Is the Improvement in Breadth Paving the Way for A Strong Year?
Market Stages A Follow Through Day!
Hi all! 👋
In this article I will cover:
General Market Overview
Sector Analysis - Which groups are breaking down vs showing relative strength
The action displayed by leading stocks with TML potential
A Personal Portfolio Update
3 Helpful Scans
Links to TradingView watchlists
Stocks currently on my focus list with actionable trade ideas
General Market Overview
The improvement in breadth over the past week is not something we should simply ignore, in contrast to the action seen in late November 2021, where the indices kept moving on up to new highs with extremely poor breadth metrics hiding the damaging being done under the surface - we now see the indices continue to fall down while breadth is actually improving.
This week, despite the indices starting off weak and showing clear distribution, the action under the surface was quite encouraging in that there were more stocks making new highs versus new lows - one sign of a healthy market environment that could potentially suggest that the tide is turning.
In late 2021, one of the warning signs was the overwhelming amount of new lows versus new highs despite the indices hitting new highs as select megacap stocks such as TSLA 0.00%↑ and NVDA 0.00%↑ were masking the real action in the general market.
What we want in any rally is broad participation - the action of the indices is quite irrelevant to our process when compared to that of individual stocks, and so a healthy environment in my eyes is one where an overwhelming amount of stocks are showing positive action with breakout follow through - not one where we must microscopically scan the market to find a few stocks showing good action:
And so do I think we are there yet?
No - But the action seen this week is quite encouraging in my opinion, we want broad participation and we may be flipping into that scenario as we break away from the trend of negative new high/new lows metrics.
Nasdaq with a follow through day:
It is now on the market to show us that this was not an isolated pocket of strength fuelled by a bounce from oversold conditions but actually a trade-able and sustained healthy rally.
Aside from this, I do also see some other factors that may back up this potentially trade-able rally thesis:
The 10Yr breaking down:
The DXY being rejected by key moving averages:
Notwithstanding this, as I have been saying lately, I continue to stress the importance of a defense-first mindset - you simply cannot fully commit at every potential turning point as you will end up seriously damaging your equity by chopping yourself up:
The plan remains the same for me - small pilot positions until I gain enough positive feedback from the market that it is clear that the risk/reward is favourable enough to increase position sizes and overall exposure in the market, financing risk from one trade to another with profit from other trades.
I will be covering some encouraging action I see in in individual stocks under the section - “Leading Stocks Analysis”
Sector Analysis
Overall further emphasizing the observation that there was broad-based participation across the market last session with only one sector from the below list closing negative:
On average, the above components closed the session +2.26%
I am linking the sectors watchlist in tradingview for your convenience, here
Leading Stocks Analysis
Some really good action on this side of things:
On average the stocks in the list above closed up +3.75% on the session!
I am linking the sectors watchlist in tradingview for your convenience, here
Some charts catching my eye with standout performance last session:
CPRX 0.00%↑ - Took a position here on the break of its downward trend line but closed it before carrying over night due to not having enough of a profit cushion - good to see follow through from that:
Scans
52 Week highs
9 Million breakout
+10% Breakout
Focus List
Reversals
TSLA 0.00%↑ - The extreme pickup in volume here recently along with the upside reversal last session has my focus for a potential reversal trade:
High Volume Close
Downward Trend Line
Watching these 2 for quick pops out of their formations:
Base and Break
Potential Shorts