Follow Through Day Failed

I think at this point I am stating the obvious that the follow through day has failed. As much as stocks are looking cheap it would be suicide to buy while we remain in a downtrend with all indexes under their 50 day moving averages which are falling as well. The tendency is to want those stocks that appear as real bargains but you have to remember they have taken big falls for a reason.

When this market does eventually bottom we won’t be buying the stocks that look cheap, we want the stocks that have held up and remain near their highs. The best thing about a bear market is that it is very easy to identify strength. Look for the stocks that have fallen the least and add them to your future buy list. I have such a list and every so often a few fall off from that list. When the market does indicate a turn I will be ready to buy from that list and will continue buying all the way up.

Be thankful if you bought after the follow through day that you only spent a very small amount of money on a probing position and even then you only had a 10% loss maximum. If the follow through day had been successful you would now be pouring money into those early positions as they continue to rise. At this stage keep your money safe and wait for another follow through day. We are seeing lots of distribution days currently so be thankful you are in cash as you listen to your buddies saying they picked up real bargains only to see them go lower.