State of Current Market

Current Rally – Problem Ridden• Market Tops Analysis Extremely Negative• Narrow Participation• Where is the volume?• Low Volume and RS Setups• Low Volume Breakouts• Strong Breakouts, Failed to Follow Through, or ran out of gas

(low volume)…Many Late Stage• Breakouts Failed Almost Immediately• Climactic Action (mini-climax, Violations of Upper Trendlines,

etc…)

TRAPTHERE IS NO EXCEPTION FOR

A LOW VOLUME BREAKOUT ON SHORT/HOLIDAY WEEKS!!!!

(9 out of 10 Will Pullback)

Low Volume attempt back above Trendline

Higherst Volume in Entire move with largest point and % Spread in entire move

Violation of Upper Trendline

Multiple Breakouts Already

Largest Point Spread & % Move of entire run

Largest Point Spread & % Move of entire run

Sudden Burst on Volume after low volume = mini climax, generally followed by corrective action

Where’s the volume?

NOTICE HOW STOCKS BEGINS PULLBACKS AFTER BIG GAP UPS

Use Stocks History to determine profit taking…

Short Term Outlook• Expect a pullback/correction over the next

week or two at a minimum• Tradeable Rally to Develop Possibly in the

next 4 – 5+ weeks– Assuming leadership holds up and/or new

leadership emerges– A/D Line has not topped (Typically tops

ahead of bear market)– Might not be enough Complacency (but

getting there)– Not Enough Short Setups

Signs of a Potential Tradeable Rally

• High Quality Setups– Strong Technical's (volume, shape) &

Fundamentals• Strong Early Breakouts or MA Bounces

– Do Not Fail Immediately– Powerful Volume (exception MA bounces)

• More Quality Setups Developing– Ready over the next month

APOL 1999 - 2004

Triples, very volatile, difficult to hold

Doubles, Much Easier to Hold

Types of Bull Markets

• Secular – Years• Cyclical – 12 – 24 Months• Tradeable Rally – 2 – 6 Months

Secular Bull Market

• Runs 3+ Years (can be multi-decade…1982 - 2000)

• Contains Multiple Cyclical Bull and Bear Markets

• Major Sector's) and Theme's) Emerge (i.e. Technology, Commodities, Emerging Markets, etc…)– Broad Participation

Cyclical Bull Market

• Average Length 12 – 24 Months• Contains Multiple Tradeable Rallies and

Corrections• New Stocks and Industry Groups (i.e.

within Broad Sector Themes Assert Leadership (very rare few groups/stocks run from one cyclical bull to the next, generally will sit one out, and participate in the next)

Tradeable Rally

• Generally lasts 2 – 4 Months• Leadership can be narrow (especially in

bear market rallies and end of cyclical/secular bull markets)

Very Common Bottoming Pattern

Market Precedent

• Bubble Hangover• Weak Economy• International Turmoil• Political Uncertainty

OTHER TOPICS• Psychology• Shorting• Identifying The Big Winners• Leaders & Laggards• Holding Rules

– Earnings– Big Move

• Secondary Buy Points• Secondary Bases• FT Days• Distribution Days• Market Tops & Bottoms

– Offensive and Defensive Sell Signals

QUESTIONS?