The Odds Are In Your Favor On This Trade
If your portfolio had a bullish posture then
your year is probably off to a rough start. Intermediate-term growth traders
have seen huge numbers of stocks collapse. If you were long growth stocks, then
you’ve most likely experienced quite a few stop outs already. In some areas the
selling has been downright scary. Areas that have been hit especially hard
include smallcaps and semiconductors.
When I went through my charts
last night I was unable to find anything that is setting up with a nice quiet
handle and looking ready to bust out. The last few days of selling has wrecked
most “quiet handles”. This is something that can be very frustrating with
growth investing. When the market pulls back sharply like it has the last few
days and puts in a “potential top”, a few things happen – 1) growth names get
hit, stopping CANSLIM-type traders out of positions 2) a drawdown is suffered
as a result and 3) MOST times, the market will resume its advance (or at least
give a nice bounce) that intermediate-term growth investors won’t be able to
participate in because they’ve already been stopped out of many of their
positions. Also, very little breaks out on the bounce because as I mentioned
above, it is too beaten down and the handles are wrecked.
So what should you be doing
when the market pulls back sharply like it has the last few days? Running for
cover? Assessing the damage? Waiting it out in cash until things look good
again? Nope.
You should be buying index
shares.
That’s right. I believe now is
a very opportune time to be buying index shares. I believe the odds are heavily
in your favor right now. (The market is down slightly today as I write this. I
am assuming it doesn’t close significantly higher.) History has shown that a
very high-percentage time to be a buyer is when the market experiences a sharp
pullback during an uptrend. I have seen and conducted numerous studies that
show exactly this. Find a market in an uptrend, wait for a short-term oversold
condition to appear, and then buy it. Â Wait for the bounce to occur, and then
sell.
If you’re not sure whether the
market is in a short-term oversold condition, check out the TradingMarkets Daily
Market Bias page. Last night it was almost completely green. Every CVR
signal triggered, the McClellan Oscillator registered oversold, and the CHADTP
also gave a buy signal. It doesn’t get much more obvious than this.
Pick your favorite index.Â
Everything is oversold right now.Â
Will the bounce occur
immediately? Not necessarily. What do you do if the trade goes against you?Â
In a case like this…you may want to buy more. Don’t sell until the bounce.Â
Using a moving average is one way to time your exit. Get out when the index
gets near or closes above the 5 or 10 day moving average. (Which could still be
below your entry price if the market falls significantly further before
bouncing.)
A bounce will occur
eventually. We’re already very oversold by a number of measures. I’d be
looking to put the odds in my favor and start scaling into some index shares if
you haven’t already. The odds favor a move up. It’s normally wise to play the
odds.
Best of luck with your trading,
Rob
P.S. For a mechanical strategy
that trades index shares, check out my
Hanna ETF Money Flow System!
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