Even though the market had a big day today on Thursday, we are still down around 10% from the April highs. If you stayed in the market you were lucky to just be down 10% as many stocks have really gotten carved up and are down 20%-50% from their April 2010 highs. This is why being able to identify the right times to get in and out of the market is so important. The second critical piece of the puzzle is being able to sift through the thousands of stocks out there and buy only the strong ones. What this massive correction has done for us is helped us to see exactly which stocks have continued to find support and which ones were just being propped up by a strong market
The stocks we are separating are split into 3 different camps. The first one resembles the charts of the Russell 2000 and S&P 600. These stocks are the ones that were able to hold support and are now bouncing off those levels into their 10, 21 and 50 day moving averages. These are the healthiest stocks and with some further consolidation should give us some very nice gains. Look for stocks that at least resemble these charts
The second group of stocks are the V shaped moves which more closely resemble the charts of the Dow and S&P 500. These stocks have broken all support and in many cases on heavy volume but are now bouncing back up into resistance levels. These stocks are the ones that are great short candidates if the market decides to have another leg down. Learn these charts and if they start heading lower off these resistance levels you do not want to be holding on.
The third type of stock charts we see are the charts that look like the NASDAQ composite. These are the stocks that are very indecisive on the direction they want to go. They have sold off to break though their support levels but have since reversed and are now just barely treading above those old support lines. These are still very risky stocks as there is a big tug o war pulling these stocks above and below these lines. These stocks may become healthy once again but right now they are still high risk stocks to play unless you want to give yourself 20% wiggle room. That is too much for us.
If this market can hold support and give us a couple days of consolidation we should have some rewarding setups.
Disclosure: no positions