The first bullish scenario is a slow grinding higher. History shows that after a rebound from deeper correction, extended often becomes even more extended. Market simply grinds higher day by day, not letting late-comers to jump on board. Such an action could go on for several weeks or complete summer, but the main point is that waiting for a correction may take quite a long time. That's why I bought some additional positions into the overbought conditions last week. I think this scenario is the most probable.
The second bullish scenario is a mild correction starting on Friday. A mini climax top, poor jobs report and a gap down might all together take some time to produce a bullish momentum again. Any low volume pullback would confirm this scenario.
The only bearish scenario that I'm seeing right now is a massive distribution at new highs. Friday's action convinced me that big money is not ready to jump off board just yet. The stronger the breakout, the bigger the possibility that big boys are selling into it. Most of the small traders are technicians and technicians like breakouts into new highs, especially if market closes above it. So, my prediction for the bearish scenario is that market will breakout into new highs on very high or huge volume, close above it and plunge the very next day on volume just as high. This for me would be a confirmation that many traders took advantage of the breakout to unload their shares.
So, let's not try to predict every single little move, but rather just stay curious and watch for the clues that market gives us. Among the top stocks that I'm closely monitoring for a potential buy are CBOU, DDS, DGII, ECYT, EGOV, MPEL, OSUR, VRX and WCG. Should the market continue its uptrend these are the stocks that should lead the next rally. Currently I'm 60% invested in FOSL, HUM and EL, so there is still some dry powder left.
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