Stocks staged another impressive rally on Friday with major market averages rallying across the board led by the Russell 2000 and the DJ Transportation Average. Volume was significantly higher thanks to options expiration but no matter what the reason for the higher volume it was definitely nice to finally see. This market has come a long way in a very short time and one would logically conclude that the market is in need of a consolidation here.
While a consolidation would be nice, it is possible we will just continue to see a rotation from new leading sector into a new leading sector without the market pulling back here. If that is the case new leading stocks in new leading sectors will continue to produce actionable signals as this rotation goes along market pullback or not. However, a market pullback would do a lot to clean up these extended short-term moves and get some of these stock prices back to their longer term moving averages allowing for better entry points.
The past three sessions have been very promising as my long scans have greatly increased in the amount of stocks that are returned on an evening basis. Not only are the numbers increasing but the patterns are looking better and better each session. To see this many cup patterns right now is very pleasing to the eyes and a good hint that we could have a nice market rally into the summer. Remember it is March. This is a historically bullish period for stocks. A market pullback would separate the wheat from the chaff here and allow some beautiful handles to form to these already solid cup patterns. We’ll see if I get what I want.
For now, while I do not like the overall volume in the market on this uptrend compared to the volume on the sell off from December to February, its hard to complain about this rally with ever broadening leadership. Low volume rallies have been the norm and not the outlier since 2008 I see no reason why this time will be any different. It will probably lead to another round of distribution at some point but for now the trend is our friend. I don’t recommend fighting it.
This is why, despite volume figures being skewed by options expiration, I am going to take the best long signals that were triggered this Friday–and my goodness there was a lot. Unfortunately due to another V-shaped low volume ramp there continues to be a lack of extremely high quality setups with extremely low risk and amazingly high potential rewards. The green filled charts are starting to show up but their moves have not been consolidated properly to place 10% to 20% of my account capital in any one long signal yet. What we have continues to be a lot of solid signals with some problems here and there with either chart construction issues or proper risk/reward ratios. This is why, once again, I will continue to trade accordingly here. Remember, this uptrend isn’t on huge accumulation. We are still at risk of a quick sharp pullback.
We have three high quality long signals this evening and one high quality add signal. I also have one new long position and one new add signal in speculative names listed on the Video Lesson section. I continue to believe that a pullback would be an excellent buying opportunity here, unless volume is huge on the sell off and the current nice technical formations that are forming reverse. Even if I do not get my pullback, and we instead just keep trending higher, there are sure to be more and more long candidates that setup and produce actionable signals. If they don’t, well then they do not. I do not cry over spilled milk. Every great trader knows there will be a tomorrow. If there is not a tomorrow then you are dead and it doesn’t matter anyways.
To sum it up: we are under an operational BUY signal across the board with leading stocks finally–as of Wednesday–starting to show some Relative Strength compared to the overall market. This rally did not start well with improper volume characteristics but has cleaned itself up nicely. A lower volume pullback here would do wonders at setting up extremely high quality actionable long patterns. A further rally on below average volume sets us up for a great hedging/shorting opportunity if we fail to make new highs or clear short term resistance levels here. The bottom line is that you should have a plan and then a contingency plan for any and all outcomes.
I look forward to seeing what this market can deliver next week. I wish you all the best of luck. I’ll see you in the chat room. Aloha.
TOP CURRENT HOLDINGS – PERCENT GAIN SINCE SIGNAL DATE – SIGNAL DATE
CLR long – +65% – 2/11/16
SWHC long – +54% – 12/4/15
ANFI long – +35% – 11/19/15
AGRO long – +34% – 10/23/15
