This is what could ignite a rally for stocks
With October now upon us, below
is my complete monthly overview…
Positives
Foreign Markets — Foreign
markets were the lone positive last month and they have continued to
significantly outperform the U.S. There have been strong moves made in many
areas of the world, including Latin America, Canada, Russia, Japan and Korea.
This type of action around the globe could help to pull up the U.S. market as
well.
UUWNHI (Unofficial,
Unscientific, Working/Not working Hanna Indicator) — The amazing thing about
this range bound market is that I have seen some nice follow-through on both the
long and short side in recent weeks. Opportunities have been available to play
both sides of the market, and in an undecided market, that is a wonderful
thing. If you can be profitably allocated in both directions then it is just a
matter of holding on to the strong side when the market eventually does pick a
direction and things start moving in unison again.
Neutral
New Highs vs. New Lows — Both
new highs and new lows have put up some notable numbers recently. This is
indicative of a split market as some areas are moving higher while others
lower. Breadth measures are more useful in predicting the markets direction
when there is a clear bias to one side or the other. As long as the split tape
lasts, trading opportunities in both directions should be available.
Sentiment — Sentiment remains
somewhat of a non-factor at this point since most readings are not at an
extreme.
Accumulation/Distribution — The
last couple of weeks have seen both accumulation and distribution days, without
any steady pattern emerging. It appears institutions, like the market itself,
don’t quite know what they want to do right now.
Negative
My stagnant watch list —
Because upside breadth has begun to narrow a bit, the number of quality stocks
I’ve found that have completed basing formations and posses the potential to
break out is not increasing. While it hasn’t fallen off dramatically, a strong
watch list is typically a growing watch list. That’s just not happening at the
moment. As less and less opportunities become available it makes it harder and
harder to make money.
Other thoughts
Key areas like banking and
retail have underperformed lately. This is no great surprise with rising
interest rates and falling consumer confidence levels. A strong move below 128
in
(
RKH |
Quote |
Chart |
News |
PowerRating) and 86 in
(
RTH |
Quote |
Chart |
News |
PowerRating) would be a bad omen for the market and could lead to a
pullback in global markets. Should key U.S. sectors avoid a meltdown, then
there’s a decent chance that foreign market activity could help to ignite a
rally in the U.S. For now it appears playing both sides of the market while
waiting for it to choose a direction is the wisest approach.
Best of luck with your trading,
Rob
Rob Hanna is the principal of a money
management firm located in Massachusetts. He has spent the last several years
developing and refining methods for trading in stocks across multiple time
frames. He selects stocks using both fundamental and technical criteria, and
then trades them using technical analysis techniques.