10-05-11 Comments

[Mike]

Yesterday's reversal is day 1 of a potential rally. A follow-through day can occur on day 4 or later which equates to this Friday. On rare occasions it can occur on day 3 if all three days show a powerful move.
When the market shows potential bottoming action I tend to look for stocks who's relative strength line is moving into new high ground. Stocks showing uncomon strength tend to be the stocks that have the potential to make substantial longer-term moves. This thinking is opposite of Pascal's strategy of choosing to go long stocks that have sold off the most. The difference between the two strategies is time frame. The CANSLIM strategy looks for stocks that have the stuff for a long-term move.
I have run some screens looking for stocks or industry groups showing an RS line moving into new high ground. This has led to this watch list:
ALXN, ATHN, AZO, CELG, CPHD, DLTR, JAZZ, LULU, NUS, PII, PRGO, QSII, ULTA

[jmbarnette]

Interesting to note the top performing industry groups for today are ranked 197, 195, and 192 (according to Marketsmith).

[Mike]

Interesting to note the top performing industry groups for today are ranked 197, 195, and 192 (according to Marketsmith).

I think this effect is in line with Pascal's strategy of buying the stocks that went down the most at market bottoms like we saw yesterday. These are the stocks that bounce the most when the market turns. This would be a short term effect however unless there is a true rotation by institutions into the old lagging groups.