We had a follow through day yesterday. We had a lot of negativity at recent market lows. And we were at key levels for the indices. We now have a leader or 2 that has broken out. From that perspective, this is follow through that could stick. If one is a long term allocator to the market, I think it is an easy decision to allocate to the market here. Either cheating ahead of the follow through day (marked with an F below), or allocating yesterday. I'm not sure I'd have all of my chips in there, but I think one should have put a chunk of long term assets back in the market late this week.
Short term traders also had the basis for a market trade too and now have a stop. If you are a short term trader, you should be using the low of yesterday in the market as your stop especially if we get meaningful distribution quickly. If you like to ride a trend and a winner, you should see if this follow through day sticks. Make it stop you out. For all we know, the market could be starting a 30-50% run. Risk 2% to make that is not bad.
Not all follow through days stick. If this one doesn't, it will be because the market needs to carve out one more low. On the weekly chart, The Russell could be in a zig zag. 5 waves down, 3 waves up, 5 waves down where we still need the final 5th wave. If this follow through day doesn't stick, it's also because we have a leader or 2 not 50.
Longer term, I do love that the Russell outperformed the S&P off this low!
I think through the market for long term allocation decisions. And to get a general feeling if I have the wind at my back on individual stocks. That's it. I always put individual stock action first when looking at a specific stock.
Leaders Update
As always, I let individual stock action guide me above all else. Going into this week, LITE was my only watch list name that had held an earlier pocket pivot and has constructive action.
LITE
Put in a 4th tight Week! Despite all of the above, I suspect LITE might need to carve out a lower low in this base with in a base. I would not be surpised by 6-7 week cup or double bottom within the larger cup.
FB
Broke out this week on earnings. FB has been a choppy trader for the last 2 years, stopping O'Neil rule followers out of many entries. It happens. It's possible this one can stick and start to trend.
Watch list Update
VIAV - I had this on a watch list due to EPS acceleration and a new product cycle. It also had the classic big stock initial entry setup of cheap valuation, poor sentiment and potential powerful catalysts coming, But there has been no ONeil or pocket pivot set up yet. But I have drawn the Elliott Wave case on how this has been in its final wave down. Since early 2011 (after its incredible 2 year run), this has put in a double 3. A zig zag (5-3-5) and a flat (3-3-5) which made a new low. I have seen many big stocks emerge from this formation. This one will need to put in a pocket pivot first, build some RS, and build a real base down the road.
I do these types of exercise to stalk a long term trade. Pay attention for big product cycles, what could work down the road. It's very hard to buy things down the road if you haven't done the prep ahead of time.
LNKD
This had pocket pivots and breakaway gaps in late 15 that eventually failed. It does have earnings acceleration and fundamental leadership qualities. So it stays on the watch list. Right now this could be a base within a base. Or could be plunging to new lows. We have earnings this week. My nose says it will be base within a base. But that's it. There is no Neil or pocket pivot setup currently.
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