I received 5 emails recently all saying the same thing: “I see that you are invested in the market and mentioning stocks on StockTwits and in your videos, however, Investor’s Business Daily (IBD) says “the market is in correction” and I can’t buy stocks when we are in a correction, so what should I do?” Here are my thoughts:
1) I have tremendous respect for the people at IBD and I’m a paid subscriber to their online newspaper. So what I am about to say is not a knock on IBD, it is a knock on people who can’t think for themselves.
2) If you follow anything blindly (newspaper, newsletter, trading service, blog, etc.) you are doomed as a trader. Why? Because what happens if that service or paper goes away? The crutch that you’re relying on is gone and then what???
3) The ultimate goal for all traders is: Get to the point where you can make confident decisions on your own and trade with complete independence. While I respect IBD, I DO NOT rely on them. I can turn off CNBC, Twitter, and all communication to the outside world…and still be fine with making my own decisions and letting THE MARKET tell me if I’m right or wrong.
4) I’ve said this a million times and I’ll say it again: Get rid of all your indicators, ignore the economic reports, and PAY ATTENTION TO THE PRICE ACTION OF STOCKS! That is all that matters! Even when the market pulled back in mid-April, many leading stocks were showing strong price action and never flashed any sell signals. In fact, their relative strength gave me even more confidence to add to them, and not some analyst comments or anything else…just the PRICE ACTION.
5) For the record, IBD changed their outlook to “market uptrend resumes” on Monday evening (4/29). They have their rules and I admire them for sticking to their discipline. Their job is to guide the individual investor in the right direction and, for the most part, they get it right. Again, if you simply listen to the price action, outside opinions don’t matter.
For now, many of the traditional IBD rules are not working. Stocks are not breaking out with the extreme power that I have seen in the past, and when distribution days build…they are met with “shove it in your face” buying to new highs. I’ve written about this many times recently. I am confident that things will return to normal sometime in the future, but for now, you must learn to adapt to the current market conditions and think for yourself!
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