Are We On The Verge?

Could we be
in a choppy bull market?
The market can turn on a dime but a person
can’t because of the emotions involved. Sound rules and strict discipline are
every investor’s weapon against this problem. Money is made when the market is
ready to give it to us, even if we are not ready to take it.

After posting a number of distribution
days in the major indices, we appear to be on the verge of a follow-through day
of the rally that began in the Nasdaq on June 20. We are also pushing through
the Naz’s 50-day moving average on volume, another bullish sign.

The next thing to do is look at the
ultimate confirmation of the market: stocks breaking out of sound bases. Our
newfound leaders, the Internet E-commerce group, has produced several stocks
which have broken out successfully. Ebay
(
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, University of Phoenix
online
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and Hotel Reservation
(
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have all moved through
pivot points and held above them. Apollo Group
(
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has also managed to
trade above its breakout price. Quest Diagnostics
(
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is making the same
attempt today, but may lack the volume to support the move.

Elan PLC
(
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  has managed
to successfully test its pivot point of 59.25, and is now moving
higher…another bullish sign. Beazer Homes
(
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  is back! The stock
moved through a pivot point on above-average volume and the entire group is
making a comeback after a brief correction. Meritage Corp.
(
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is setting
up in a seven-week base on top of its previous 13-week base.

For now, things seem to have gotten
much better, but that is the nature of the market. It is very important to
continue to stick with well-defined rules and stay out of trouble. If that means
passing on trades in the choppy environment, then do just that until things
appear better.

In response to a couple of questions I
have received, I have the following thoughts. If you’re entering positions and
losing, then stop buying or tighten stops. If you are still holding a stock that
acts well throughout this market, keep an eye on it for possible pyramid points.
Every stock we consider buying should fit technical and fundamental
criteria, i.e., sound base of at least seven weeks, breakout on good volume, strong
earnings growth, cash flow to back up the earnings, strong relative strength to
other stocks in the market, etc. Use your mistakes to create or enhance the rules you
trade by — so they will not happen again and hurt you.

Good trading!

Tim

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