Using The Bear To Advantage

Nothing reveals strength
of character like adversity. And what applies to people also applies to stocks.
In bear market, stocks with strong relative strength stick out in sharp contrast
to their peers.

You can play high RS base breakouts for limited exposure trades in the teeth of a bear market (while keeping the majority of your account equity in cash). Or you can play things more classic as an intermediate-term trader and just keep an updated list of these stocks. Then when the rally appears to come, many of the names on your list will be among the first to breakout.

Hott Topic
(
HOTT |
Quote |
Chart |
News |
PowerRating)
,
now seven weeks into a base, is displaying signs of accumulation and tightening
pattern formation in addition to a rising relative strength line.

Golden
State Bancorp
(
GSB |
Quote |
Chart |
News |
PowerRating)
shot up 6.5% after Standard & Poor’s said it would
add the bank holding company to its S&P 400 Midcap Index after Monday’s
close. The move got the stock above its mid level of around 28 1/2, a key test
for overcoming overhead resistance.

For
another market-defier, check out Sylvan Learning Systems
(
SLVN |
Quote |
Chart |
News |
PowerRating)
, a provider
of educational services.

 

Remember
that all stocks are
speculative. On any new trade, be sure to limit your risk by limiting your
position size and setting a protective price stop where you will sell your buy
or cover your short in case the market turns against you.  For an introduction to combining price stops
with position sizing, see my lesson,
Risky Business
. For further treatment of these and related topics,
check out the Money
Management
area of TradingMarkets’ Stocks Education section.