Don't   Panic  ...  Have   Patience

"The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages."

By Jesse Livermore - the greatest stock trader of our times.

"You can't become a big winner in the stock market until you learn to be a good seller as well as a good buyer."

By William J. O'Neil - Founder of Investor's Business Daily

Market took a sudden down turn right after the Valentine's Day.  We had a  "Follow Thru"  day in mid October.  It was a very successful event because the market kept a slow and steady uptrend for 18 weeks.  Most of the Growth Stocks were extended by mid February.  As a Growth Stock investor and trader, one looks for the market to correct and consolidate for a while.  It helps stocks take a breather and digest the gains of 20% to 25%.  Stocks often consolidate and set up a new base after making substantial gains.  It helps us as retail traders to lock in some partial gains and reduce the size of the holdings.

$SPY and the $NASDAQ have been swinging + or - 3% to 4% several times in the last 3 weeks.  We almost had a  "Follow Thru"  day on Wednesday with the two major indexes mentioned, making an attempted rally.  We needed volume behind the rally and that was the only thing lacking.  This is why one needs to not jump in early with the hopes of getting a better price.  Patience is the key.  We will have to observe and see what the institutions do this week in the market.  We as retail investors and traders, take our cues from them since they are the ones that ultimately decide where the market will be heading.  This is the time to keep our emotions in check and exercise patience.  Just allow the next week or two for the volatility to subside.  There is an outright panic in the market with all the news coverage of the politics and disease and plummeting commodity prices.  Just let the stock charts tell you what is happening with the price and volume.   

Game Plan Heading into Next Week

Retail investors should have started scaling back slowly in the last 3 weeks.  How long will the market take to stabilize and how deep the market will correct is any ones guess.  During market correction, everyone should have done the home work to:

• Identify the weak and underperforming stocks.  Trim them from the portfolio to mitigate further losses and raise CASH.
• Identify strong leading stocks that continue to resist the down turn in the market.
• Trim the positions of stocks that have made gains of over 20% to 25% to reduce exposure in the market and lock in some gains.
• Build your watch list of stocks.  Look for stocks that are trading above the 34 day ema (exponential moving average) and exhibiting an RS ratings and composite ratings above 95.  These can be found on the IBD (Investor's Business Daily) website.
• Make a list of stocks that had surged 20% and invoked the  "8 Week Hold Rule"   in the last 2 months.  
• Make a list of stocks that the institutions had exhibited an interest in.  These are the stocks that gapped up on the favourable news or during a pleasant earnings surprise from the company.

Don't panic and keep a cool head during these times.  It's quite OK to stay on the sidelines at this time and be mostly in CASH.  Wait for ideal setups after the stocks have built a sound base.  We will have a  "Follow Thru"  day.  Don't be tempted to buy the dips.  It's better to give up some profits by not getting in early.  It's best to get a confirmation from the institutions with a surge in the price of the stock along with the increased volume.

I shall be posting some of the stocks that are on my Watch List sometime tomorrow.  I shall list them with price in parenthesis that I consider to be the resistance/support levels.  Those prices will change as the stock consolidates further and builds a next base in the following days.  It's designed to help guide you with the skills of deciphering stock chart reading skills.

Happy Trading!

Amin