Friday, April 10, 2009

Last Call!

Well, the market sure has been good to us the last 5 weeks. It really doesn't get any better than this, except it might over the next 4 to 5 weeks. My breadth momentum system turned bullish yesterday, and coincidentally, Carl Swenlin at Decisionpoint has now called the medium term trend up. All systems are go. This is one of the rare times that traders and investors can make huge gains in a relatively short period of time. Probably, the biggest issue facing both traders and investors is not realizing that this type of action typically only lasts for a few months and then it is back to grinding it out. Continuing to position oneself for outsized gains after the rate of change has diminished then leads many to give back their hard won profits. Just as it was hard for trend followers to make money in December and January, there will be a period this summer or next fall that will be difficult. If you are fortunate to book some large profits, you might want to consider taking a portion out of your account. This will effectively reduce your portfolio heat, keep the gains safe in a cash account and reduce your potential future drawdown. Also, consider reducing your total allocation on the remaining funds in your trading account until a new strong trend emerges.

I may have spoken too soon with regard to IBD stocks. I actually found a few that I liked this morning in the IBD 100 list, in particular, I like the setups in TNDM, INT, STAR, CERN, PETS, OTEX, HANS and WIRE. The key is to look for stocks that are not in 4th waves that could lead to a false 5th wave breakout. I have found that many stocks that make it into the IBD 100 and Stocks In The News are ready to break out in 5th waves. This is particularly frustrating. However, several of the shorts that I profited from last fall were IBD 100 stocks that had failed breakouts, so it can be useful.

FYI, I am long HANS from 36.00. It hasn't gone anywhere yet, but it looks as though it is ready to breakout with a target between 50 and 60. As a rule I don't trade any stock on the intermediate term that I don't think has a good chance at making 40%. This culls out a lot of candidates, but it gives me room to a) be wrong in my analysis, b) make a trading mistake, and c) potentially make a large profit with some cushion. Why eat crumbs when you can have the cake?

Happy Easter.

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