Ideas are Drying Up

While going over my weekend stock screens, I noticed very few “quality setups.” By this, I mean “safer entry points” to initiate new positions. What I really saw was some subtle distribution over the past two days. I am not turning bearish. I am simply saying that many leaders have made strong moves since I started to re-enter the market about a month ago and I wouldn’t be surprised to see a short-term pullback.

How long? I have no idea. That is why I run my screens EVERY night to get a true feel for the market. As a trader, it is important to do your work on a DAILY BASIS because the market is so dynamic and can change at any time. In other words, I prefer not to make predictions but to use the strength of leading stocks as my main criteria to judge the market’s overall health.

My gut feeling is that we see some form of a pullback and the market still heads higher over the next 3-6 weeks. However, anything can happen: 1) The market can continue to be resilient and scream higher 2) The market can correct before we head higher or 3) We could possibly see an overall top. I am leaning towards the second scenario because stocks still seem to be in a good uptrend, but look like they need a healthy pause.

My advice depends on what type of trader you are. If you are short-term, I would wait patiently for better entry points, as they might not be far away. If you are a swing trader, you can lock in some profits and look to re-enter your positions on a pullback to logical support areas (20-day or 10-week moving averages). If you are a longer-term holder and playing some stocks for bigger moves, you might have to sit through a possible pullback. It’s easier to do so if you have a decent entry point and a “cushion” to work with. That is why I stress the importance of “safer entry points.”

No matter what type of trader you are, you should always cut your losses and do your best to let your winners run.

Follow me on Twitter @jfahmy

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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