August 27, 2008
Stocks put in a good day due to good Durable Goods numbers but I want to bring to the attention of newer investors something that is happening recently on the up days.
Do you notice that a lot not (not a ton) of days where the indexes go higher it does not close at or near the HOD? This in a downtrending is not good. Even in our current sideways market the up days show more intraday weakness near the highs than intraday weakness during the down days. Now while this is nothing to scare you since you already have PLENTY of reasons to being heavily invested in cash. It is just a hint that when a real trend starts again-that we can finally make some real good money again-that the trend will be down.
The leading stocks right now still continue to be medical and while that is good for those solely invested in medical stocks. It is still not a full group leadership by many industry groups. So while I personally have been going long medical stocks and have many medical stocks on my watchlist because it looks like (on my weekly charts) that medical stocks could put in a nice run here (just look at THOR) and I want to have at least 10% of my money invested. But I have learned that even though something looks good today, even in medical, in a bear market profits can be wiped out for no reason in an instant. So for some that are as experienced as me and can see all the same medical stocks that I list in the forums as stocks that are “possible future longs” and you can see currently a few high quality medical stocks that I want to buy off the 50 DMA or a breakout from a long base so to increase my odds of having a winning stock, you can increase your percentage of holdings in your medical stocks.
However, if you have more than 50% of your money invested and the markets roll over on you it will be your own fault because you are playing against the odds. It would be like you having a 7 2 off-suit in Hold ‘em and the guy you are playing heads-up shows you that he is holding bullets (pocket Aces) and you put in him in all-in. It is just stupid and against the odds and nothing but a pure gamble.
But sure you experienced guys that get some nice medical stocks (not like MR–there were flaws in that chart that were obvious to me and I might make a video on it to show you how not to get suckered in to weak bases with flaws) setting up, feel free to put up to 25% of your money into them. They seem stable, for now. For me I will stick to 85% cash and 15% invested. This is not 1999 or 2003 when the indexes were trending up on higher volume and never going below the 50 DMA while having 10-30 PERFECT (max green BOP, big price gains, and HUGE volume suges) charts setting up and breaking out. This kind of market WILL SHOW UP AGAIN. Especially after a long bear market like we are starting to get as we are about to enter our 11th month from the top on October 31, 2007. I currently have one perfect chart where I usually see 10-30 in a bull market. So we are no where neer we need to be.
But let me be clear. Those of you that can not make money going short, WHEN THE MARKET IS READY, like November to January, need to avoid trading to be trading. Please after you read this go to the “new short positions” and read that so you can learn why I did not go short what could have been a perfect setup and please to to my “new longs positions” so you can learn why a possible perfect move can in just one-day lose its beauty and thus become just a normal long to take to try to make rent/mortgage payments.
There are times to load up on stocks to the long side (in a bull market) and there are times to load up with shorts (in a bear market.) But when you are trendless since January you just have to wait till the market starts moving on volume after this low volume period that normally happens right before Labor Day. So keep an eye on your leading stocks (medical stock right now) and keep that cash level high so that when this market turns you will be ready to get very long. Don’t forget: CASH IS KING!!!
“Profits can be made safely ONLY when the opportunity is available and NOT just because they happen to be desired or needed …Willingness and ability to hold funds UNINVESTED while WAITING for real opportunities is a key to success in the battle for invesment survival.”–Gerald Loeb
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