Since early November, stocks have basically marched higher with one “pause” in early December which in hindsight was a fantastic buying opportunity.
Currently, stocks have also “paused” after reaching new, all-time highs just under the Dow 20K level. I believe that this is setting up to be another buying opportunity as bullish conditions in the market persist. Stocks have simply worked off overbought conditions on a short-term timeframe, creating conditions supportive of a further advance.
There has not been any meaningful distribution in the major averages although there has been distribution in certain areas of the market such as rate sensitive and dollar sensitive issues. As this advance matures, there will be more opportunities on the short side and longs need to exercise more care in selection of stocks and managing risk.
However, the balance of evidence in terms of market breadth, liquidity and price action supports that this period has been a market rotation. Traders should focus on bullish setups in stocks showing signs of accumulation with low-risk entries. If the market advance does continue, these stocks will have a greater chance of outperforming the market. If the market rolls over, these stocks will probably decline but have a better chance of holding up or defying the market trend depending on the nature of the selling.
Below are some bullish ideas:
I hope to highlight some stocks and sectors that are under distribution later this week!
