AR,
It is apparent to me from my technical (TA) and fundamental analysis (FA), in addition to years of experience following the stock market, that this market is topping out. There are times, such as the beginning and during the bull market, that we can buy good stocks with a reasonable chance that they will go up.
Then there are times when stocks (as a group) become fully valued, and reverse trend from up to down. Appreciation of stock prices purchased in down trending phase of the market will be little or none; and more likely the stock drop below the purchase price.
This down turn of stocks has come to be called a "bear trend". This bear trending phase can be short, intermediate, or long in time, no one really knows the length of time for sure at the beginning, but as this bear trend continues we can take steps to protect our capital.
The question can be asked, should we buy and hold the stock, waiting for the end of the 'bear' trend? My answer is, "You marry people not stocks". We can buy stocks for long term price appreciation, but the questions are; how long do we have to wait? How far down in price are we willing to let the price drop before we give up and sell to save some of our capital? What would happen to our investment capital if the stock dropped a large amount never to go up again (example, L.A. Gear)? Finally, how much more shares of stock could I buy at lower prices when the when the bear phase changes to a bull phase, when the stock can really go up in price?
The wise investor has learned that he/she does not always have to be "in the market". Preservation of capital must be paramount in considering whether or not to buy a stock. A certain amount of "undisciplined risk taking" can be tolerated in the bull phase of the market, but not at all in a bear market. Risk taking will develop bad habits that can, and often will, cost the undisciplined investor/trader most if not all of his/her investment capital.
You asked the question (I'll paraphrase), "what should we do here, buy large caps, small or micro caps"? My answer is, during what I perceive to be a bear market phase, use TA to determine if the stock is in a bear trend (short it if it is in the right price range and you are good at shorting, or leave it alone). If the stock is in a bull trend or in a reflex rally, chance a short term trade, take reasonable profits, and GET OUT!!! You don't always have to be invested in the market. Good stock picks are few and far between in a bear trending market, but with hard work and perseverance, you can find short term trading opportunities.
Finally, I will add this caution, avoid acting on stock tips from well intentioned but misguided "tipsters". They act on hunches, rumors, wishes, and wild guesses, and try to "talk" a stock up or down according to their own agenda rather than using sound investment principles. The posts on these "threads" are 60% "parsimonious hyperbole", 20% honest questions, and 20% useful information.
You will probably see much of these words again in my weekly Market Advisory, but they are useful to repeat as it reinforces the learning process.
Harry |
