1) Stocks are acting very strong technically. Over the past 3-4 weeks, I have suggested to slowly scale into this market. The majority of stocks that I recommended have worked out well and they are now either barely correcting or they are pulling back orderly on light volume. Examples include $GMCR $ISRG $NETL $LULU $IPXL $NFLX $CLNE $ATHR $CAGC $BCSI.

2) The major indexes continue to climb on strong volume and consolidate on light volume, a positive sign in my view.

3) The big institutions continue to put money to work. If you are a large mutual fund or hedge fund, your universe of growth stocks is limited. In other words, you have to buy Big Cap stocks with liquidity. Even if you do not trade these names, it is worth observing them to see what the big boys are doing. The price action in $AAPL $ISRG $GOOG $BIDU $AMZN $PCLN $V $GS is very constructive. The majority of these stocks are breaking out or building new bases to possibly break out over the next 4-8 weeks.

4) The stocks that continue to show up on my fundamental and technical screens cover a wide range of sectors showing me that this recent rally is broad based. Examples include: Tech, Retail, Energy, Semis, Restaurants, etc.

5) Everyone seems to fall into one of two categories. They either hate this rally or they are a cautious bull. I would consider myself the latter. My point is that VERY FEW people are in the crazy bull camp and feel this market has any legs left in it. Keep in mind: “The markets tend to fool the majority.”

A word of caution: I realize the markets have had a nice run over the past few weeks. I am not saying to jump in right now if you are not invested because we could see a pullback. If you did get in recently, hopefully you have decent entry points on your stocks and you have “room” to let your winners ride. If you did not get in, don’t chase extended stocks but rather look to buy them on pullbacks to logical support areas. Overall, I remain positive on this market because of the strong signs listed above.

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Another positive sign is that many of the stocks listed above broke out on strong volume and pulled back today on lighter volume. If you missed some of these breakouts, I feel you can buy them on pullbacks to logical support areas such as their 10-day or 20-day moving averages.

My advice remains the same: If you are not invested in this market, SLOWLY get back in by buying 2 or 3 stocks. If you are invested, SLOWLY increase your market exposure by adding to your positions. The key is to do this SLOWLY! Why? Because if you jump back into the market all at once and chase extended stocks, you increase your chances of getting stopped out of your positions. In fact, I wouldn’t be surprised to see the market pullback over the next day or two. If this happens, I plan to take advantage of the opportunity by increasing my investment levels. Why? Because I’m currently finding a large number of stocks that meet my technical and fundamental investment criteria and these stocks could propel the market higher over the next 2-6 weeks.

I also suggest keeping a watch list of strong fundamental companies that are building sound technical bases. Some examples on my watch list include: $CLNE $JAZZ $VPRT $GMCR $MLNX $SHOO $HGSI $SOA.

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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Here is my reasoning and some observations over the past few weeks:

1) The most important criteria I use to gauge the market’s health is the action of its leading stocks. Right now, THERE ARE TONS OF SOLID FUNDAMENTAL COMPANIES BUILDING AND BREAKING OUT OF STRONG TECHNICAL BASES!

2) Market Resilience: On Thursday, February 18th, the Fed raised the Discount Rate by 50 basis points but the market shrugged off the news and finished higher the next day. On Thursday, February 25th, the market ignored poor US economic data and fears about Greece’s debt problems to once again rally and close near the highs of the day. The market’s ability to rally in the face of bad news is a “subtle tell” that it wants to go higher.

3) Sentiment indicators shifted from extremely bullish in mid-January to extremely bearish in mid-February. The recent heavy put buying shows there is still plenty of doubt out there.

4) The major market indexes are back above their 50-day moving averages, a sign of health from a technical perspective.

5) Oh yeah, did I mention the number of stocks that are breaking out across several sectors??? Semis: $NETL $ATHR, Big Caps: $ISRG $BIDU $PCLN, China: $CAGC $CTRP, Retail: $DECK $ANN $SKX Miscellaneous: $SNDK $CMG $CTSH $RDWR $SMCI.

Here’s my best advice: I would SLOWLY begin to add to your positions (assuming you’re at a profit on new purchases over the past few weeks and that you have a cushion to work with). DON’T CHASE EXTENDED STOCKS and DON’T JUMP BACK INTO THE MARKET ALL AT ONCE! Why? Because you will just get stopped out on any normal pullback. Keep a list of stocks building sound technical bases and buy them as they begin to breakout. Examples of stocks on my watch list include: $ARST $CLNE $DNDN $VPRT $GMCR $PLXS $HGSI. As always, keep your winners and cut your losers.

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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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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1) The light positions that I took over the past week have worked out well so far: $NETL $CAGC $ISRG $GMCR $NFLX.

2) I took some profits on $NETL into strength on Tuesday and it pulled back on light volume Wednesday. It’s always a good sign when stocks breakout on strong volume and pullback orderly on lighter volume.

3) The NASDAQ Composite rose on higher volume on Friday 2/12 and Wednesday 2/17. They were not big up days, but still a subtle sign of accumulation.

4) Steady put buying shows me that sentiment remains negative. I always pay attention to investor psychology because “the market tends to fool the majority.”

5) Many stocks are trying to build the right side of their bases. I’m not recommending to buy them now but to keep them on your watch list if they “setup” and offer decent low-risk entry points. Examples include: $V $AAPL $ATHR $CLW $FIRE $ARST $IMAX $INFY $CLNE.

6) My stronger ideas that could breakout soon include: $IPXL $EVVV $HGSI $GMCR $MNRO.

I still suggest to remain patient as the market needs time to carve out proper bases. I wouldn’t be surprised to see a “choppy” environment over the near-term for two reasons. First, the NASDAQ may run into some resistance now that it has rallied back to its 50-day moving average. Second, part of base building involves volatility and shakeouts. That’s why I would rather wait for more stocks to continue to build their bases and buy them at the proper “low-risk entry point” rather than buy them now and possibly get shaken out. My best advice is to continue to keep positions light, cut losses on your weaker performing stocks, and wait for more signs of health before increasing your investment levels.

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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After pullbacks, I prefer to get back into the market slowly when signs of strength start to appear. The main reason is to protect the downside and to protect your confidence in case the rally attempt fails. For example, last week I took light positions in 3-4 stocks to see how they would perform and so far, so good.

The key now is to observe if a few things happen:

1) The stocks that recently broke out hold their gains (watch this over the next few days).

2) Volume accumulation comes back into the market showing participation from the large institutions (so far, the past 7-day uptrend has not shown the strong volume I would like to see, but it’s still too early to make any solid conclusions).

3) If more stocks continue to build bases and “setup” technically (this could take 2-4 weeks).

My conclusion is that: so far the signs are encouraging, but you should still show patience and give the market time to prove itself. The point of taking light positions is that in case the market fails, you can get out with a small loss. If the market continues to improve, you can add to your position size or increase the number of stocks you own.

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While going over my weekend screens, I noticed that many stocks are putting in tight patterns on their Weekly charts and could be building new bases. Tightness in chart patterns is positive because it often shows a sign of institutional support. Examples include: $AMP $CHKP $HES $HANS $CL $ROST $JCI. I’m not recommending buying these stocks now because you should never buy at the bottom of a potentially new base. I would rather wait and see if these stocks prove themselves by properly building the right side of their bases. If this happens, it would give me more confidence that the market is healthy.

In addition, when looking to re-enter the market after a correction, I prefer to “test the waters” with stocks looking like they could breakout soon rather than the ones that are still building their bases. For example, if the market resumes its uptrend over the next few weeks, I suggest taking light positions in the stocks that held up well during this pullback. If they don’t work out, at least you exposed your portfolio to the best stocks the market has to offer and you can always stop yourself out with a small loss. If the stocks work out well and show you a profit, then you can add to your positions or buy the other stocks that should setup after them.

Over this past week, I took light positions in the following stocks:

1) $GMCR: Although GMCR has been a huge winner since I recommended it in March 2009, I feel this stock has more upside potential. Their earnings and sales continue to accelerate and a very sharp analyst I know said he’s expecting them to raise guidance if/when the $DDRX buyout occurs. In addition, I feel they will get added to the S&P 500 soon, they could announce new deals with other coffee vendors, and the stock’s large short interest will continue to push the stock higher.

2) $ISRG: Fundamentally, their earnings and sales continue to accelerate. Technically, the stock has held its 10-week moving average since July 2009, a sign of strong institutional support.

3) $NETL: On Feb 2nd, this telecom semiconductor company beat earnings estimates and raised guidance. Positive analyst comments about NetLogic include the company’s significant design wins, their strong organic growth, and that they should benefit from the 3G buildouts continuing in India and China. They present Thursday, Feb 18th at the Oppenheimer Semiconductor Summit.

4) $DNDN: The company’s new prostate cancer drug Provenge is up for FDA approval in May. This blockbuster drug could potentially generate annual sales of $1.2 to $2.5 billion. One note about biotech stocks, I prefer to use options 3-6 months out to limit or quantify my downside risk. For example, if you own 1,000 shares at $31 and the stock hypothetically gaps down to $5 on horrible news, you lose $26,000. If you own 10 May 31 Calls at $5 and the stock gaps down, you only lose $5,000. If you don’t understand this or don’t trade options, please don’t worry about this because there are plenty of other stocks to trade. If you want to own shares, please keep your position size small to limit potential downside.

Other stocks on my watch list include: $CAGC $IPXL $BEXP $AAPL $VECO $NFLX.

I want to reiterate: I AM NOT SAYING THIS RECENT CORRECTION IS OVER! I am simply saying that some constructive signs are allowing me to shift my stance from a cautious mode to a neutral one. I suggest keeping a watch list of strong stocks that have held up well during this correction and being ready to pounce if the uptrend resumes in the next few weeks.

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!

I will be at the TradersEXPO in New York City this week from Feb 14-17th. Please send me a message if you plan to be there. I’m always happy to connect with and meet new traders.

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1) For the most part, stocks are holding up well.

2) After major Bear Market declines of 50% or more, the average new Bull Market lasts for 18-24 months with minor corrections along the way. We could be in month 11 of an uptrend that has more upside left in it.

3) The major averages are starting to stabilize on their Weekly charts. The price action is tightening up and the recent selling has occurred on lighter volume, a constructive sign overall.

4) Sentiment indicators have shifted from extremely bullish in mid-January to extremely bearish right now.

5) The dollar rally is over in my humble opinion.

6) Many short ideas on my watch list are not working out well. If this was a new Bear Market, these short ideas would have fallen apart by now.

I want to make something perfectly clear: I AM NOT SAYING THIS CORRECTION IS OVER! I am simply saying that some constructive signs are allowing me to shift my stance from a cautious mode to a neutral one. I suggest keeping a watch list of strong stocks that have held up well through this correction and being ready to pounce if the uptrend resumes in the next few weeks.

Since it takes approximately 6-8 weeks for stocks to build new bases, we could be in week 5 of a correction that will continue to “chop around” for a few weeks before a large number of quality ideas setup again. If you decide to start some new positions, I suggest keeping them light and letting the market prove itself before increasing your investment levels.

Some ideas on my watch list include: $GMCR $DNDN $NETL $NFLX $DSW $INCY $ISRG $BIDU $IPXL $CAGC.

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!

Follow me on Twitter @jfahmy