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I’ve been hearing a lot of frustration from investors having difficulty in this market, especially with stocks like Mellanox Technologies (MLNX). When asked for perspective this is what I tell them:
There's little wrong with stocks right now: it's the environment. A market like this one does not care how good a stock’s story is. Seeing good stocks get hit is mentally tough. That’s why we always consult a chart. It will tell you when a fundamentally sound stock is not getting treated like one by the market.
Part of being a good investor is being able to recognize the times where opportunities to make money exist, and avoiding times when they don’t. But we never tune out. For example, right now I am invested small. Until I get real traction, I will stay small. But those that quit when times get tough will never be able to act when the time is finally right. Remember, the mental highs are almost never as severe as the mental lows. And each bad day is just one day closer to the next bull market.
Finally, these types of markets are tough for investors at all levels. But we never give up! Communicating regularly with the MarketSmith community can help because you will quickly realize that all of us are getting kicked around.
That said, we know the opportunity in the stock market is unmatched and can be life changing. The key now is to have our equity intact for when the environment improves. It’s tough, but we know that's the way it is.
President, MarketSmith Incorporated
Follow Scott O'Neil at Twitter.com/WScottOneil
I believe a stock that has a huge gap coming out of a base is a great buy. When I look at MLNX it looks like it had a failed breakout which found support at the 50 day and is now bouncing.
I would be Interested In knowing how you view this one and do you think if it was bought today if it would be a proper buy.
Scott, your dad descibed this trade perfectly on page 19 of HTMMIS. IBM October 1926 - "Very important: after shakeout, if stock comes back up through 10-week line on even greater volume you must buy it back!"
MLNX today really echoed his exclamation point.
It's amazing to think that he did all this without MarketSmith. We have such a head start today.
Very best returns,
Even the volume picking up the shake out is identified right in the book. Makes you wonder if it is coincidence or crafted. Maybe a little of both.
What are the feelings on the universal application of this rule? It obivously worked in this instance. However, the uptrend was under pressure and it was immediately before MLNX was reporting earnings. It seems like there are two or more conflicting rules at play here. Given the uptrend was under pressure and choppiness in the market, I suspect most erred on the side of caution, but am very curious to hear everyones thoughts on both the rule and how they played this.
For me I agree with your take iamothe.mike; it was not applicable and I highly doubt anyone who was aware that earnings were the next day would have come back in. 1) Broad market Action. We are/were piling on distribution in the NASDAQ and leadership has mostly snoozed. 2) You would have had to buy the high volume move back through the 50D the day before earnings (so going into a fast mover with no cushion in the name 3) Look at CMG or CPHD today for why you need to be careful going into earnings w no cushion...It's only now 'textbook' b/c it broke out, but no one could know that the day prior and you have to be prepared for a blowup.
I look at it this way if you like gambling then that would have been a great trade. The stock could have easily went the other way unless you had a crystal ball that told you it was going up.
Look at the action of some liquid leading stocks today CMG, ISRG, BWLD,WFM,MNST and TFM. Frustrating is putting it politely.
It is a brutal school. The large majority of the retirement money in my household is in small cap and mid cap stock mutual funds.
About 15% I use to practice CAN SLIM. It hasn't outgrown the mutual fund holdings yet. I spotted MLNX right at the close on Wednesday, so I didn't get any of it however it doesn't take too many of those to really get ahead.
The thing I learned last year from Chart Arcade is that reducing the size of the loss on the wrong trades is critical to real success. I regard 7% loss rule as the absolute maximum and akin to a four put on the golf course. Like someone sneezing at the top of your backstroke. It happens, but it should be very rare.
In other words, my ability with CAN SLIM had better prove itself before I will give it any more of my hard earned capital.
Investor have two accounts which need to be attended. One is the actual dollar account and the other is the psychological/emotional equity account. Accounts performances are related and the performance of the first follows that of the latter. And the damage to latter is very hard to recoup. I think what defines how brutal/tough a market condition is not how much damage its doing to dollar account but what its doing to the psychological account. In a market which has has very few good leaders, and then MLNX shots up 40%, its hard not to take a loss on the psychological account even if the no dollar amount was involved. So the best thing might be to just treat MLNX as a market curveball which gets thrown once in a while. But incase you did get on the ride on MLNX then more power to you.
Scott, I always enjoy your blogs. Your pragmatic, sensible interpretation of market conditions is a nice contrast from the emotional talking heads with their endless, meaningless opinions.
the best commentary I've seen is Tastytrade.com - for traders.
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