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.
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