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Mark Minervini’s Morning Note to MPA members October 22, 2014

October 22, 2014



Yesterday the market staged a powerful rally; the NASDAQ Composite bolted 2.40% with advancing stocks leading declining stocks 3 to 1. The S&P 500 was up 2.00% with volume above average on both the NYSE and the NASDAQ exchanges. Yesterday’s rally was indeed impressive and strong enough to trigger a follow through day (FTD) and improve our risk model to Buy Alert status.

 

A FTD increases the odds that a market bottom may have been established, but as always, we will be watching the next several days very closely to determine if market distribution rears its head. Distribution soon after a follow through day has proven to kill a new rally attempt 80-90% of the time depending on how soon it occurs. 

 

Yesterday's rally had the "feel" of a short covering stampede. The market has rallied straight up off the bottom from a deeply oversold condition to moderately overbought in a technical "V" fashion, so its recent ascent is not likely to be sustained without a pullback soon. Going forward, it’s important to gauge how much the market pulls in, and more importantly, if volume subsides during such a pullback. A low volume pullback would be constructive. However, if volume swells, beware!

 

When the general market follows through and our risk model moves to Buy Alert status, I generally will buy a name or two (if a proper set-ups exist) to test the waters with real money. Yesterday I added FRGI to the portfolio; today I could possibly add another name or two, depending on how the market and stockS behave. Still,you should position size lighter than normal and keep your overall exposure moderate until your initial trades start to show progress.

   

While today’s rally was impressive, in order to confirm stocks are moving up in earnest, we still need to see stock set-ups proliferate and current commitments gain traction. We would also like to see our risk model improve to an outright buy to signal for added confirmation that a new uptrend has begun and the market has likely seen its lows.

 

 

 

-MM  



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