While the market has persistently risen over the last four weeks, the majority of breakouts have stagnated, and the handful that have followed through are exhibiting climactic, wild, or stalling action. Intra-day trade is extremely volatile among leading growth stocks, with major retracements of strong opening moves more then a few times a week, and almost every new base is a late stage, wide and loose consolidation with a lagging relative strength line.
During strong rallies, at least one out of every three positions makes significant enough progress to wash out the small losses incurred on the positions that do not. In today's market, it has been difficult to contain losses, with slippage, to under two to three percent, and only a handful of breakouts have been able to follow through, even five percent, with gains being wiped out in a day or two on pullbacks or trade failures.
The growing danger for traders is a death by a thousand cuts. If the market begins registering more stalling and distribution days, sell offs in profitable positions could lead portfolios into the red quickly with so many small losses and little profit cushion up to this point. Traders have no choice but to limit any new positions and consider tightening stops, to protect profits and minimize losses, with so many setups failing to follow through and leading to a greater number of failures and small losses, wiping out even a decent move by one or two stocks. More risk averse traders could even consider moving to mostly cash. I know this is beginning to sound like a broken record opinion, but the reality on the ground is, unless traders have been long just the indices or were near perfect in their stock selections, few have made any progress in the last four weeks holding positions longer then a day.
The trading action exhibited by leading growth stocks is more indicative of underlying distribution and an intermediate top, then a setup for a strong continuation higher. It appears for now that the market and a handful of stocks may have some room to follow through higher despite all the red flags. Do not overstay the welcome. Better to be the first one out, then be trampled over running for the exit.