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Those of you who know me know that I focus heavily on leading stocks. Why? Because by definition, leading stocks out-perform the market. So my chances for success are skewed in my favor when I focus on leading stocks. That is one tool in my tool box but not the only tool. I strongly believe that there are infinite opportunities in the market. My job is to find – and then – capitalize on them.
More than one way to win:
One of the many reasons why I love this business is that there are many ways to win. In the latest Market Wizards book, one of the Wizards had the exact opposite strategy to trading than a Wizard in one of the prior books. Interestingly, both people enjoy huge risk-adjusted returns (even though their strategies are polar opposites).
There is an old adage on Wall Street that says, “Don’t catch a falling knife.” In trading terms, the adage means do not buy stocks that are falling to new lows because it can keep falling (and blow you out in the process) before it bottoms and turns higher. Typically, bottom fishing is not for me. I prefer to buy leaders. But every once in a while a stock or sector jumps out at me that might be worth a closer look.
Let the Market Guide You:
When done right, and with proper risk management techniques, buying near a bottom (think if you bought in early 2009) can be very lucrative. My goal is to capture the bulk of the move, not pick a top or bottom. I do this by being patient and letting the market come to me. I find it much better to wait and see a healthy pattern emerge and then begin accumulating a position- when the market confirms a bottom is forming.
JCP Forming A Bottom?
We all know the drama surrounding JCP in recent years. After getting severely punished and flirting with bankruptcy – the company (for now) appears to have made it past the abyss. Interestingly, JCP just broke above a two year downward trendline and is now forming a bullish double bottom pattern. A new technical buy signal will be triggered if/when the middle of the double (W) is taken out – or $10.30. The bullish fundamental view is that JCP is not going to fail. Therefore, if it recovers- the stock should do very well. The best part is that virtually no one is bullish on JCP right now.