Monday, December 03, 2007

Dull Drums

We're seeing a bit of back-and-fill in the market today, which is not surprising following last week's big bender.

And action so far on the pullback is completely reasonable. Volume is much lower across the board; many of the leadership names are higher on the day, while others are seeing only modest declines; market breadth is negative but not at all extreme.

You would characterize this as a boring day, which is positive. If I had time, I would give a lesson but essentially, just as you don't want to short a dull market, you do want to see boring action when a healthy market is consolidating. This allows a trader to stay in the game long, or even to accumulate further long-side exposure.

Given the calendar on the wall, I am in the latter camp at the moment (my month of December snap, BTW, just like every other month this year features uniformed women of Iceland...put the kids to bed before clicking on that one!).

I've been accumulating, but not aggressively yet, while still identifying where the potential breakouts might occur next. As far as the latter, leaders within the fertilizer group (one of the highest ranked industry groups at the moment) are driving now to the upper-end of constructive looking consolidation patterns and they look poised to breakout higher as soon as the market allows it. Four of the more liquid plays here are MOS, CF, POT and TNH. There is no major volume on any of these today, otherwise I would stab at them a bit being confident that a breakout was looming. And although they may indeed breakout as soon as tomorrow, right now I would be paying a rich price (the high-end of their pattern) without anything yet in the way of confirmation. So like most of my life, I'm not long any fertilizer at this moment.

Outside of fertilizer, a number of leadership names look poised to breakout of decent bases as soon as the market cooperates again. Here is a handful to check out for now: FWLT, MA, MICC, MEE, HOLX and PCP.

I am accumulating some, as I said. But for me to get aggressively exposed I need to see major volume as prices break above their consolidation levels. Standard stuff, really, but it bears being obvious. I am however prepared to get more aggressive immediately, since the best breakouts will run away higher very quickly, once they breakthrough.

Today I added a first tranche of FWLT and HOLX. I sold out of the DBRN for a small loss, however. No sense wasting any more hope on a loser now that the market has stopped driving higher. Let someone else make the money off the dogs. Also I remain long LOGI, ONXX, GILD and YGE.

None of these holdings is currently very aggressive and I am as flat as pancake roadkill so far today. Not bad for a pullback session.

This week only kids: the online edition of Investor's Business Daily is free (all week). There are plenty of useful goodies there, but be sure to check out the 197 Industry Group Rankings. I find a lot of my ideas by shopping which groups are moving up or down in terms of relative strength.

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