RETURNING CONFIDENCE
On the upside, the area where churning takes place is in between the Returning Confidence phase and the Subtle Warning phase, after a significant advance has already taken place. This often appears in the form of a head and shoulders top on weekly or monthly charts. By the time confidence returns, the market has already been going up for ages while the retracement patterns become ever larger, each one scarier than the last.
To technical traders, this type of price action tells us that the market is getting tired. Perceived bull market volatility excites investors. They waited forever on the sidelines for fundamentals to confirm that the move up was ‘real’. The coast is finally clear and they jump in with both feet. This phase typically ends with a failure on test of top, and the big, super scary ‘buy the dip’ pullback begins.
BUY THE BIG DIP
The public continues to pour money in, lured by glowing good news and economic data. After the long move up, finding attractive stocks becomes difficult for technical traders and market veterans. Traders chase momentum where they find it. Investors believe that the game is back on, and they are willing to take big risk and buy big dips. This Big Dip usually comes after a failed test of top in the Returning Confidence phase. The Big Dip typically takes price below the 50-day simple moving average and quite often, to the 200-day moving average. This is where ABC Corrections are typically found.
ENTHUSIASM
Once it is widely accepted that economic and corporate fundamentals are supporting higher prices, a bell goes off. The bull survived The Big Dip. Those who had previously been afraid now have plenty of reasons – and proof – that it is safe to go back into the market and buy again. (more…)
Archives of “appetite” tag
rssLouis Ehrenkrantz’ 7 Golden Rules for Investing
First rule: develop a large appetite for
reading; it will hone your instincts for finding successful companies.
Second
rule: don’t overdiversify; ten stocks, in at least three sectors, are
enough for the average investor.
Third rule: stick with your winners and sell
your losers; do not automatically sell when a stock hits a target price, but
continue to hold it as long as it performs well and has good prospects for the
future.
Fourth rule: look for top-quality, out-of-favor companies; look for
companies that produce an array of high-quality products and/or services.
Fifth
rule: don’t worry about earnings if a company makes a popular product; strong
earnings growth will follow.
Sixth rule: don’t tinker with your portfolio; check
your portfolio’s performance only once or twice a year.
Seventh rule: don’t be
afraid to hold cash; it’s okay to be prepared to purchase stocks with
beaten-down prices after a correction.