Always a good read.

GS40

Yesterday Is History

It has been said that up trends build on worry and doubt and end with unbridled enthusiasm. Recalling the tech stock bubble in its infancy, every tech stock that was moving higher was met with pessimistic commentary. Analysts cited valuations that were too high as a reason that the up trend must end. Yet, these stocks continued to march higher, building with the confidence of the investors that bought them.

Early in 2000, the prices of these stocks were legitimized using new valuation models that seemed to be concocted with the same irrational exuberance as that which prevailed in the market. Everyone was making money and thus, everyone was happy to continue buying.

Of course, the bubble eventually burst, leading to a sharp and intensive sell off. Those who still believed in the technology dream stuck with their stocks like a sinking ship's good captain. And they got punished.

This experience sits in the memory banks of investors and, when the next up trend begins to build, the fear of a repeat performance causes many to sit on the sidelines and watch the market go higher. With each week of price ascension, the doubt about its legitimacy lessens.

Doubt causes investors to miss out on great opportunities. They look at what is happening in the world and transfer that perception to the stock market, failing to recognize that what is happening the world today has little to do with what is happening in the stock market.

The stock market is not about what is happening today. The job of the stock market is to look ahead, to guess at what will happen in the future. If you make your investment decisions based on what you know today instead of what you think could happen in the future, you are destined to be a very average investor.

Don't worry about the stock isn't, trade what it is.

If a stock is going up, it is because people want to pay more for it. Don't fight what the market is telling you, just go with it!

Why do investors put so much emphasis on what might happen? Perhaps it is their need to hedge against pain. The desire to avoid losses keeps people from realizing great gains. Fear governs their decisions and causes them to not hear the message of the market.

Consider this simple question. How long does it take for you to sell a stock?

Today, with advanced in technology and the availability of the Internet from even your cell phone, the answer is less than a minute. So why do we think that exiting a stock that is in trouble is such a big deal?

You may not believe in the strength that the market is showing, but don't let that doubt keep you out of a strong trending market. Trends do not reverse overnight. If a stock you buy breaks down and hits you stop loss point, sell it. You don't have to ride it down to the bottom as a show of loyalty to your decision.

I can't recall a market that ever made sense to me. This is because the stock market always leads the facts, we only find out afterward why a stock went up. Rather than try to be smart, just do what the market tells you to do. Being a good listener will make you more money than trying to make sense of what is going on.

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The Market Scan strategy that I use the most to find position trade buys is the Stockscores Simple. In a normal market, doing this scan will reveal over 100 candidates each day. I ran the scan today, first on the Canadian market, and got four candidates. Running the scan on the US market found 9. I did not like any of the charts enough to buy them.

We are likely at or near a bottom in the market but until there are stronger signs that the sellers are tired, I think it is best to stay in cash. Swing and day traders can take advantage of the extreme volatility to capture quick moves. However, for the more passive investor it is a good time to stay out of stocks. We tend to see a bottom in the Fall so don't take your eyes off the market as the market should improve from here. Just be patient until it does.