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Be Wary of Dead Cat Bounce Stocks and Look For New Leaders – Mike Swanson (01/17/2018)

So far this week we have seen a pop in bank stocks to kick off earnings announcement season. Typically when earnings season happens you see some stocks go up in the first two weeks of it and then a pullback begin as earnings season comes to an end.

This even happens in bull markets, but in bear markets the stocks trading below their 200-day moving averages and lagging the markets turn into disasters once they turn back down.

Right now there are many stocks putting on what I call dead cat bounce chart patterns. This happens when lagging stocks bounce enough to get their daily stochastics indicator overbought while they are trading below their 200-day moving averages.

For instance take a look at UPS.

As you can see its stochastics indicator is now above 80 telling us that the stock is overbought and its relative strength indicator (UPS/SPX ratio) made a new decline this week.

Yes UPS has gone up over 10% since it made a “bottom” in December, but put that move in context with where it was a few months ago and it looks like nothing, because it is nothing but a mere bounce.

The same is true for Best Buy.

Everyone is excited about the stock market now again with this recent rally.

This past weekend Jim Cramer declared that we are now in a brand new bull market and on CNBC there is a new buy recommendation given on Apple just about every single hour of the day.

But now is the time to look over individual holdings to see what should be gotten rid of!

Stocks that led on the downside and are lagging on this recent rally are stocks that should be sold.

Another example is Marriott.

Most hotel stocks look like this now.

Even if you believe we are in a new bull market lagging stocks still should be sold so that the money can be rotated out of them into stronger sectors and stocks where it is better to buy.

Everyone knows that you make money not by holding on to losing laggards, but by being in new winners.

And it doesn’t matter if it is a bull market or a bear market this is always the case.

Things are changing.

And this is why understanding and mastering market trends is more this year than important than ever. My book Strategic Stock Trading can help you do that.

Grab it by going here.