July 5, 2013 Leave a comment
One of the truest definitions of an uptrend is a series of higher highs and higher lows. On the other side, the definition of a downtrend is a series of lower highs and lower lows. During the time when the market is making the transition from moving from a downtrend to a new uptrend, observing the actions of the stocks that have held up the best during the downtrend is very telling. Most likely these are going to be the new leaders of the next market rally.
If the market is making a decent bounce of the lows, but has not yet made a series of higher lows and higher highs, we don’t have a confirmed uptrend. However, if during this bounce you observe the leading stocks to be breaking out to new all time highs, then the odds are increasing that this is the start of a new rally.
See the chart of SPY, we have a bounce of the lows. But not a series of higher highs and lows yet. However look at some stocks that I’ve been watching during this correction:
All these stocks have been doing well during this correction, and are making new all time highs. Stocks like these increase the odds that we have seen the bottom and are begging a new uptrend. However, we need to see the market show us that for full confirmation. If we can close above the highs on 6/18, or make a higher low and higher high, that would confirm to me that we are starting a new uptrend.