January 10, 2012 Comment

The Market School Model chart is shown below. It shows a full count of +5 (100% invested). We had a B8 buy signal yesterday (close above the last marked high.) Yesterday's small move up on higer volume looks a little like stalling. Yesterday's price and volume however does not quite meet the strict definition of stalling. The B8 is not counted as the Model is hard limited to a +5 count unless the Power Trend switch is on. A Power Trend situation is reserved for those times when the 21-day ema has been trending above the 50-day for at least 8 weeks (40 trading days.) Power Trends are times in the market that it often pays to stay invested through an inevitable pull back. During a Power Trend an exposure count floor is established at +1 (30%.) This is one difference in short-term versus intermediate-term investment approaches. CANSLIM investing tries to get invested early in a rally and stay invested until it becomes obvious that the trend is complete. A Power Trend does not end until the index closes below the 50-day. Rallies that include Power Trends can last for a year or more. Power Trends are relatively rare but this is where we make the most money. We had a follow-through day on 12/20/2011 which turned the buy switch on, over the subsequent days the exposure count gently rose to fully invested on Friday January 6. The 21-day is above the 50-day but for only the past two days.

I will not be able to show a chart like this in the near future as the chart will soon no longer be emailed to me. It will be available in the pay service called Leaderboard which is provided by Investor's Business Daily. The chart will be protected by copywrite laws at that point. I will continue to report the model status as I am able to do this using my own resources.

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As always we pay attention to stocks with good fundamentals that are breaking out and whether they are behaving well. The action of leaders trump all other considerations. The second attachment below is my ad hoc list of CANSLIM stocks that have broken out in the current rally. This table shows me that the rally is proceeding and that money can be made. There is only one stock that would have triggered a stop loss sell point. I consider it a weak rally but tradeable. I don't consider personnaly that it warrants trading on margin. Prior bear-market rallies have traded above the 200-day for weeks before taking the next leg down; I consider this outcome just as likely as the market moving up from here. In fact I consider this a bear market rally until the market proves otherwise. I placed GDX and QLD on the list for reference purposes.

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