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.
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