Interpreting a market trend change is a difficult thing to do, so we’d like to share with you how we are reacting to the recent market action. First off, we agree with IBD’s analysis on the trend change, signaled by strong action on the indices and breakouts of numerous leading stocks from sound bases. It’s unusual to have so many stocks breaking out of consolidation areas without a strong market follow-through on convincing volume. However, you can’t ignore the price action of leading stocks. They are advancing again (although some are not completely textbook).

 

Without convincing volume on the indices it is questionable how long the uptrend will last. But as we say in our shop, “It is what it is. We let the price and volume action guide our decision making.” The risk level is still higher than we would like to see, but we will still participate by being very careful and precise with our entry points. We still feel like now is the time to be cautious, but there does appear to be select opportunities. Our participation will be done with strict adherence to buy and sell rules. We will try and wade into this uptrend incrementally, staying light and nimble, just in case the uptrend doesn’t hold.

 

Best Returns,

 

Scott O’Neil

President, MarketSmith