The follow through day from a few weeks ago continues to stick. My working thesis is a new bull market has begun and this is not a bear market rally. One big reason is the sentiment stats (from Ryan Detrick) I retweeted in last 2 weeks. People were as panicked, short, underinvested as they were at 2003 and 2009 lows. That is pretty remarkable.
The bears say we are having a bear market rally. I have circled the major bear market rallies in 2000-2002 and 2007-2008 to show you what they look like. In Elliott wave terms, the big question is will we have a double or triple "3". There is no doubt we completed one major "3" down. See my IWM charts here and in past reports. The question is are we having a corrective rally that will set up our next "3" down. Does this current rally look like the circled areas in the bear market charts?
So far if you look at the chart of the IWM (which led again on Friday), it is too early to tell. So far this looks impulsive, but there is way more "work" to do in this rally to figure out of it is corrective (bear market) or impulsive (bull market). All we had is one very small pullback in this rally. I'd expect one more similar minor pullback and a rally before we have anything more severe bull market or not.
Leader Update
I have kept the list narrow. There have been a lot of damaged charts with stocks climbing up the right side of bases. Candidly, I have been busy with my day job recently and feeling insecure that I don't have enough ideas for my trading and for this blog. Having said that, I've still flipped through a lot of charts for 30 min most days and paying attention. And ideally we should be focusing on our best 3-5 ideas whether you are a day trader or longer term Billy O style swing trader. We do have this tendancy to want to have more ideas. It feels safer. It makes me feel like I am working hard. But Billy O would say those are all excuses. Do your work and believe in the best of your work. Diverisification will lead a trader to mediocrity. For better or worse and for whatever reason, I have been focusing on 3 ideas - IWM, LITE and VIAV. I did add a few below for you to review this week if you haven't seen them already.
Existing Ideas
LITE handled CIEN's miss well. Just because you have one guy in the group struggling, it's not a reason to throw your stock to the side. LITE is 5 weeks post breakout, too early to sell, no sell rules have gone off. Usually when these handles fail, they fail quickly. They breakout, and a few days later they are forming a new base which stops you out. Not so with LITE. LITE is still holding the 10 day too. I'm doing my best not to overthink it. (this can be hard sometimes!)
VIAV continues to hold all pocket pivots and act well. It continues to be around levels where I would anticipate a handle or a base.
New Ideas with Potential
Alarm.com broke out from a decent base. Cloud home security provider with good Billy O earnings and sales stats.
There are a bunch of telecom, cloud component names in the IBD Friday "Weekly Review Section". MXL, MLNX, MTSI. I am going to show MXL chart. I am still focusing on LITE for myself and not adding a second name.
Hope that helps. Have a good weekend everybody.
