Breadth Signal: Dips are Being Bought, Advancers are Being Chased

6/16/2014 Just the action we look for in the market.

Dips are being bought and advancers are being chased (lots of positive up trend day for stocks).

While it was a relatively flat day in the market, there are signs of leaderships. The percentage of stocks advancing is only around 50%. However, filter that to be a 1% move to filter out some noise and you have nearly 55% advancing. Filter it to a +4% move to represent stocks showing signs of extreme strength and it jumps to nearly 68%. This kind of action is great for a good stock picker and swing trader as the winners will be chased, and buying the dip will offer a good chance of seeing the stock rebound. This has happened for several days the last few weeks.

The only real negative is that the last 3 months many stocks have declined big, while there haven’t been a lot of huge advancers. However, the ship has begun to turn around as the monthly data now shows really positive action, and many stocks have simply been building up a base for the next round of leadership.

With that being said, the energy sector has lead, and now the solar sector, a derivative of the energy sector is starting to go while utilities are building a base from prior uptrend and may follow. This may support the view that we are in the “later innings”. Nevertheless, there are still individual opportunities out there. Keep an eye on the vix for signs of caution and the market detaching from risk.