In a news driven, see-saw market, the decision to buy, hold or sell a stock is typically more difficult.  If you’ve found yourself lightening up your positions over the last few days the main question is… “How do you handle an up day like Wednesday?”

 

With many high quality stocks moving up strongly yesterday, it was tempting to re-buy any position we might have sold recently.  However, in a questionable environment, we have to remember that one day doesn’t make a trend. It’s important to be patient and precise with our actions and fall back on our rules. Have you noticed that when you don’t buy right, you end up jumping in and out of stocks and usually give back profits? That’s why the most dangerous environment to invest in is the back and forth, saw blade action.

 

Assuming that a market is in an uptrend, our rules dictate that we only buy stocks in the following two scenarios where the probability of success is in our favor:

1)      Buying out of a proper base

2)      Buying off of a key moving average (50day)

 

Have you ever noticed how the market sometimes looks just good enough to get you to buy stocks? By purchasing stocks at a precise pivot point and in a market uptrend, we better protect ourselves by putting the risk/reward ratio in our favor.  

 

Again, in such a news driven and volatile market the uptrend may hold.  However, in my experience, I’ve found that if I am going to err, it is better to err on the side of caution.  It seems as if Wall Street is desperate for some good news. We all know how endless the negative news has been. Maybe leading stocks will come through with good earnings and the market will continue marching upwards. At this point the “Jury is out.”

Therefore, as we enter earnings season our tone is one of discipline and caution.

 

Best Returns,

W. Scott O’Neil