Frequently Asked Questions

Market Lab Report
Price/volume seems deceptive in 2011, and leading stocks that hold strong fundamentals often sell off hard when the major averages reverse even a couple percent.
Q: Price/volume seems deceptive in 2011, and leading stocks that hold strong fundamentals often sell off hard when the major averages reverse even a couple percent. What can be done in this environment which seems unusually challenging?

 

A: Current market conditions are about as challenging as we have seen. The market has not had any sustained rallies since the start of the year, and when the major averages drop just a couple percent, some leading stocks tend to get clocked to the tune of 5% or more. Furthermore, certain leading stocks had spin outs such as JAZZ on April 27 when the stock got throttled intraday. Thus this environment is fraught with higher than normal risk.

Fortunately, such periods come to an end, and a new trend emerges when most investors least expect it since the market likes to surprise the masses. It is during such periods that it is best to stay vigilant and watchful of market conditions since markets can turn on a dime. New trends, either up or down, can begin with only subtle warning.

Instead, many investors stop trading altogether when the market falls, and take their eye off the ball as bear markets are notorious for pushing away many investors. While staying out of bear markets is a good strategy, one should still keep their eye on the markets by running screens and keeping a watch list of stocks that may be bucking the downtrend in the general market. We maintain such a list then when the market direction model switches back to a buy signal, we send out reports in real-time so members can choose to act on any stocks that are issuing pocket pivot buy points which can then be bought. These are often the stocks that well outperform the major averages during the next uptrend.

Further, many investors fail to realize that good money can be made on the short side, especially now that many inverse ETFs exist that did not exist three years ago. And time value on the short side is enormous since general markets and stocks tend to drop much faster than they rise. Such is the emotional nature of fear vs greed/hope. The tricky aspect of shorting stocks is timing. It is best to test the waters with a smaller than normal position, then add to the position as it proves itself on a price basis. We assist members through these treacherous waters via our Short Sale Set-ups reports.

In this current trendless market, the only positions taken in larger size were those that continued to move higher, so position sizing/money management techniques played an important role. Buying a smaller than normal position on the first buy point, then subsequently small positions on subsequent buy points puts the average cost at a lower level than where the stock is currently trading, thus the investor can add to their position with psychological ease.

We patiently await the next big move in the ETF and/or stock space, and will advise members accordingly. Initial positions should be smaller than usual, then pyramided into once proven on a price basis.


Published: Jun 3 2011