Sunday, January 29, 2012

More Upside for the Stock Market

The stock market and leading stocks have worked off their over extended condition from last week.  With 3 major Jobs reports this week starting Wednesday with the ADP report, followed by the weekly unemployment report Thursday, and the monthly jobs report Friday, it would not be unusual to see the market pause early in the week ahead of these reports.

Investors participating in this rally since the beginning of the year should now have seen at least some out performance in their equity curves.  The extra cushion should give confidence in holding and adding to out performers while pruning out the laggards to prepare for the eventual pullback or correction.

If an investor is still on the sidelines, there are plenty of stocks that are ready to breakout and working on their consolidations.  Be very selective between the stocks you decide to buy as an investor and stocks that should only be swing traded.  If the stock being considering has multiple bounces off moving averages or breaking out of late stage bases, you should consider vigilantly protecting your profits or at least not watching them turn into losses after a few days.  Stocks breaking out or pulling back to their 10 or 20 day moving averages for the first time out of first and second stage bases are excellent candidates for new positions and add on buys.  In either case trail your position with an appropriate stop (preferably based on historical studies of proper action).  Otherwise take your profit or loss and move on.

It is going to get a lot more difficult from here even though the action in the stock market and leading stocks point to more upside.  All my indicators point to the stock market making 52 week highs before we see a significant correction.  If we make 52 week highs we can put behind us the idea that the top in May was the beginning of a major bear market.  With this technical hurdle out of the way, it will allow major money still sitting on the sidelines to buy into the stock market.  This new buying will most likely coincide closely with a near term top.

The EURUSD has reached its 50 day moving average and could pose a short term problem for the stock market.  Any hint that the currency pair cannot hold the 50 day moving average will most likely be met with selling in the US stock markets.  This reaction should not be feared.  It should be used as another opportunity to initiate new or add on positions.

The Leading Stock Analysis section has been updated.  The list has been reduced further.  The idea is not to try and find every needle in a haystack.  Searching for the needle in a haystack is exhausting and time consuming process that I've rarely seen pay off.  The idea is to have a broad enough list that can be thoroughly reviewed nightly for new ideas without the distraction of too many secondary lagging stocks.  The list contains more then enough strong ideas that will go on to be big winners.

No matter what the current interpretation of the stock market and leading stock action is, stops are the final authority.  If too many start getting triggered and distribution and/or churning/stalling begin to appear in the stock market use caution and be prepared to tighten stops further.  Before the volatility increases prepare to act on which stocks will be held through the next pullback or correction and which should be sold.

Questions and comments are always welcome.

Sunday, January 22, 2012

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

Indexes have both confirmed their rallies and made higher highs and higher lows.  All major foreign stock markets have now confirmed their rallies and are working on making higher highs.  Bad news is almost completely ignored.  Leading stocks keep breaking out and any breakdown are replaced with two new leading stocks working through their consolidations and closing in on their pivot points.  All strong signs of a bull market.  All point to the stock market making new 52 week highs in the next few weeks before a severe correction.

The EURUSD is finally feeling for a bottom.  It will most likely spend the next week or two rallying to the 50DMA and then roll over for one more test of the recent lows.  That will coincide with a major pullback or correction in the US stock Market.  The pullback will be a buying opportunity and setup the so called fat pitch market, where stocks breakout and just keeps running.  It will also signal that we are at or have crossed the midway point of the final leg of the bull market.  We will need the EURUSD anchor lifted to make significant progress.  Too many trading programs continue to correlate to its movement.

Review, review, and review your positions and leading stocks. You want to be ready to decide which positions to prune, hold, and which stocks you want to buy or add to when the pullback or correction is over as the market runs into its next speed bump. Any stock that can't hold gains or make progress should be on a sell watch list.  Even new buys over the next few days and weeks will be more susceptible to failure having broken out in an overbought and overextended stock market.

If you still haven't participated in this market, focus your buys on the most flawless leading stocks.  Otherwise you may want to wait until the next pullback and look to enter there.  We still haven't seen the best part of this leg of the bull market.  It generally takes up to 5 - 6 months to get everyone rushing on board.  We are approximately 4 months into the the third leg of the bull market that started in March 2009.  Stay patient, along the way there will be several stops to allow new passengers on.

The evidence in front of me favors holding and trading positions, the overbought and overextend market makes me nervous, but until we get stalling or distribution I will stay on board the current uptrend.  I have pruned many positions already and replaced them with new leaders breaking out.  My p&l has finally made progress after a frustrating first three months.  I continue to examine my positions for new stop levels and years of research has me looking for certain action to continue holding the remainder of the positions.

The Leading Stock Analysis Section is updated.  Focus on the 1's and 2's.  Those are the best stocks fundamentally and technically on the list.  They are the one's that have the highest probability of moving higher in this bull market.  The list is updated weekly and new strong stocks come on and weak one's fall off.  The history of previous weeks can be seen by clicking the tabs on the bottom of the list.

As always, comments, questions?  Good Luck.

Monday, January 16, 2012

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 01-12-2014).  I'm going to try and explain it as best as I can w/o going overboard.  The list is narrowed down by 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 and not a recommendation to buy or sell the securities.

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.
W = The Stock should be watched for potential short term trading opportunities.

Ranks Column

Sunday, January 08, 2012

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?

Most Importantly is Current Leading Stocks are no slouches.  They have Strong Fundamentals, Rising Estimates, Strong Fund Ownership, Rising Margins, and Strengthening Technicals.  Can't ask for anything more.  Sure, some of the old guard like BIDU and PCLN appear to be topping, but their consolidation are not long enough yet to be proper.  There is also not enough of them broken yet.  Before Bear Markets the Stock Market is Littered with Dead Former Leaders and the only Reasonable Setup is in Secondary Stocks with Inconsistent Fundamentals.  That's not Currently the Case.

Large Cap Stocks have not Led the Stock Market yet.  Small Caps Led in 2009 and handed off the Baton to Mid Cap Stocks toward the end of 2010.  The Mid Cap Stocks should hand off the Baton to the Large Cap Stocks sometime in 2012.  Makes sense too.  Those Small and Mid Capitalization stocks that have led the Rally from the beginning have now grown up into Large Capitalization Stocks.  Once the Large Capitalization Funds have to own them, their sheer Buying Power puts many of these Stock on Auto-Pilot Buy Programs until the Money runs out.  That could take sometime.  The only thing that changes this is if they change their policies on being 100% invested NO MATTER WHAT.  Silly.

Short Setups at the end of September fell Apart faster then an Raw Egg hitting the floor.  The Bear Market Rally before a Severe Leg Down sees Short Setups Tightening, not Breaking Out on High Volume to the Upside.  That's usually an indication of Bullish Demand by Institutions.  We saw this in March 2009 and August 2010.  Each occurrence marked the Beginning of the First and Second Legs of the Current Bull Market, respectively.  I believe we have just marked the Beginning of the Third Leg of the Bull Market.

The Big Move Up off the Bottom and the subsequent Correction we just had is consistent with Historical Precedent for Beginnings of Bull Markets.

The NYSE A/D line kept making 52 Week Highs while the Stock Market had marked its 52 Week Highs weeks earlier.  The A/D line typically tops well before the Stock Market does not the other way around.  The Third Leg of a Bull Market typically sees the A/D Line Fail to make New Highs.  In many cases it continues to Trend Down (1999 - 2000).

The VIX failed to make New Highs as the Stock Market made New Lows in September and then preceded to move sideways to down as the market corrected into the end of the year.  Historically when the VIX trends lower while the market is correcting, it Leads to a Bull Market NOT a Bear Market.  It indicates subsiding Fear in the Markets, but not Complete Trust.  The Proverbial Wall of Worry.

Bad news out of Europe or Asia is Brushed off within a few hours.  In a Bear Market the Stock Market would have been Knocked into another Down Leg.

The Stock Market has diverged with the falling EURUSD.  The market has followed this Currency almost Tick for Tick for quite sometime.  The continued selling in the Currency Pair is the main reason the Stock Market still feels anchored.  Any relief in the selling will lead to a strong reaction by the Equity Markets.  No one really wants to see Europe fall apart AGAINNN...Yet.

The Europeans have or are pretty close to Punting this Crisis down the Road.  It will be back to bite us again later, but for now everyone just needs a break from it.  Get the Equity Markets and Economy moving, even if temporary, and everyone's focus will be off them.

Finally, because I or my Research said so is NOT a Good Reason.  Your Research has to prove to you that your decisions are correct.  The nice thing about the market is one of us is usually right or wrong. :o) That's not the nice thing, that's what makes it work.  The nice thing is if you are wrong, the market gives you plenty of clues, Losing Trades, Diminishing or Loosening Setups, before you lose your shirt with time to jump on.  Always heed the Warning Signs.  The Old Man in Scooby Doo is Always Right, not Crazy.

I do agree that the stock market needs to prove itself further, unfortunately waiting until the time it starts to become obvious, it's time to stop being a long term investor and become a swing trader.  My point is, if you ever wanted a moment to potentially jump on and ride a Big Winner, the time is now.

If you haven't committed yet, no worries.  I've stated many times in my Tweets that Bull Markets do not just runaway.  They offer many points along the way to get in.  Just don't hesitate because the Train does eventually Leave the Station.  Use Tight Initial Stops andTrade the Right Stocks and the Stock Market will keep you in or out.  Just Prepare for Shakeouts along the way.  I know, a bit confusing, but we have to stay Flexible.  Bottom line, better to be in now then out.  Follow your Roadmap and don't be afraid of Detours.

Hopefully you have found the Blog and the Leading Stock Analysis Section helpful.  As always, I'm open to Question.  Follow me on Twitter for more Regular Thoughts.