Here the market goes again: down this morning after dropping 1.5% yesterday on big volume. Isn't it sobering when the market takes back four weeks’ worth of gains in one or two days? Just as we were starting to feel confident in the strength of this rally, we are reminded that we are still at the mercy of this global, news-oriented environment, where the stock market hangs on to every word and usually overreacts up or down. Needless to say, this is not the action we associate with a robust Bull Market.

This is why our stock entry points and average costs on positions are so important. In the MarketSmith Webinars, I have used the term "laser focus" for your entry points and mentioned the need for care in how you pyramid into stocks. Discipline plays a big role here. Even I started getting in deep last week, because the majority of my decisions were correct and my stocks were working well. However I always kept a close eye on my average cost.

That is why I was able to handle this morning, only having to close marginal positions and keeping all of my low-cost stock allotments. I am paying the price on the few improper purchases made last week, but I’m able to hang in there on most of the purchases I made correctly, where I still have profit cushions.

Nobody likes action like yesterday or this morning, but on the bright side, it’s a great reminder to be disciplined in your purchases.

Best Returns,

Scott O’Neil

President, MarketSmith

Follow Scott O'Neil at