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Now that market strength has become more obvious, many investors (including myself) are feeling the desire to move more money into the market. If you are buying, I caution you to make your entries surgically precise and avoid adding to positions extended 3% beyond the pivot point. The confidence created when the NASDAQ is up 9 of the last 11 days can get you into trouble.
Even in strong bull markets, we avoid buying stocks extended since we know roughly half of the breakouts that lead to success will retest their buy points before launching higher. Usually stocks pull in temporarily and get support before really taking off. (See MNST 2005 example above)
If you feel like increasing your exposure in step with a strengthening market, I would create several types of watch lists. Smart opportunities to initiate positions (read: not extended) will present themselves, and you want to be ready for anything.
2012 has the potential to be a good year as long as we are patient and precise. If you bought stock over the last few weeks, you’re probably better off sitting tight with your lower-cost positions rather than trying to add to them. If you are taking new positions, use strict discipline. Keep in mind there are still plenty of domestic and international issues, meaning volatility can return at any time. Assemble your watch lists, stay cautiously optimistic, and be prepared for anything.
Stay safe, best returns,
President, MarketSmith Incorporated
Follow Scott O'Neil at Twitter.com/WScottOneil
Awesome Scott, thanks. And if we want to lock in gains here is IBDs set of 22 major sell rules. news.investors.com/.../22-Sell-Rules-To-Increase-Profits.aspx
Great post, Scott!! Well said, and great example with MNST. I appreciate the time you took to explain those 3 different types of watchlists. I have never broken them down in that way, but I like it, and will start doing that!!
In my view Scott's point on TSCO "a sharp chartist may be able to add IF THE SUPPORT IS THERE" is the most important point that he offers here. We are all itching to get into a quick mover like NUAN which may or may not turn out to be a big winner. Our job as CAN SLIMers is to follow quickly when the heavy volume reveals itself.
Again a pleasure to read your posts Scott. Latest rally concentration mainly is either defensive stocks or bounce of really beaten down stocks, at the same time there are a good number of nice textbook short setups developing, so more inclined towards the "Short Setups" right now. But of course things can change if this strength continues.
Many thanks for the reminder to stay disciplined, and to tighten buys to max 3% past pivot. Also, the split watchlist concept is just what I needed to tame my growing "wish list" :-)
A very timely and educational post.
There is a great article in IBD today on "Early Entry Points." This is another way to "Buy Smart" and keep your risk down in this market. http://ow.ly/8PZha
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