If you took our advice to 'take a vacation' in August and just got back, like we did, you missed nothing!
While the market gave us a very nice timely Summer-break the last month+ and while the Summer is almost over and we are all falling into the fall, the market is only just done with its FALL. It's yet to recover, pick itself up and start showing some signs of 'climbing up (or down)'. Only the 'charts' will tell!
The last 6+ weeks since our posting to "start gradually pulling out of the market" in early August and since our last posting to fully pull out and 'take a vacation' in mid-August, you missed nothing!
Only one noticeable (good) thing is the heavy selling seem to be over (for now) and the broader market seem to have found a sustainable floor/bottom (for now) and started moving sideways, alternating every 2-4 days of moderately heavy selling/down-days and equally supported buying/up-days. This sideways trend, which may last for weeks/months, is similar to the sideways trend from mid-February 2011 to end-July 2011, only more volatile with very shortlived up/down trends (so far), which is only favorable for day-traders and not for active wealth/fund management like we do.
The below picture clearly demonstrates the big-picture in S&P500 (using the ETF SPY for ease and to show relative volume changes). Clearly, the Feb-July sideways was steady and orderly, which gave about 3 or 4 nice opportunities for trend-based trading that lasted for weeks at a stretch, though nothing like the long bull-market up-trend of March-2009 to March-2010 or the Sept-2010 to Feb-2011.
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| SPY (S&P-500 ETF) 1Yr (click to enlarge) |
Why this is a good thing:
Every down-trend and sideways move (consolidation) lends itself for some great chart formation(!) and from that emerges new sector-leaders, new winners, new opportunities. And when overall broader market reves up for a new up-trend, these new leaders emerge with clear first signals.
In our regular feature post later today you will see some of the stocks/sectors showing clear strengh to lead the next up-trend, if and when Mr.Market decides to rally (up, as opposed to further falling down!).
PS: During this correction, we did experiment with some individual stocks that demonstrated resiliance and held stready and ultimately did breakout. Some of the winners/keepers are:
AVGO
AUTH
LQDT
We also experimented with some early-entry opportunities on stocks with micro-breakouts signaling potential up-trend. We will discuss/analyze a few success and failures in the next week's posting.
Some of the picks include:
BSFT
PAY
REDF
UAN
