Heyer Capital, LLC

investment management and timely advice from a local CPA (Fox Valley, Wisc.)

Optimism

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As I write this, the US markets managed a meager gain to day after finishing the worst June since the Great Depression #1, the Nikkei is suffering its 10th straight down day; the S&P oscillator is pegged at -9, the lowest reading; the market’s Mad Money maven Jim Cramer says M&I bank won’t survive; and market commentators are beside themselves with doom and gloom.

The contrarian in me says, Damn the torpedos. Full Steam ahead!  But that would be too clever by half.  The market is weak for many good and proper reasons. I’ll let you, dear reader, flesh those out for yourself.  Instead I encourage you to wait for a follow through day showing a new rally has possibly begun.

Why wait?  Right now the market trend is down. And “price pays”.  Price is the only thing that matters. Having a boat load of statistics and oscillators at your back doesn’t mean anything if the price action is lower, leading to losses.  The market sets the price, and price pays.

How will you recognize a rally follow through day?  It will comes generally  4-8 days after an intermediate market bottom, and a couple things will happen:  1) broad indexes will advance at least +1.8%; 2) on heavy volume; 3) with many leading stocks advancing on good volume.  Ken Shreve, the markets editor at IBD, said in an interview recently that the follow through day is the correct entry point 3/4 of the time according to their century’s worth of data.  (Think market timing is gambling?  Find a casino game with 3:1 odds in your favor.)

Of course, don’t jump in with all capital right away.  Keep your watch list pruned now. Which stocks have really held up well the past month?  Are they finishing in the top of their weekly price ranges?  And for goodness sake, keep stop losses tight, especially cutting losses at 8% or less to avoid big trouble.

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Written by heyercapital

July 1, 2008 at 8:13 pm

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