A lot of times when the market is tanking as it has been in the last few weeks, traders get anxious trying to figure out what they should be doing.
Should you be trying to go short? Should you be attempting to catch bounces? Should you just turn your screen off and go to the beach with an adult beverage? The answer to all these questions is “NO!”
GO SHOPPING
Instead you should go shopping. No, not at the mall, but in the markets
YOUR WISH LIST
This is the time to make your shopping list of stocks that will be the biggest winners when the market stabilizes and turns bullish again. And the way you find those potential winners is to see which stocks have had the best relative strength during the market declines.
For example, on October 24th, The DJIA was down 1.83% and the S&P 500 was off 1.44% but Coach (COH) was up 7.35% on over 350% of its daily volume.
STOCKS TO ADD
Now COH doesn’t yet have a chart with an actionable setup, nor would you want to trade it yet if it did as the markets are still in turmoil. But what you do want to do is put COH on your shopping list, and keep and eye on it to watch how it reacts when the market selling is done.
But it’s not only one day divergences in relative strength you are looking for.
MORE EXAMPLES
From October 19th to October 21st the DJIA and S&P 500 dropped 440 points and 44 points respectively. Not only that but in the agriculture sector stocks like Potash (POT), Mosaic (MOS), and Monsanto (MON) all dropped, continuing their intermediate term downtrends.
But take a look at Agrium (AGU) during that same time period. Not only had it been consolidating at all-time highs recently but during that three day period it when the overall market and its sector mates were in freefall, it actually broke to new highs on increased volume.
Good relative strength in stocks during down markets doesn’t guarantee that they will be the big winners in the next up move, but they are the first ones you should be looking to for good setups when the market does turn.
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