Thursday, May 27, 2010

Bullish Conviction Grows Stronger

We're only 3 days off the bottom, but my bullish conviction is getting stronger. Yesterday served as another good shakeout. On the surface it seemed extremely bearish as the market reversed big early gains into losses on heavy volume. But there was one important detail that most missed. Even though the market had reversed, many of the leaders held strongly and closed positive. They did close well off their highs, but as the market started to sell off, the leaders refused to budge lower for quite sometime. In the past few weeks, my entire leadership list would have turned entirely red in that type of action.  Which made me believe that the sell off was more headline driven then real selling which I warned about in my last market update.

Obviously today confirmed my thought process. Between today and yesterday we have seen a number of fundamentally strong stocks breakout to news highs and bounce off their 50/200 day moving average on strong above average volume (APKT, VMW, SNDK, IPXL, SXCI, etc...). Pullback bases are plentiful and most are in a position for early entries and breakouts(AAPL, CREE, LULU, CRM, etc...).


There is no need to rush and get overleveraged (determine your own risk appetite). If this market continues its current action, you will have plenty of time to take advantage. What's most important is that you DO NOT CHASE or you'll risk getting shaken out by a normal pullback. Shakeouts in stocks and markets have become more common place then in the past.

As I stated in my last market update, Market Action Very Similar To 8-16-2007 - Bullish - Updated - NFLX, APKT, SNDK , I believe that this will be the most profitable part of this rally.  It is important to keep in mind that you DO NOT want to get into a buy and hold mentality when things get real good.  Buy only stocks with the strongest fundamentals that have already proven they can move and held up strongly in the face of the NASDAQ's 15% swoon.  This is what I call the "DUH" part of a rally.

Once we get a follow through day, my market tops analysis will be back in play.  Its had an almost perfect record of getting us out on the way up before any real damage could be done to our capital.  Sure it misses some of the final gains, but how would we know to sell at the peak anyway?

Stay patient and get your research done so you are prepared.

SIDE NOTE:
It is amazing how everyone views the market differently.  This afternoon, a CNBC guest stated that if we were to top now, this entire rally from March 2009 would have been one of the weakest in history.  How a 100% move by the NASDAQ and multi 100% moves by leading stocks is the weakest in history is beyond me.


FD:  I own APKT, NFLX, CREE, AAPL, CSTR
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