns, they need more time to shake out the shorts and tighten up.

Outside of a major surprise, we continue to look for the third leg of the bull market led eventually by the large caps.  Mid caps have held up better then most and should lead early before passing on the baton.

Stay patient and dip your toes but don't let any stock move too much against you.  Cash is not a bad place to be through the new year.  As I always say, it is rare that a Bull Market just takes off and doesn't offer a second opportunity.

Review the updated Leading Stock Analysis section updated this weekend.