Mike
02-14-2012, 08:35 AM
I have been staring at this chart for a few days. The chart shows the IBD 6000 index since the beginning of the index in 1994. This is not index price but the percent of stocks in the index showing heavy accumulation minus the percent of stocks showing heavy distribution. The index contains every stock in the IBD database that trades above $5 which is currently 5631 stocks. I particularly note that periodically there is a reset in investor sentiment where much larger accumulations occur. Since 1995 there have been four market resets: 1997, 2003, 2009 and 2012. The first three are new cyclical bull market starts, what about 2012?
One of the things CANSLIM investors do is count base formations of individual stocks. Typically when a new cycle starts a stock breaks out of a deep consolidation and moves up 20-25% before forming a new base. It then breaks out and does it again and again. Typically a stock can to this about 4 times before the stock is on everyone's radarscreen and there are not sufficient new investors to drive it up again: It finally tops. When this happens with enough stocks we get a bear market followed by a whole new cycle...
Of critical importance is the answer to this question: Is the current market rally perhaps the last hurrah rally from 2009 lows or did the small bear market we had last year reset the market and a brand new cycle has begun? If it is a bear market reset, we treat all bases as first stage. Thus a stock like AAPL which looks to the eye like it broke out recently from a 4th stage base could actually be on a new trajectory with a fresh composite-investor mindset. It is quite unusual for a stock to lead in back-to-back bull markets but then AAPL is an unusual company.
If this is a new cyclical beginning we should expect to see an expansion of market breadth and not a contraction. The last phase of a bull market usually contains fewer and fewer leaders going into a market top, usually larger caps. A beginning phase contains a greater and greater number of leading stock participants with a lot of small caps joining the party.
12853
One of the things CANSLIM investors do is count base formations of individual stocks. Typically when a new cycle starts a stock breaks out of a deep consolidation and moves up 20-25% before forming a new base. It then breaks out and does it again and again. Typically a stock can to this about 4 times before the stock is on everyone's radarscreen and there are not sufficient new investors to drive it up again: It finally tops. When this happens with enough stocks we get a bear market followed by a whole new cycle...
Of critical importance is the answer to this question: Is the current market rally perhaps the last hurrah rally from 2009 lows or did the small bear market we had last year reset the market and a brand new cycle has begun? If it is a bear market reset, we treat all bases as first stage. Thus a stock like AAPL which looks to the eye like it broke out recently from a 4th stage base could actually be on a new trajectory with a fresh composite-investor mindset. It is quite unusual for a stock to lead in back-to-back bull markets but then AAPL is an unusual company.
If this is a new cyclical beginning we should expect to see an expansion of market breadth and not a contraction. The last phase of a bull market usually contains fewer and fewer leaders going into a market top, usually larger caps. A beginning phase contains a greater and greater number of leading stock participants with a lot of small caps joining the party.
12853