Wednesday, March 19, 2014

Market Distributed Leading Growth Stock Lag But Not All Is Bad

After rallying for two days on anemic volume, the market opened around unchanged and shuffled sideways into the 2 pm Fed announcement. On the announcement, the market sold off and accelerated to the downside in heavier volume (distribution day) as Janet Yellen's first press conference progressed, closing significantly lower. A late bout of buying kept the market from closing at the the lows of the day.

Leading growth stocks resumed their lagging ways right from the open and sold off further after the Fed announcement. Short term setups continue to be bull traps leading to losses. The good news, leading growth stocks continue to consolidate in an orderly fashion despite recent intra-day wildness. Traders should stay alert for potential entries developing over the next few days.

Short ideas also lagged the market and failed to follow through to the downside despite the heavier volume selling in the indices. Traders should tighten stops to protect profits and prevent major losses on new short positions.

In general, the market and leading growth stocks are acting the way they have for the past year, short rallies followed by short shallow pullbacks with leading growth stocks consolidating and not breaking down. So what appeared to be a major correction in the making last week, may now turn out to be nothing more then a shallow pullback followed by another multi-week rally. Stay alert. Traders who do not identify the turns quickly, have been left behind to try and catch up when the market begins to stall and distribute.


New Oriental Education (EDU) has doubled over the past year. The stock is currently forming a second stage double bottom base, with volume accelerating as the stock climbs the right side. A breakout, in above average volume, through the mid point around $34, could set the stock up for another run higher.

Air Lease Corporation (AL) has moved up over 50% since its first stage cup and handle breakout at the beginning of 2013. In February, the stock broke out of a third stage flat base in heavy volume, and has now formed a three week tight pullback into the twenty day moving average in low volume despite some ugly trading action in the market. A breakout above $38, should set the stock up to move higher.

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