Market Resilience

• Posted by Joe Fahmy
• on February 22nd, 2010

When the futures were down -1% last Thursday night, I mentioned that the market would "shake off" the Fed's discount rate increase. My reasoning was based on the strong price action of leading stocks and the number of stocks looking to complete the right side of their bases over the next 2-4 weeks. In other words, if the market was going to collapse in response to the Fed's actions, stocks would not be "setting up" technically and looking like they want to go higher soon.

I must admit that even though I expected the market to be resilient, I didn't think that the futures would recover by Friday morning and finish positive by Friday's close. I thought the Fed news would give the market an excuse to sell off over 2-3 days, and then we could look to buy the stocks that held up well during the decline. Instead, THE MARKET'S ABILITY TO SHRUG OFF THE DISCOUNT RATE HIKE COMBINED WITH THE NUMBER OF STOCKS I SEE SETTING UP SHOWS STRONG MARKET RESILIENCE AND TELLS ME THAT WE MIGHT SEE HIGHER PRICES SOON.

I still expect a "choppy" environment over the next few weeks; however, if more stocks breakout of sound bases on strong volume, I would look to increase investment levels. In the meantime, I recommend keeping position sizes light until the market continues to prove itself. Friday's strong action is a great sign of the market's improving health. As always, I suggest maintaining a watch list of stocks that are holding up well and forming proper bases.

My current watch list includes: $GMCR $HGSI $ISRG $NFLX $DNDN $CLNE $TSTC $IPXL $RDWR $CTRP $VPRT $NETL $ATHR $PAY.

Please keep in mind that the purpose of this blog is to help people with idea generation. If you trade some of these stocks, PLEASE, PLEASE, PLEASE use stops. In other words, if some of these stocks turn against you and the market doesn’t cooperate…protect your portfolio! Thank you. Good luck trading!

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Tickers: CLNE, CTRP, DNDN, GMCR, HGSI, IPXL, ISRG, NETL, NFLX, PAY, RDWR, THR, TSTC, VPRT

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