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A technique that we like to use when the market isn't sure what it
wants to do. How many times have you seen the market open up
strongly, then sell off, and finally settle into a "rut" where there
doesn't seem to be any clear direction? Probably too often, and the
question becomes what do you do? Here are a few suggestions.
Naturally we want to find the strongest sector of the day, but
sometimes it isn't even clear if there is a strong sector! So what
we like to do is wait. It is very rare that a sector or a stock
won't take a leadership role sometime during the day. Even with
the "10 AM" rule pounded into your head, sometimes it still isn't
really clear who is leading the day even by 10. When faced with a
day like that it is often best to wait until the next "key" time of
the day, and that is about 11:00 AM. We have found that if no one
stock or sector wants to take the lead early on, they usually will
as you approach the 11 am (eastern) hour.
We stress the 10 am rule as a good benchmark to follow where you can
most often find a good trade. By this we mean that you wait out the
first 30 minutes of the market and let it do its shaking and
twisting. What will usually happen is that a good stock in a strong
sector will gap up a bit, then pull back and then power ahead. This
is just a guideline though as we have seen many "false starts". When
the market doesn't have a leader, or the stock that you are focusing
on does what it is supposed to early on, but then fades out again,
the next big focus time seems to come around 10:45. By this time if
the market is going to be flat to up a bit, someone is generally
leading the pack and hopefully this is the stock you are watching!
Now if the pattern of the day has really been one of totally non
directional, then it is often best to wait until the very last hour
of the market. When we get a day where even at 1PM the DOW has
crossed the unchanged line 3 or 4 times, and the NASDAQ has been
either static or wandering around also, the last hour of the day
often decides where things are really going to go. To get the best
chance of a late day profit, write down the stocks that tried to run
during the first hour of the market,they often end up being the ones
that finally power up late in the day.
So remember, sometimes we have to be patient to enter a trade. Some
days the market is simply too undecided for us to be sure of a good
entry point. But it is almost a given that at one point either a
sector, or an individual stock will make a run for it and that is
the stock you want to be in!
For more FREE trading tips, please visit us at:
http://stocks2watch.blogspot.com
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