Tuesday, May 04, 2010

Patience...No Need To Panic Buy...Yet

In my April 14th blog entry, Don't Chase The Market, I wrote, "Based on model studies most of the stocks will pullback at some point and most will be buyable right around this range".  In my April 12th blog entry, The Market That Won't Pullback, I wrote, "Unless we're going climactic, I can almost promise that you will get a chance to buy most of the leaders that have been moving higher at or near current prices after the next pullback".  The reason for both entries, "I found overtime that it is easier to deal with missed profits then with lost profits.  If you're sitting in cash and waiting for the pullback and are ready to pull the trigger, it will be easier to do so.  If you're invested and have to sit through a pullback, even though you may understand it is normal, your EMOTIONS DO NOT.  They will force you to run for the exits just as you should be ready to add more."  So here we are almost a month later and most stocks are right around the range they were about a month ago.

Just like death and taxes, pullbacks in the stock market are inevitable.  Patience to wait for and during them is another story.  If you did manage to wait, you are most likely extremely antsy to buy right now.  After all, you either missed or did not profit as much as you would have like too in the previous rally.  So you don't want to make the same mistake again and are ready to pounce on the first pullback.  But I say wait.

The market and it's leading stocks are only in their first two weeks of the correction.  The volatility day to day is a bit too extreme...one day up big followed by one day down big.  Headline risk from Europe and Goldman Sachs add to the uncertainty.  It's a rollercoaster ride you do not want to be on.

The game plan right now is to build a watchlist of stocks you are interested in buying.  Try to identify the type of pattern the stock is forming and how much more time it needs to complete the pattern.  Then determine what you would want to see, preferably based on previous model studies, in order to begin entering the stock.  This takes away the risk of randomly buying and selling, which often leads to churning.

Based on the current action of the leading stocks, we have at least another 2 - 3 weeks of sideways to downward action before the rally can resume.  Some stocks are further into their consolidations and could be buyable earlier.  For now I would stay away from buying anything and focus all my efforts on research.

Side Note

If you have been holding a big winner for sometime and the stock is acting fine, there is no reason to sell.   Swing traders on the other hand need to be flat on the long side.

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