2 min read

When Does a Rally Have "Legs"?

When Does a Rally Have "Legs"?

This morning I flipped on my computer to check the stock indexes, and what did I see as things worsened through the morning session?

  • Nasdaq: -2.5%
  • S&P 500: -1.6%
  • DJIA:  -1.3%
  • Russell 2000: -1.4%
All over the world, I could just imagine many investors and traders in a panic. The rally, which began at the start of this month, has gone on far longer than most expected.
So should they 'buy the dip' - or instead - 'abandon ship'?
That was me, many years ago. Utterly confused.

All too often I'd sell far too many of my stocks. Then the major stock indexes, like big ocean liners making a sloooow turn, would gradually climb back to finish more or less unchanged.

And before I knew it, I was left out of the next "up phase" of a market rally.

But I had one advantage over most ordinary people. As a financial journalist (during the daytime) and wannabe stock trader (learning at night), I could call up veteran Wall Street traders for their wisdom.

A trader told me a simple observation I never forgot...I tweeted it out this morning:

By the way, if you'd like to follow me on Twitter - I'd love the opportunity.

Getting back to the point...

One of the best investing and trading habits I ever developed was standing my ground - being very reluctant to immediately bail out and sell all or most of my portfolio - during "knee-jerk" morning selloffs.

Don't get me wrong. If an individual stock I own is down significantly, and that loss threatens to drag my overall portfolio lower by more than 1% of its value...I'm likely to sell.

That's how we do it with the goodBUYs portfolio - and it's worked very well through a treacherous bear market.  But even with the rally of late, our benchmark comparison index, iShares Morningstar Small Gap Growth (ISCG) is down 30% from its highs, while the goodBUYs portfolio is now at breakeven.
So I have room to take a few chances and give the market room to flip-flop around a bit.

But if we bail and sell most or everything...we never keep ourselves in the running to get those really big gains, where a stock we bought is up 100%, 200%, 300% over the course of a year or three.

I'm sending this note to everyone at midday, so I don't even know how today's session will finish. It could be deep in the red, for all I know.

But if I keep seeing a market that - during its daily sessions, may open weak but finishes strong - it's a clue that there could be a lot more life to the current market surge than meets the eye.

Jeff