Another Beautiful Rally By The Nasdaq Helps Two Of Our Brand New Longs Finish Up 5% And 7% After The First Day Of Being Long; Leading Stocks And Leading Stock Indexes Continue To Lag
April 26, 2009
The strength of any rally shouldn’t be gauged solely by the rally itself but by what happens when the market pulls back. Is it a rational, orderly pull back on subdued volume or an ugly dumping of stock that ruins all the promising bases setting up out there? A pullback should be a welcome sight as it will reveal the market’s true colors. It’s up to you to look at the facts and act. Opinions mean nothing. Let the market dictate what moves you make.
If you are long here, I think you should be asking yourself a few questions (I will assume that you bought the stock correctly and that it is CANSLIM-quality):
Has the stock gained over 20% within 1-3 weeks of its breakout? If not, you should consider taking profits. If your stock has taken longer than 3 weeks to get you that 20-25%, it would be wise to sell at least some into this strength. Most stocks need to take a breather after a move like that and it’s better to have the money ready to put to work elsewhere while that stock consolidates its gains. If the stock is a real winner, don’t worry, it will form another base and breakout again. Then you can buy it back. Until it does that, however, play the odds. Why have your money sitting in a stock that might be basing for over a month when that stock didn’t exhibit extraordinary strength on the initial run up?
Now the rule is if your stock is up more than 20% in three weeks or less you should hold it for at least 8 weeks, assuming the market doesn’t completely breakdown. A 20% move inside of 3 weeks is extraordinary strength. Just keep in mind that, according to William O’Neil’s studies of past market winners, the first pull back is 17% on average. Something to mull over. How much conviction do you have in that stock of yours?
As I write this commentary, the markets in Asia are selling off a bit on swine flu fears and futures are pointing to a weak open here in the States. It’s early, though, so maybe that will all change. If we do pullback for a while, however, keep your eyes peeled for the beginnings of second stage bases. I’m talking about all those bases and add on buy points that you should all know by heart (and if you don’t then you have some homework to do): ascending and flat bases, three-weeks-tight patterns, high tight flags, short strokes and bounces off the 50 day and 10 week moving averages.
Don’t neglect the primary patterns, either. There are plenty of first stage bases forming right now. A pullback might mean a handle or the second leg down in a double bottom base. Stay on top of the market. Smart money management now will boost your returns in the future if the market does in fact continue on its merry way higher….
Commentary by John “Author Ego” Ward
Professional Investor/Stock Analyst at BigWaveTrading.com
Top longs/(shorts) w/ total returns making me money TODAY: ANCI 63% FIRE 25% ARST 21% KONG 20% (GTIV 41% MCY 21% K 22%) DOUBLE THOSE RETURNS WITH 2×1 MARGIN.
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