Looking at the weekly charts of the market indices and leading stocks you can see the recent volatility giving way to constructive tightening action. Look at the NASDAQ weekly chart (above) for an example. Having three weeks of tight closes is a sign of institutional accumulation. The market seems to be positioning itself for a move higher. Some leaders have already broken out; some are preparing to break out. Either way, a majority of them are tightening up in a constructive way, being supported at their pivot points and generally look like they want to go higher.

Getting in these stocks at a proper entry point is important, but some have made it tough to attain. If you are looking to increase your exposure here, proper entries are preferred, but some may only give you alternative entries, like a 3-weeks tight pattern. When making purchases, try to position yourself to hang in through any volatility. Don’t buy stocks that are extended, and don’t get in too deep without first making some progress in the portfolio.

The best course of action: Wade in incrementally as your positions show you a profit so you have a cushion when a shakeout occurs. I have found that more modest sized positions in leading stocks can be helpful in dealing with volatility, because you are more likely to feel comfortable giving them more time to work out. For more details on this approach, check out my last webinar.

Best returns,

Scott O’Neil

President, MarketSmith Incorporated

Follow Scott O'Neil at Twitter.com/WScottOneil