[isatrader]

Now a more technical question. It appears the focus or favored position of this site, as of the present moment, is taking long positions, many of them on continuation patterns.

My personal focus is on the long side of the market as I only buy stocks using the investor method in my personal pension account, and so can't do any shorting in that account. This will be reflected to a certain degree in my posts on here as I spend a lot more time looking at potential long positions, however, when the market breadth gauges signal a deterioration in the market such as in late March 2014 and then again in September 2014 you'll see that I focus more on the short side of the market with my posts. For example, see my posts in the US Stocks - Watchlist and Discussion (Premium) thread from those periods, as the short watchlist got the majority of attention.

The market is showing many signs of topping, with fewer and fewer issues registering new highs.

The cumulative new highs - new lows breadth charts that I post each week don't agree with this imo, as the cumulative line broke down significantly in October for the first time in multiple years, but it has since recovered and is this week attempting to make new highs once more. I can also see a large divergence on the 5 day New Highs - New Lows chart which shows the October flush in the market, and weakening corrections since then, with the January correction not making it below the zero line.

       

The market is showing many signs of topping, with fewer and fewer issues registering new highs. It seems to me that the market overall is moving into a Stage 3 top, with larger stocks being less advanced and others being more advanced. Case in point, the Russel Micro Caps IWC has been in a possible Stage 3 topping process for almost a year. The Russel Mid Caps IWM have been leveling out for the same time.

As Stan says, it takes a huge amount of effort to move a stock up, but it can fall of its own weight, I am wondering why there is not more focus on finding breakdowns?

I have been swayed by a strong contrarian opinion, so may be missing the point here, but it seems taking the short side is a safer move with the market, and that playing the long side is getting dangerous.

What am I missing here?

You are correct in that the market has shown many signs of topping over the last year, with significant weakness early in 2014 in the Nasdaq momentum stocks, some of which had significant Stage 4 breakdowns of 50% or more during the April correction, and also in the small caps which formed a Stage 3 top over the first part of 2014 and then broke down into Stage 4A in late September, which also saw the other larger cap stocks move into Stage 3 at the same time. However, the September and October correction saw some of the key breadth gauges that I follow move into the lower levels in both the NYSE market and the Nasdaq markets, which they hadn't reached since the 2011 Stage 4 breakdown. And so during that period the market had an under the surface move into Stage 4 with only around 20% of stocks in the entire US market above their 150 day MA (roughly 30 week MA equivalent) - see below $NYSE and $COMPQ charts.

However, the snap back rally was very strong as people stepped into buy stocks at huge discounts in some cases. And this saw those levels move back to mid range again where it has lingered for the last three months. Currently for example the NYSE market percentage of stocks above their 150 day MA is at 55.64%, and the Nasdaq market percentage of stocks above their 150 day MA is at 52.47%. Both of which are now challenging the top of their recent ranges and the NYSE breadth % did actually move back to a bullish position this week.

       


You also mentioned the small caps leveling out for over a year and forming a Stage 3 top. However, the Stage 3 top was completed and they did breakdown into Stage 4A in late September/early October, but the breakdown was quickly reversed and it recovered back above it's 30 week MA and has has stayed above it since, and even moved to new highs in a fresh Stage 2 continuation attempt at the 2014 year end. Which was reversed in the January correction, but it held above the 30 week MA throughout and this week moved back toward new highs once more, with the mid caps actually making new highs. And so the small and mid cap indexes are attempting Stage 2 continuation moves. While the large caps are now lagging and still showing signs of Stage 3. So it's a very mixed market currently, but small cap leadership would be very important factor for the market to have a new Stage 2 advance. And while the indexes might have only shown a Stage 3 consolidation pattern over the last year, there have been individual charts that have had huge Stage 4 declines. So I guess my point is don't focus on the indexes too much, which are only averages of the stocks in them. Instead look at the individual charts Stages and the weight of evidence from the market breadth gauges, as they show that except for the large caps, a large amount of the US stocks in 2014 had heavy Stage 4 breakdowns. Which imo, with the stocks making New Highs and the amount of Stage 2 continuation breakouts expanding means that we may have seen enough of a flush out for the market to have a chance of a new leg higher. Which imo is the contrarian opinion currently, as everyone thinks the sky is about to fall (which it might of course). But what if it already did, and the media just didn't notice as they only focus on the S&P 500 large caps.

           


This is all of course just my personal opinion of the data I use, and I could be wrong. But you'll find that I rarely give my opinion on here, as I like to present the data in as unbiased a way as possible. So I tend to post the stock and breadth charts without opinion and only highlight positives or negatives that I can see when they give clear signals, and let the members interpret the weight of evidence for themselves.

I'd really recommend the Market Breadth Extra thread in the Elite section, as I try to post the key breadth gauges important for the Weight of Evidence. As this imo is the key to determining the market Stages and not the indexes themselves, which lag and only give you signals after the leading stocks that we are trying to trade have broken out or broken down.

Another important thread in the Elite section is the Daily P&F Breakouts and Breakdowns in the US Market thread, which gives the complete list of P&F breakouts and breakdowns each day with a market cap of £50million or greater. Personally I've come to find this thread invaluable for short term timing purposes, as generally there are more breakouts than breakdowns each day, so it's very noticeable when the amount of breakdowns pick up, especially when they are in the hundreds, and so I find it a really good leading indicator of whats going on under the surface of the market. And is another market breadth tool for our weight of evidence.


Anyway, sorry for the long reply. And again this is all just my opinion. So look through the market breadth charts and the P&F breakouts and breakdowns threads for yourself, and if shorting is what you are interested in currently due to your market view, then please post any potential Stage 4 breakdowns or interesting stocks in Stage 3 that you find, as the idea of the Stage Analysis boards is for members to post the most interesting charts that they find in the watchlists, so that we get a more complete and hopefully unbiased view of the market from the variety of our members posts. And as I said at the start of this monster post, my focus is on the long side, due to me using the investor method in my personal pension account, and so I do post more Stage 1 & 2 charts. But I do shift more to the short side with my posts when the breadth data warrants it.

I hope that helps

Cheers