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To all MarketSmiths: The last five market days have been
tough. I stated in Tuesday's Webinar that we all got hit hard on Friday and
were forced to lighten up on even our favorite positions. We talked about
portfolio management rules and how deep an investor should be when the market
gets difficult. I stated that I was still invested around 70% because several
of my longer term positions would report earnings in the next several days.
"If they reported badly, I would probably be close to all cash. But if they reported good numbers and the stock reacted accordingly
then I would try to ride through this rough patch". IBD did change the market's status to
"in correction," which I believe was the correct call given
the market conditions. Although today is a strong up day, volume on the indexes
is lacking and one day does not make a trend. We are not necessarily out of
Because we never know when the market will stop going
down, we all recently had to reduce our exposure or back away altogether. In
addition, the market could resume its downtrend from here, so we want to be
careful when attempting to reestablish lost positions. Never allow one mistake to grow into
a second mistake. It is not advisable to plow back in, in any situation. In
fact, there is one stock I’d like to get back today, however, I know that won’t
be possible. That’s the way it goes. We are in a marathon and capital
preservation is always number one. For those that are out of the market and
trying to regain their positions, just go slow and be precise on the chart.
There are no guarantees that we keep going up from here,
so take it one day at a time and be careful.
Follow Scott O'Neil at Twitter.com/WScottOneil
Thank you for the comments, as well as the information in the last webinar. This environment of heavy distribution days followed by short periods of small pullbacks with "market under pressure", and then right back to uptrend resumes, is frustrating. All I can do is remember that every time you dad is on, he emphasizes following the rules, not making predictions. The rules are there to make the decisions for you when uncertainity is present. So, until the uptrend resumes, seems like IBD Big Picture column lays it out nicely tonight:
"There's no way to know in advance if the correction is all but over, or ready to push hard south.
How should the individual investor handle this situation?
Follow the rules and avoid trying to outsmart the market.
Be ready to move back into positions if the uptrend resumes, or to stay on the sidelines if it doesn't.'
Sounds like sage advice, just hard to follow on day like today when several leaders blasting off on earnings reports (FB, ALXN, etc). So, I sit and watch and wait and see---will there be a follow through day on day 4 from today, or will market head further south? I don't know and neither does anyone else.
Yes, it is sound advice to stick to the rules. But there is some balance between sticking to rules and adjusting to current conditions. It seems to me the QE/Fed money printing market does call for some adjustments.
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