A Bear Market Rally or Something More?
Hello everyone,
This is week 3 of ∞ that I will be posting a written version of my stock market outlook.
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Last Week’s Action
Last week we saw a strong push off lows on the indexes and select stocks continued to make progress.
In my weekend scans I noticed continued strength and setups in these areas:
Biotech
Solar
Retail Discount
Medical
Defense
China
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Many beaten down names also rallied strongly, however because of their significant prior downtrends, they will likely need extended basing periods and will lag the next uptrend’s leaders.
Focus on the relative strength and stocks in the overall groups that are strong. Keep an eye out for developments and rotation, we are still very early into this uptrend.
Overall, last weeks action was positive with a wedge pop on a daily chart but we remain below a declining 50 and 200 sma. Watch how things play out and be nimble. This could be the bottom or this rally could fail, prepare either way.
Sentiment
We saw a large jump in bullishness this well. Keep in mind sentiment for me is very secondary to the action of the indexes and leaders.
The name exposure index dropped under 20 last Wednesday.
The Put-Call Ratio declined back under 1.15
Overall, normal action after seeing extremes in sentiment last week.
IBD is back to a Confirmed Uptrend. Personally I’d prefer a “tentative” or “beginning” uptrend
Stock Market Outlook Video
Stock Market Outlook
Overall my stock market outlook is now a Beginning Uptrend. I’ll be watching how groups and leadership develops.
Remember that the most important thing at the end of the day is to watch the price and volume action of the stocks themselves as well as the indexes. Be ready for anything and manage risk.
What To Look For (Same Game plan as last week)
When it is time for a new bull market we will see divergences as groups decouple from the indexes and show relative strength. Setups will proliferate your screens.
When the market is ready it will be obvious, and it may happen when the news and sentiment is the absolute worst.
The leaders in the next bull market will once again have the potential to quickly double and triple and they will likely be completely new names that are unfamiliar. Try not to become biased and focused on last cycle’s winners.
Follow the sector, industry group strength, and look for the strongest stocks coming out of these strongest areas. As the market bottoms these future winners will likely be completing bases and may even be making new 52-week or all-time highs.
Keep an eye out for turnaround plays with excellent earnings and sales growth as well as recent IPOs within the past 2 years forming out their first proper bases.
Have patience, preserve your mental and financial capital, and be ready. Stocks can shape up faster than we think.
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Have a great weekend!
Richard
Excellent analysis Richard, easy to digest too. All things you said in this blog post, can you suggest 2 or 3 books that cover these things in-depth? I guess "how to make money in stocks-William O Neil" and Mark minervini's two books, these 3 books good enough?
Thanks so much for doing this and making it available. I love the analysis of the market with charts and graphs as well as a written explanation. Of all the great traders/people I follow, your style and breakdown is the best. Also, your videos and guests are second to none. Thanks again, I really appreciate it!