Over the last week we have seen a pullback in the overall markets of about 2.5% after a massive move higher since November after the election. Generally speaking, pullbacks are not a bad thing for markets to do, a long time ago I actually wrote a post about Why Pullbacks Are Good (click link to view post). Therefore, firstly we ought not fear the world is ending or the bull run is done – tops don’t happen overnight and they don’t happen without proper warning signs (usually).
What this move down likely is signaling is simple overbought conditions where price will consolidate in a sideways action before moving higher again in the future. There is no reason to think that this bull market is over and if I turn out to be wrong, there will be proper warning signs in the charts before a major move down (such a bear flag, head and shoulders, etc.).
With the mindset of this pullback being just that – a pullback and not a top, we can turn our focus onto more individual stocks and prepare for a continued move higher after this pullback is over.
Recently we highlighted one stock that had formed a nice cup and handle pattern and was poised to rise higher. This happened this past week. $PKY formed a nice base and was “tight” with relative strength. It offered a clear area for a stop also. These are the type of stocks that will perform well in this market, not the extended ones, but the ones that are still in their bases and waiting to move higher.
With this said, some of the stocks are the current watchlist include:ARE, PKY, DE, EPZM, FRED, PTHN, LDOS, SJM, KERX. All of these stocks have the tight base on either the daily or weekly charts that we are looking for and are currently within an uptrend. Below you will find a picture of these charts.
Overall, there is nothing to worry about in regards to this market and we will likely consolidate before moving higher again in the future. If this changes, we will see a pattern or see some warning signs before it does.