The major indexes rebounded powerfully last Friday on the heels of one of the sharpest, fastest, most painful selloffs I have seen since I first read O’Neil’s HTMMIS and started watching the market closely in 1995.
At this juncture, most of the market’s prior leaders have dropped sharply with the general market over the last few weeks, many of which are badly damaged and will never return to their old highs. This is to be expected however, as new leadership should emerge to lead the next major uptrend in the general market.
Hence, corrections in the general market are the breeding ground for the next round of opportunities. So, continue to pay close attention to how rotation takes shape and focus on the strongest names in the strongest groups, with the best fundamentals. The first of these stocks to break out as the market follows through are often the best performers and hence, the stocks want to be concentrated in.
Until the general market signals that a new uptrend has begun, cash is king. Avoid the temptation to trade out of FOMO or boredom. Put on a couple very small “feeler positions” if you must. Otherwise, sit on your hands until the probabilities are heavily back on your side.
Once again, there were very few other names worth mentioning in terms of being “actionable” in the current environment. Don’t forget to join us in the chat room and monitor the market with us in real-time during the trading day.
The NASDAQ held last Thursday’s low and rallied 9.35% on above average, but declining volume, which counts as day-1 of a new rally attempt.
The small-cap Russell 2000 is still the weakest major index of the bunch. It was the only index to undercut last Thursday’s low and then it only rallied 7.77%, compared to the other indexes which all rallied over 9% last Friday.
The S&P 500 held last Thursday’s low and rallied 9.29% on above average, but declining volume, which counts as day-1 of a new rally attempt.
The DOW held last Thursday’s low and rallied 9.36% on above average, but declining volume, although it has a lot of work to do just to get back to its 200-DMA, no less its most recent prior highs.