Yesterday’s action could have fooled even the savviest investor into thinking that pulling out of this correction was going to be easy.  In our shop, questions about whether yesterday qualified as a follow-through day added to the general uncertainty that only intensified after the Fed minutes yesterday afternoon. In the back of our minds, we were also making note that the biggest one-day price advances on the Nasdaq are usually during corrections.

Being able to calmly navigate the unexpected by properly responding (not simply reacting) to what the market is doing is the hard work of being a successful investor.  So, a good rule to remember for today is a rule from William O’Neil, our founder: Incrementally in, incrementally out.

In other words, do not plunge in and out of stocks. This market has to prove to us whether it is ready to continue its advance, or whether it needs to come down more.

Rely on your research and sound investing rules to help you find stocks holding up in a downtrend. Pay extra close attention to stocks that have relative strength lines at new highs. This behavior suggests those stocks will lead the next cycle.

Best Returns,

The MarketSmith Team


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