Due to technical difficulties during the live broadcast of this webinar, we are only able to provide a recording for the first half of the presentation. To supplement the recorded section, the following content is a summary of all the concepts discussed during the entire presentation.
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The market is in a confirmed uptrend.
There are three distribution days on the NASDAQ and two on the S&P 500.
Check your charts for inching up and closing at the peak. It is a sign of institutional buying.
The Market is up over 30% for the year, which means we are in a bull market by definition.
Bill O’Neil is looking at this as the second year of a bull market that started after the correction in the summer of 2011, rather than the fourth year of a bull market that started after the 2009 lows.
The fourth quarter of the year is typically the strongest quarter, while the first quarter is usually a coin flip, and the third quarter is generally tougher.
Holding Stocks with Conviction
Those investors that performed well in the market this year, were those that were able to hold stocks with conviction, avoid being shaken out by volatility, and hold on to leading stocks for big moves. Big money is made by concentrating on a few stocks and force feeding your best positions.
Planning ahead is important so you can set yourself up in a position that makes it easier to hold stocks for longer moves. This involves:
Watch list management
Predetermining the number of stocks to own based on your comfort zone
Establishing proper industry group diversification
Starting right is crucial to holding stocks with conviction in order to secure a larger move. This involves:
Proper identification of price consolidations on the chart. Look for volume on the breakout of a cup-with-handle. See CMG on 9/1/2010.
Focus on the % from pivot
Do not chase beyond pivot range
Every first purchase must be the same amount
Pullbacks that get logical support at a moving average
Identify leaders to try to hold for the full move
Key Characteristics of Big Winners:
Exceptional proprietary ratings
Precise entry/low average cost
Truly innovative company story = Conviction
Easier to do when consistently taking 20% gains in other positions
Several historical examples of “leaders” were discussed in order to highlight the characteristics of stocks that warrant holding for a larger move.
· Franklin Resources Inc. (BEN) 1986 — Had quarterly earnings of 200%, 125%, 150%, and 120% before it started its move. It also had three tight, base-on-base consolidations that produced higher lows with each base while the market was in a correction, prior to the beginning of its move.
· Reebok International Ltd. (RBOK) 1985 — Had quarterly earnings of 100%, 200%, 600%, 300%, 500%, and 600% before it started its move. It then built a textbook cup-with-handle pattern before launching into a huge move.
· Apple Computers (AAPL) 2005 — Had negative earnings growth for years before it posted a quarterly increase of 300% in September of 2003. This turnaround coincided with a perfect cup-with-handle pattern that sparked its multiple year run.
· Price Co. (PCLB) 1982 — Had an ROE of 55.4% prior to the beginning of its move.
· B/E Aerospace (BEAV), Valeant Pharmaceuticals (VRX), and LinkedIn Corp (LNKD) were all discussed as “Leader” caliber stocks that could have been held with relative ease during the last year to capture an entire move. This requires identifying the leadership traits at the beginning of the moves, buying them right, and then having the conviction to hold them through the volatility seen throughout the year.
How to Handle Volatility
Portfolio Management Techniques:
Avoid thin stocks
Incremental adjustments to percent invested
Diversify your portfolio industry group make-up. For example: 1/3 Energy, 1/3 Medical, 1/3 Technology
Keep an eye on your average cost
Position profit cushion = Staying Power
Selling on the way up gradually builds a portfolio cushion for volatility
Try to hold your best stocks as “Core Positions”
Be careful about using margin. Be ready to act if you’re on margin because you can lose money twice as fast.
Don’t get carried away by day-to-day emotional swings
Don’t get too close — focus on weekly charts
Be aware of your trading activity — Don’t overtrade