1. Market Direction: Read the blog column every day to stay in step with the general market trend. This is very important since most stocks follow the direction of the general market averages. Only buy stocks when the general market is in an uptrend. Raise some cash during market corrections, when the Market Breadth Ratios show a SELL signal or we get a SELL signal on the market averages. The Market Breadth Ratios and the General Market chart signals highlight key turning points and tell us whether the market is in an uptrend or a correction. Being on the right side of the market direction is the most crucial element in successful investing.
2. Stock Ideas: Use Investor’s Business Daily to help find potential winners. You don’t need to spend a lot of your time looking for quality growth stocks. Sector Leaders featured in the NYSE & Nasdaq Research Tables gives an excellent list of top quality growth stocks. IBD has started publishing that list of stocks as a separate feature in their B-Section. These stocks must pass rigorous fundamental tests and have a strong record of beating the S&P 500 during market uptrends. Check this list every week and keep your portfolio in sync with this list. If some stocks are not in the list then sell them from your portfolio. If new stocks appear in the list buy them for your portfolio. Normally this list has 8 to 15 stocks. If you want to buy, let us say, only 10 stocks then buy the 10 highest priced stocks from that list and ignore the rest. For some reason the higher priced stocks in that list do very well during a market uptrend.
3. Validate: You need to validate the Market Direction. To do this buy only 20% of your portfolio when you get a BUY signal from this blog. If your portfolio rises by 2%, then BUY another 40% of your portfolio. If it goes up another 2% be fully invested. When we get a BUY signal on the Market direction on the blog and the market does not go up, the market is telling us “not yet” – wait. So by validating the signal we let the market tell us if it is ready to go up. If it does not go up, we lose only a very small percentage of our portfolio.
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