That is the million dollar question. For those that missed it, on Friday we did get a “marginal” market uptrend confirmation in the form of a Follow-Through Day. It was “marginal” in the sense that the price action on the Nasdaq was only up 1.3%. Volume was strong, but having it occur on an options expiration Friday makes it a little unclear whether or not that represents true bullish demand coming back into the market. Some leading stocks seem to be validating this new uptrend as they move up out of decent looking consolidation areas. However, many other leaders are moving off lows below their 50 dma’s and still have a ways to go before completing chart patterns.

 

We would love for the Follow-Through Day to have been more obvious, but the fact of the matter is that the stock market is never black or white. As investors, we are constantly looking for signals that the odds are shifting to our favor, but we are never 100% certain. At this point, the rules say it is probably safe to begin buying stock. And there are a handful of leading stocks with decent looking setups to choose from. Remember, it is not the time to get carried away and plow in with the entire portfolio. Refer back to my blog on moving incrementally. I still have the same attitude towards this market. The environment still seems very news-driven and fragile. So it needs to prove to me that it is real if it wants me to be heavily invested.

 

At the same time, it is important not to lean too far the other way, and remain bearish in the face of bullish signals. You don’t have to begin buying right away, but if you wait too long to get going until a new uptrend becomes very obvious, you will be chasing the market for the rest of the cycle. Psychologically that is a tough position to be in. So it is very important to get started correctly. It makes everything else easier down the line. That’s why right now I’m focused on proper stock selection, accurately timing my buys, and most importantly, maintaining portfolio discipline.

 

Best returns,

 

Scott O’Neil

President, MarketSmith Incorporated

 

Follow Scott O'Neil at Twitter.com/WScottOneil