Morning Market Thoughts

Good morning. We are on the verge of a historical day in the market. Can you guess what it is? Black Tuesday? Nope. The Dow Jones Industrial Average is set to open…wait for it…wait…for…it….

…DOWN!

(And the S&P is also set for a slightly lower open).

In these heady days of summer, where the sun shines every day and the Dow makes a new high, everyone is brilliant; We’re all making money; We have a bright future; and the best of all…we’re all really good looking. Men: Handsome as the devil. Women: Never seen you look better. (At the risk of triggering someone, I’ll just leave it at the two genders and hope that no one is offended.

Well, at some point, that will end and we’ll all be brought back to earth — hopefully with a smooth landing rather than a loud “thud” and a small bounce. And the way we can give ourselves a better chance of a smooth, 3-point landing is to always consider levels on each stock that we own. We need to be able to write (and should already have written) the plan for each trade. (It can be mental…but just make sure you have one).

Your plan includes

1. What you buy…and why.
2, Where you buy…and why.
3. How many shares are you going to buy…based on the location of support and the difference between the current price and your stop price (which is just BELOW support)?
4. How long are you going to hold the stock if it just sits there and does nothing?
5. If it is working in your favor, when are you going to add…and why? How much are you going to add…and why?
6. Where will you be looking to sell a part of your position…and why?
7. Now what will you do? Raising stops (should have been raising them all the way through the process)?
8. Ultimately….what is your theory for the trade? Is it an oversold bounce on a broken stock, or is it a great opportunity to buy a stock that you plan on holding for a long time.

These are the things you should be asking about every trade. And if you are going through this checklist with care, objectivity and honesty, you’re more likely to come in for a smooth landing when the market turns.

And that’s all I have to say about that.

See you in the forum.

–Dan

Market Update

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