On Tuesday, the futures in pre-market were down over 200 points on the Dow. It’s at that time we issued a pre-market alert where we said:
“Part of us thinks this is going to end up just being another round of shake the tree to get the rest of those loose weak apples out of the market but we’ll see.”
With that we adjusted our stop losses on our current positions to allow for volatility and avoid being stopped out.
And for those that bought into the face of fear Tuesday morning, they were rewarded nicely. Here’s how our current positions opened the day and where they closed the day:
DNDN — opened at 41.74, closed at 42.80 for a 2.5% gain
NFLX — opened at 97.51, closed at 105 for a 7.7% gain
GMCR — opened at 22.83, closed at 23.35 for a 2.3% gain
VRX — opened at 44.54, closed at 44.09 for a 1% loss
AAPL — opened at 239.90, closed at 245.22 for a 2.2% gain
BIDU — opened at 67.12, closed at 69.08 for a 2.9% gain
ABX — opened at 40.76, closed at 42.35 for a 3.9% gain
NEM — opened at 51.44, closed at 53.54 for a 4.1% gain
But buying in the face of fear isn’t just a catch a falling knife strategy. Instead, it’s about allowing stocks to come to you and in so doing it allows you to take advantage of oversold conditions and pick off a lot of names at key support levels. Which when a day like this comes along it also allows for managing the porfolio a lot easier vs had you chased stocks. It also allows you to set our stops and let the market do its thing.
In addition to buying leading stocks at support, it’s even more ideal when you do so at the same time the market has also pulled back to support.
As you can see from the charts below, Tuesday’s open simply allowed the markets to retest support which it successfully did:
After looking at these charts and seeing how oversold the indexes are and how they are at support, would you honestly want to be short right here? Seems like odds favor gains coming on the long side vs. the short side.
And finally, while the indexes plowed to new lows from Friday’s fear day many of our current positions DID NOT BREAK INTO NEW LOWS WITH THE INDEXES. THAT IS CALLED DIVERGENCE AS IN POSITIVE DIVERGENCE.
For example, last Friday AAPL was bought down in the 232 range and the lows of AAPL today was 237.16 NFLX was another one. We bought the issue at support in the 91 range yet the lows of the day today were 97.00 and this issue ended the day positive.
This is what we mean by divergence. It’s also a great point to make about LETTING YOUR STOCKS TELL YOU WHAT TO DO BY THE ACTION THEY EXHIBIT VS WHAT YOU FEEL EMOTIONALLY AND HEAVEN FORBID THE HEADS ARE SAYING ON TV.
Because of that only one of our stocks was stopped out this morning. This is what we mean by letting them tell you what to do.
As Bill O’Neil would say:
BUYING RIGHT SOLVES HALF YOUR SELLING PROBLEMS
To learn more, visit our blog site and sign up for our free newsletter to receive our free report — “How To Outperform 90% Of Wall Street With Just $500 A Week.”
