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Strategies & Market Trends : Market Gems:Stocks w/Strong Earnings and High Tech. Rank -- Ignore unavailable to you. Want to Upgrade?

To: lee kramer who wrote (103248)	6/21/2000 6:13:00 AM
From: puborectalis	Respond to of 120523

How to spot a market bottom Investing guru offers tips By William J. O'Neil, CBS.MarketWatch.com Last Update: 2:34 PM ET Jun 20, 2000 Commentary Latest headlines LOS ANGELES (CBS.MW) -- There?s nothing like a sharp down market to create doubt and uncertainty among investors. Some are still shell-shocked from the downturn -- 40 percent on the Nasdaq from the March peak to the May low -- which wiped out a lot of profits. Others saw the definite signs and were able to get out before major damage occurred, happy to raise some cash or remove themselves completely from the market for a while. Since the market top in March caught most investors off guard, we received some e-mails after our CBS.MarketWatch.com guest column asking why we didn?t say something about the correction sooner. See previous column. We did talk a great deal about the market?s weaknesses in Investor?s Business Daily?s Big Picture column, which is devoted solely to interpreting the general market. It was pointed out that there were six days of distribution on the Nasdaq Composite as of March 31 and that any time we see four or five days over a period of a few weeks, it?s time to do at least some selling. Those who paid attention to this did sell and raise some cash. My suggestion is -- if you?re not happy with the way you handled the market correction -- don?t get discouraged and give up. Get a chart book and make a record of all your buys and sells during the past six months. Post each buy and sell to the precise day and price on each individual stock?s chart, so you can spend some real objective time analyzing in detail the good transactions where you made a decent profit and the mistakes where you lost money. It is absolutely essential that you do this or you?ll never discover what mistakes you?re making that you must correct in order to handle the market with a better set of rules and disciplines. There is no better way to improve your decision-making process. It doesn?t do any good to cuss, make excuses or blame someone else. You have to uncover what you?re doing that causes losses, and then write out your own set of new rules to solve these situations in the future. The market is filled with opportunities and there will be many bull markets in the future, but you must develop sound rules to guide you if you expect to get big results. Regroup and study during down phase Any down phase is also a most important time to regroup and study the market -- especially watching for two things: signs of a turn in the general market and indications of the next round of market leaders. If you spend time researching rather than totally sidelining yourself, you won?t miss the next market upturn. We?ve already seen signs that a new rally has begun. I?ve never missed the beginning of a brand new bull market with the following strategy: Day-to-day evaluation Do a day-to-day evaluation of the general market. During a bear market, the indexes will attempt to rebound at some point. The best way to know if a rally is for real is to learn about past attempts. Bear markets generally come in two to three waves, interrupted by attempted rallies that turn out to be false. They die out anywhere from one to two weeks, but sometimes five or six weeks. A big decline in heavier volume usually signals a rally failure. Eventually, once most stocks have ?broken down? and everyone is sure they will only go lower, the market starts to find support. Don?t jump back in after the first day or two of the attempted rally. Wait for the market to prove itself with a ?follow-through? day. Such confirmations occur when one of the major averages rises more than 1 percent in heavier volume than the day before. Follow-throughs usually fall on the fourth to the seventh day of the attempted rally. No bull market starts without a follow-through day Not all follow-throughs succeed, but no bull market has ever started without one! The stock market is more volatile nowadays. A few big mutual fund families can run up the averages for a few days, which may trigger a few premature or false follow-throughs. Still, a follow-through confirmation is the best indicator of a new uptrending market. It should be powerful with several market leaders making real progress. Such a follow through day in my view occurred on Tuesday, May 30 on the Nasdaq Composite Index in IBD. It was further confirmed two days later on Thursday where several growth stocks in the fiber optics, wireless, telecommunications and semiconductor sectors seemed to be providing leadership. So, what else should you be watching? I review the IBD Mutual Fund Index, which tracks the performance of top money managers. This will give you a fairly accurate reading of the market climate. If the index continues to close down while the Nasdaq or Dow is attempting a rally, the market probably won?t follow through successfully. Institutional money plays too large a role to be discounted. Watch market psychology Watch the psychology of the market. You want to see what percentage of investment services is bullish or bearish. If everyone?s bearish, the market usually rallies. Check the short interest on the NYSE also. And don?t forget to watch how leading stocks are doing. Are they building strong price consolidation bases, indicating support? Are a few of the first breakouts succeeding and trading higher? The best new stocks should be breaking out of sound bases for a period of several weeks following a valid follow-through buy indication. Lastly, be sure you have the right investing rules in place. Buy only the best companies Studies show the best stocks start with great fundamentals. Use price and volume charts to help time your purchases. But you must buy only the very best companies. Avoid low-priced stocks. Buy companies that show both sales and earnings up a big amount and accelerating in the last three or four quarters. Profit margin or return on equity should be strong and improving. It helps to have some big volume demand for your stock as it moves up. And finally, most of your stocks should be in a leading industry sector in the current market. There are many more rules and guidelines that can assist you in screening out the very best stock candidates. For more information you may want to consult my second book ?24 Lesson for Investment Success.? Cut your losses quickly Sell rules are the other part of the equation. Learn to cut your losses quickly. All devastating losses start out as small declines. That?s why you should sell any stock that drops 7 percent to 8 percent below your actual purchase price. This rule only refers to your initial purchase price. Once you?re ahead a worthwhile amount you can give your stocks a little more room to fluctuate.