When I teach my class to honors students I find that the biggest mistake they make in trading is buying a stock when it is too extended from support. They buy when it is extended and then sell as it falls back to support. I did that a lot until I reviewed several losses and discovered that pattern. To make money, all I had to do was to reverse my actions–buy where I had been selling and sell where I had been buying. But how can one do that effectively?
General Market Index (GMI) table
IBD 100 list top ten stocks do outperform!
From time to time I attend stock meet-ups and listen to members opine about how useless the IBD 100 lists are. People just like to denigrate things without examining the evidence and these untruths tend to get passed on unchallenged. Each Monday, IBD publishes a list of the top 100 growth stocks that meet their technical and fundamental criteria. I feel a lot more confident buying stocks on this list because IBD’s stock selection criteria are based on analyses of their comprehensive database of the best stocks over the past 100 years. Imagine that–they actually analyzed the characteristics of past market winners to design an empirically based system for selecting winners BEFORE they take off. Because human trading psychology is pretty stable, one can discern lasting technical patterns (which are really trading decisions) that are characteristic of winning stocks.
So, one of the exclamations that I have heard from self-proclaimed experts is that by the time that a stock gets to the top of the IBD 100 list, it is too late to trade it for a profit. The table below shows this assertion to be nonsense, at least for the top ten stocks on the list published on
Short term trend down, longer term trend still up; STEC stumbles
The sudden deterioration in the short term indicators is a little troubling to me. While I am defensive, the longer term weekly up-trends are still intact. Last month, the market weakened considerably early in the month, only to come charging back by options expiration. We do not know whether this pattern will repeat this month. October always brings out the bears. I am trying to hold on to the cash secured put positions I sold. As we get closer to expiration, on 10/16, the time value of the October puts I sold will decay, bring me profits. I am betting that the underlying stocks will not fall so far as to wipe out my profits. Then again, I would not mind having someone put to me shares of AAPL at $170! Meanwhile the GMI