This Is What Happens To All Healthy Bull Markets…
The
market looks like it may be heading for a correction. The S&P
500 suffered solid distribution yesterday as it closed substantially lower on
heavier volume, amounting to a distribution day. Technically, the leading Nasdaq
waited until today to close lower on heavier volume.
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Occasional instances of
institutional selling are not much cause for concern. At this point, it is best
to keep close tabs on leading stocks. Look for names like Sandisk
(
SNDK |
Quote |
Chart |
News |
PowerRating) that have moved sharply higher since last March. These stocks may
very well get hit if the market corrects, but many of them will also build new
base patterns and break out again.
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Yahoo!
(
YHOO |
Quote |
Chart |
News |
PowerRating) has been s strong leader for most of the rally and comes from the
leading Internet group. The stock filled a gap left after its earnings release
and came under strong selling pressure. This is another name to focus on.
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The homebuilders and related
groups remain strong and continue to advance. Most of these names, such as Ryland
(
RYL |
Quote |
Chart |
News |
PowerRating), have been advancing but are too extended to go after
right here. New Century
(
NCEN |
Quote |
Chart |
News |
PowerRating)
broke out of a solid base on heavy volume following a strong earnings report
today.
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Watch for the Nasdaq’s
price-and-volume action day to day. This will be the first indication of whether
or not a correction is occurring or even if it is going to turn into something
worse. Next, follow the action of leading stocks. Various names from leading
groups have run into trouble since late September. Some have bounced back and
hit new highs while others, such as Genprobe
(
GPRO |
Quote |
Chart |
News |
PowerRating) have been unable to recover yet.
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Most healthy Bull Markets,
such as the one I believe we are in, should correct 5%-10% from time to time.
This is healthy action and allows stocks to set up again.
timt@tradingmarkets.com