Winning in a Down Market

The stock market has had another dismal week with all major indexes falling badly on volume as more distribution days pile up. It is hard for investors to stay out of the market during a down trend since stocks begin to look cheap but as I have said before you just have to stay out and wait for that follow through day as the signal to start buying. Do not think you are missing opportunities in fact you are doing very well by being in cash. You are not treading water you are increasing your buying power. As stocks fall your cash remains flat and so later you have greater buying power. Professionals measure themselves against the market indexes. They live and die on how much they beat the market by. Since the market has now fallen approx 10% from its peak you can consider yourself as beating the market by 10% if you are in cash and be proud of that fact.

The question is what to do in a down market. I am very busy in a down market and so should you. The best time to identify strength is when the market is weak. The powerful stocks that will take off first in the next up market are the ones that resist falling in down markets. So as the market falls you need to be identifying which stocks are not falling and which stocks may have recently jumped up on volume and are now holding steady. The stocks that are holding steady in this terrible market are the ones you need to be ready to buy when the follow through day occurs.

I am consistently updating my watch list on a daily basis looking for those strong companies. I will prune the list by pulling out stocks as they succumb to the selling and add to that list when I identify new companies that appear to be holding up well. I will not mention these companies now because even these strong stocks you should not be buying in a down market. You must wait until odds favor buying which is after the follow through day. When I see such a day I will start publishing my favorite stocks from the list I maintain daily. You should also be building your own buy list to be ready.