1) The higher volume recovery in the NASDAQ Composite.

2) The strong price action in some of the big caps: $PCLN $OPEN $CRM $WYNN $LVS

3) The solid breakouts in $ACOM and $BSQR

4) Additional stocks on my watch list.

Although I was a little cautious based on Tuesday’s action, Wednesday’s market showed strong signs of institutional support and that the uptrend remains intact. It also reminded me of a great quote: “It is OK to be wrong, but it’s not OK to STAY wrong.” In other words, it’s OK to form an opinion but ultimately, let the market prove you right or wrong and make the proper adjustments. Enjoy the video!

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I know it’s only one day but so far, so good. Your first reaction might be: “But Joe, the Dow was down over 100 points on Tuesday!” My response: “I was paying attention to my stocks and not obsessing over the most over-hyped index on the planet!”

Here’s a quick story: I have a friend who does not trade and has no interest in the stock market. Whenever I talk to him after a big up day, he says: “Wow! I saw the Dow Jones was up 200 points today, you must have had a great day!” And he says the opposite on the big down days. My point is that the average person views the Dow as an indicator of the entire market. 1) DON’T THINK LIKE THE AVERAGE PERSON! 2) The Dow is only 30 stocks and not a great indicator of the other 7,000 stocks 3) Many traders perform well on down market days and lose money on up days. In other words, we don’t always correlate to the indexes.

My main point is to pay attention to your stocks and don’t obsess with the indexes (unless you only trade the indexes). For example, if I only got final quotes on my stocks today and got no index quotes, I would have guessed that the market was relatively flat on Tuesday. Why? Because the majority of my holdings and watch list were barely down and many of them advanced nicely on the day. In fact, my managed accounts finished positive on Tuesday, further confirming the importance of stock selection.

Examples of a few leaders that pulled back on light volume Tuesday: $FFIV $MELI $BIDU $CTXS $CRM $VMW $APKT. Some that bucked the trend and advanced nicely: $NFLX $ISLN $CMG.

So what do we do from here? Watch your stocks. If they are showing you a profit and acting well, try and hang on for a bit. If they break down on heavy volume, lighten up and wait patiently for a better opportunity. As I mentioned on my show, there’s no reason to rush back in and chase stocks. I began to SLOWLY get back in last week by taking light positions and “testing the waters.” So far, my stocks are acting well, but I will cut my losses quickly if they break down. I’ll keep this blog updated later in the week as the market gives us more information.

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2) Stocks are forming bases right now, but they need more time to set up properly. PATIENCE is so important right now!

3) I wouldn’t be surprised to see the market chop around through July. By chop, I mean 1 day up and 2 days down, followed by 2 days up and 1 day down. Again, nothing “sustainable” to the upside.

4) If you insist on trading, keep position sizes small and take quick profits. If you are not comfortable trading that way, then don’t trade.

5) The key in corrective markets is not to make money, but to protect your capital. As Paul Tudor Jones says: “Play great defense, not great offense.”

6) I don’t think we will have another big leg down, but I’m not ruling it out either. (How’s that for hedging myself?)

7) Keep in mind that cash is a position and there is nothing wrong with doing nothing.

8) I do like how many leaders found support near their 20-day moving averages on Wednesday. Examples include: $BIDU $DECK $CRM $APKT $NFLX $AKAM $CMG. Unfortunately, everyone is watching the same 10-15 stocks and this could be a crowded trade. I like these names but I would prefer to see MORE stocks setup.

9) “Wait until as many factors as possible are in your favor before making a trade. It’s the patience that makes the money.” — Jesse Livermore

Please tune into my show “The Next Big Move” this Sunday night at 8PM EST on StockTwitsTV (http://www.stocktwits.tv/). I will be discussing these thoughts in more detail and comparing the current market to a possible 1997 scenario.

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