Once again, I refuse to get sucked into the shenanigans of those fools in Washington, I will simply deal in facts. This has now become a news-driven market that will swing with every sound bite from the TV. Unless these silly people who supposedly run the country get a grip, and quickly, an already tired market will be pushed off the fragile cliff-face it now sits on. How a Western government can simply shut down is beyond me, and if the USA drops its credit rating over this, interest rates will rise, Fed or no Fed.
Okay, rant over! But best to lay low until the air clears. So this is a good opportunity to mention trading techniques. When I’m looking for a great trade and don’t know where to turn (probably because of all the noise like the shameful nonsense that’s going on in DC now), I resort to the bigger picture with my 3 secrets for picking winners.
I’m going to tell you what these are…
As traders it’s important to go with the flow. Swimming upstream, against the crowd, may sound macho and contrarian, but it’s also costly. So our task is to find which way the flow (of money) is running. We start with the biggest picture, and then narrow it down more and more, like so…
Secret 1: Look at the overall market
If I look at the major indexes currently, they tell an important tale. First look at the S+P 500:
Not too bad, and still hanging on to the bull’s horns (because it’s above the blue line- an important moving average). But it’s not as dynamic-looking as this chart below of the Nasdaq:
See how much higher above the blue line it it? There’s more upwards energy to this trajectory, any ten-year old kid could see that just by looking!
So Nasdaq is where the action seems to be. This focus alone will greatly increase your chances of success! When the tide is on your side, a monkey could make money from the stock market (and in some cases on Wall Street, this theory keeps getting proven).
Secret 2: Look at which types of stocks (sectors) within that index are flying.
A flick through Yahoo Finance or Barron’s will tell you which kinds of stocks within your chosen index have just hit new highs (a bullish sign). Within the Nasdaq currently, it seems that pharma seems strong this year so far.
Secret 3: Select the stock from that group that looks the most promising.
You’ve now narrowed down your search. You’re looking in the winning sector in the winning index, and your chances of being right have skyrocketed. Now all you have to do is make sure you buy a stock here that is a powerful uptrend, not a downtrend, just like my last two picks for ‘Money Mentor’. But how to do that is a big subject for another day.
Bottom line: ride the tide.
Best,
Jim.
