Market Lab Report - Two major strategies that have yielded good stock profits even in these QE-manipulated markets

Published : September 27 2016 at 13:32 ET

Markets have a natural rhythm to them, an ebb and flow if you will. In today's markets, we have long advocated 1) buying on constructive weakness and 2) selling into strength should the stock price get ahead of itself.

We run our screens throughout the trading day in search of such stocks with the best risk/reward profiles.

Two important themes:

•The closer one buys a stock as it pulls back to a logical area of support, the less risk since one's sell stop is well defined. 

•The stronger the prior price move in the stock, the greater the odds of the stock continuing to exhibit such price strength when it launches again.

 

As a few of many examples, see our Focus Lists (egs: http://www.virtueofselfishinvesting.com/reports/view/market-lab-report-review-of-current-vosi-focus-list-as-of-august-19-2016), Weekend Reviews (egs: http://www.virtueofselfishinvesting.com/reports/view/market-lab-report-weekly-review-of-pocket-pivot-reports-for-the-week-of-august-15-19-2016), and individual stocks that can be searched by ticker symbol in the report archives https://www.virtueofselfishinvesting.com/reports. Some members use this Focus List to add to their own list. 

We recently wrote in our Market Lab Report - Premarket Pulse 9/23/16 at 9:13 am ET:

Others such as MOMO, LN, and WB are still near support. Stocks such as PI may need more time to digest prior gains but should nevertheless be monitored for constructive pullbacks to prior areas of support. In general, investors should avoid buying into strength and instead seek to pick up shares of leading stocks on constructive pullbacks.

All stocks mentioned above are in our Focus List:

•We mentioned MOMO on Monday to members in the Focus List update.

•LN gapped higher so could be considered a buyable gap up, though its earlier buy point was at the time we sent the report on 9/23/16 when it was still close to support.

•WB also pulled back to its 20-day line.

•PI pulled back to its 20-day line on Monday then bounced.

Keep in mind that pullbacks allow for lower-risk entry opportunities, not "no-risk" entry opportunities. If one purchases shares near a potential area of support such as a major moving average or the top of a prior base, for example, then that should be used as a guide for a tight downside stop. This is of paramount importance, and stops should be adhered to since it is never clear how far and how long any market pullback will continue.


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