[Tryst]

Are we on the cusp of a continuation versus start of a bear? I really am wondering what is going on. I note that a 50/50 world/uk fund that I have part of a pension in has just made a new high.

Stage 4 doesn't necessarily mean that there will be a bear market as during major bull markets the Stage 4 breakdowns tend to be short, sharp, flushes which die out very quickly as bargain hunters come in. But you never know whether a breakdown into Stage 4 is just a correction or the start of a bear market and hence when it does happen Weinstein's method recommends being predominately in cash or short the market.

Great post isatrader, and something that goes through my mind whilst i'm still learning the workings and functioning of Stage Analysis. That stages are not symmetrical. I.e. a stock can rise 100% in a bull market, kissing its 50/150 day MA on the way up, and then retrace 50% as the MAs flat line and then head lower, before flat lining and turning higher to make another 100%. I'm trying to hone my judgement on this aspect to sharpen up on trading in and out of stocks, though some stocks can remain in a bull market for years, whilst some are more volatile (junior oilers) which means you have to be a lot sharper.

Currently, the UK market is in varying phases of Stage 3, as can be seen from the FTSE100, FTSE 250 and AIM All Share Indexes below:

As with the US, the UK market is seeing a rotation to the larger cap value stocks at the moment, with small and micro cap stocks getting hit hard as you'll have seen from the large number of Stage 3 and 4 stocks appearing in the daily watchlists. But the quality of any new breakouts has continued to be quite poor, and so that makes me cautious still on whether the breakouts in the larger caps is to be trusted or whether it's just the last part of this phase of the bull run that began in 2011, as the large cap defensive stocks are always the last to breakdown I believe.

So I'm continuing to sit on sidelines, as I have since late March, as the quality and quantity of Stage 4A breakdowns continues to outnumber the quality and quantity of Stage 2A breakouts by a long way. Although last week was the first week in a while, that the Stage 2 breakouts and continuations where showing better quality imo. So a short term improvement, which can be seen in the bounces in the small and micro cap charts above.

I agree with you on this and here is a quote taken from Mark Minervini book, Trade Like a Stock Market Wizard, which I just read only a few days ago. Its from Chapter 9, Follow The Leaders.

"Market leaders tend to foretell turns to the downside as well. As a bull market enters its later stages (generally after one or two years), many of the leadership stocks that lead market advance will start to buckle while the broad market averages march on towards their tops. Typically, a second wave of postleadership stocks start to perform relatively well as money rotates out of the true leaders and into some of the groups constituents, laggard followup stocks, or defensive groups such as drugs, tobacco, utilities, and food stocks that are thought to be less sensitive to an economic downturn. Follow-on stocks and laggards, however, rarely experience the length or, more important, the magnitude of the price move that true market leaders accomplish. When you see this rotation occurring, its a warning that the market rally may be entering its later stage. The ultimate market top may still be weeks or even months away, but this internal market action is a proverbial shot across the bow that get your attention."

I think that paragraph sums up what isatrader stated and also what the market (FTSE at least) is currently experiencing.

My only doubt is the US markets, and how rigged these are, but also, they are still showing good breadth, and this could pull the FTSE up with it.

[isatrader]

Interesting. Market breadth is my Achillies heel. Despite these forums getting more cautious, myself failing to have any significant sucesses, except French Connection, this year and a lot of thing stopping then it felt like things were changing. My own screener database showed similar. However, I could not see it in the advance-decline lines. So, actually the advance/decline lines are showing some strength, I am reading them correctly. Perhaps the posters here and the indicators you are commenting on are a bit in advance of the advance/decline line?

Incidentally I have some links to A/D lines:
http://www.livecharts.co.uk/breadth_char...ecline.php
http://www.livecharts.co.uk/breadth_char...ecline.php
http://www.masterdata.com/Reports/Combin...36;SPX.htm

Interesting to see how this pans out.

The AD charts you linked to are for the large caps only FTSE 100 and Nasdaq 100, which as I've said continue to see a rotation into them from the mid and small cap stocks which have seen the bulk of the initial sell off. The breadth charts I show on here look at a larger sample size of stocks which is why I give them more weight. For example the Sector breadth charts are made up of over 4500 US stocks. And the Nasdaq Composite AD charts and NYSE AD charts both have all of those stocks from the sectors charts in them. So the difference is the sample size, as those charts you referenced only cover less than 5% of what the Nasdaq Composite and NYSE AD charts AD charts do.

Attached below is the NYSE Advance Decline Chart and the Nasdaq Composite Advance Decline Chart. So combined the bulk of the US market.

The NYSE Advance Decline Chart continues to make new highs, while the Nasdaq Composite Advance Decline Chart has formed a Stage 3 top and is attempting to breakdown into Stage 4. So a clear division between the two main US markets.

       

If you wan to drill down further then you can look at the S&P 1500 (which includes 500 large caps, 400 mid caps and 600 small caps), the S&P 500 large caps, and the Nasdaq 100 large caps.

           

So as you can see the advance decline lines have for the most part continued make new highs in the US as well. The only divergence is in the Nasdaq Composite stocks where we've seen the majority of the selling.

Remember the advance decline charts are only one area of the market breadth. Weinstein recommends a Weight of Evidence approach, which looks across a large range of breadth measures, and so don't focus on advance decline alone, although it is very useful.

The other thing is, if you are only trading UK stocks then you need to look at creating UK breadth charts, as these will be different to the US.

[pcabc]

Currently, the UK market is in varying phases of Stage 3, as can be seen from the FTSE100, FTSE 250 and AIM All Share Indexes below:

As with the US, the UK market is seeing a rotation to the larger cap value stocks at the moment, with small and micro cap stocks getting hit hard as you'll have seen from the large number of Stage 3 and 4 stocks appearing in the daily watchlists. But the quality of any new breakouts has continued to be quite poor, and so that makes me cautious still on whether the breakouts in the larger caps is to be trusted or whether it's just the last part of this phase of the bull run that began in 2011, as the large cap defensive stocks are always the last to breakdown I believe.

So I'm continuing to sit on sidelines, as I have since late March, as the quality and quantity of Stage 4A breakdowns continues to outnumber the quality and quantity of Stage 2A breakouts by a long way. Although last week was the first week in a while, that the Stage 2 breakouts and continuations where showing better quality imo. So a short term improvement, which can be seen in the bounces in the small and micro cap charts above.

I agree with you on this and here is a quote taken from Mark Minervini book, Trade Like a Stock Market Wizard, which I just read only a few days ago. Its from Chapter 9, Follow The Leaders.

"Market leaders tend to foretell turns to the downside as well. As a bull market enters its later stages (generally after one or two years), many of the leadership stocks that lead market advance will start to buckle while the broad market averages march on towards their tops. Typically, a second wave of postleadership stocks start to perform relatively well as money rotates out of the true leaders and into some of the groups constituents, laggard followup stocks, or defensive groups such as drugs, tobacco, utilities, and food stocks that are thought to be less sensitive to an economic downturn. Follow-on stocks and laggards, however, rarely experience the length or, more important, the magnitude of the price move that true market leaders accomplish. When you see this rotation occurring, its a warning that the market rally may be entering its later stage. The ultimate market top may still be weeks or even months away, but this internal market action is a proverbial shot across the bow that get your attention."

I think that paragraph sums up what isatrader stated and also what the market (FTSE at least) is currently experiencing.

My only doubt is the US markets, and how rigged these are, but also, they are still showing good breadth, and this could pull the FTSE up with it.

Interesting. In the time before I learned about stage analysis I was reading up a number of articles. There was much discussion on great shares to have in your portfolio and keep forever, the likes of Diageo, Tesco, GlaxoSmithKlein etc. These then promptly stated misbehaving. I wonder if they were doing as you described above?

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The other thing is, if you are only trading UK stocks then you need to look at creating UK breadth charts, as these will be different to the US.

Yes, that ought to be high up on my todo list. I've probally got enough shares in my database to create my own advance/decline chart etc, but it would be better to find the data to do this with recognised indicies - not adhoc like my list.

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OK, responses are now getting out of sync!

[isatrader]

I agree with you on this and here is a quote taken from Mark Minervini book, Trade Like a Stock Market Wizard, which I just read only a few days ago. Its from Chapter 9, Follow The Leaders.

"Market leaders tend to foretell turns to the downside as well. As a bull market enters its later stages (generally after one or two years), many of the leadership stocks that lead market advance will start to buckle while the broad market averages march on towards their tops. Typically, a second wave of postleadership stocks start to perform relatively well as money rotates out of the true leaders and into some of the groups constituents, laggard followup stocks, or defensive groups such as drugs, tobacco, utilities, and food stocks that are thought to be less sensitive to an economic downturn. Follow-on stocks and laggards, however, rarely experience the length or, more important, the magnitude of the price move that true market leaders accomplish. When you see this rotation occurring, its a warning that the market rally may be entering its later stage. The ultimate market top may still be weeks or even months away, but this internal market action is a proverbial shot across the bow that get your attention."

Interestingly, Mark Minervini's risk model has been on a sell since late March I believe and he today posted the following on his stocktwits and twitter feed:

"@markminervini: Our risk model triggered a buy signal today; I will step up my exposure if my initial commitments start working... if not, then back to cash"

I like to keep an eye on his posts which can be found here: http://stocktwits.com/markminervini

[pcabc]

Have not had any luck yet getting a UK advance decline line chart except for FTSE100. Therefore I thought the next best thing would be to plot the relative strength for the FTSE250 and FTSE All share versus the FTSE100. The two indicies (actually ETFs) are plotted on the top graph and the relative strength on the bottom ones. I've not submitted any long term averages as per the Mansfield relative strength.

       

Bear in mind that the FTSE All Share will include the FTSE100. Interesting point, 250 and All Share were climbing against the FTSE100 until about late March/April when there was a rapid drop. However, of late, the last few weeks, the relative strength has been turning up. Not sure what that is indicative of, short term blip of something longer?

Given that I cannot download the FTSE data I've picked a couple of ETFs. I hope they are good representations.

I'm wondering whether this is useful or just another spurious chart.

[isatrader]

For the UK watchlist from Wednesdays scans - RPC.L, BPM.L, BRAM.L

           


And for the short watchlist - DNLM.L, MSLH.L, NVA.L

           

[pcabc]

For the UK watchlist from Wednesdays scans - RPC.L, BPM.L, BRAM.L

I note BPM has broken out above a falling MA30. So that is not a buy then?

[isatrader]

I note BPM has broken out above a falling MA30. So that is not a buy then?

No, it's not falling according to the prorealtime charts. The 30 week MA turned up this week on their data. Last week it was 139.11 and currently it's very slightly higher 139.36 (see attached) and so a valid for a continuation breakout.