This morning’s reversal burned anyone chasing the leaders these last few days. Whether or not this rally ends up continuing, it is not the environment to chase and buy stocks extended from pivot points. If you feel underinvested and would like to wade in deeper, precision on entry is critical. That being said, those looking to add to their positions may get their chance in the next few days if the market pulls in some. However, I would caution against trying to initiate a position as the market is pulling in, unless, of course, the stock is at a proper pivot point. Instead, add to existing positions and look for new breakouts as the market recovers from this latest stumble.

 

Most importantly, keep a systematic and methodical approach to investing in this market. Without a comfortable profit cushion for the year, this is probably not the time to be aggressive. You might consider keeping positions on a much shorter leash than usual by keeping losses to 5% rather than the typical 7-8%. In a choppy market, you are best served by getting in right and sitting tight. If you have been successful initiating positions so far, please share what got you situated safely, so that those still trying to enter market can do so successfully.

 

Best Returns,

 

Scott O’Neil

President, MarketSmith