Time to "Hit and Run" in Stocks
by Peter Leeds on October 6th, 2015
As always, this is not trading advice, nor is it intended to be taken as such. Comments here are opinion.
It may be time to wade back into the markets (as we explained last week), but only in specific opportunities. I have made several trades over the last five days, and intend to continue doing so. Every buy and sell is revealed to subscribers.
This is not yet time to get fully invested in stocks, nor is it a situation to blanket-purchase every sector or industry. Rather, pick your trades carefully, and have a bias towards a short and medium term time frame.
Some of the sectors which have been beaten down, oversold, or unloved will rebound slightly. They will not reach their previous highs, but even a partial recovery represents a significant potential gain.
Look to capture 10% to 25% moves, and continually take profits in order to move back into higher cash positions. To put the strategy into an analogy, think of it like "hit and run" guerrilla warfare.
Pick up high-quality, low-priced stocks which have been washed out under the weight of a technical sell-off. However, don't expect to take them past Thanksgiving, and certainly not into the December holiday season.
For example, a company with:
- years of cash
- a shrinking quarterly loss
- a growing market share
...may have an event which spooks shareholders, such as:
- a bad news article
- an analyst downgrade
- the company misses earnings expectations
- the CEO leaves the company
Such events can temporarily cause an overload of sellers, which overwhelms buyers and plummets the shares to ridiculously undervalued levels. The selling typically will continue for 1.5 to 2.5 days, as anyone who is going to sell will dump their stock.
As soon as the selling pressure abates, the highly underpriced shares start their recovery. New shareholders who took advantage of the temporary technical dip will be looking at a profit position within days.
Over the subsequent weeks, the underlying shares should continue to track higher. As soon as:
- they regain some (but not all) of their decline
- prices level out
- trading volume decreases back to average levels
...it may be time to start thinking about taking profits and moving on to the next opportunity.
By keeping agile and nimble, continually taking smaller profits from technical wash outs, and always returning to cash, you should be in perfect shape to land on your feet no matter what the market throws at you.
As an added benefit, making profits on the stock market while almost everyone else is taking losses advances you in comparison to most others... if you care about that kind of thing.
Most people will say that they don't care about outperforming others, because really it does not affect them. But then those same people will accelerate in rush hour traffic to make sure you don't squeeze ahead of them in a line of cars which is crawling along.
Get out of the daily rush hour grind! Start by pulling in some profits from low-priced, high-quality shares selected by the Authority on Penny Stocks, and the full Peter Leeds team.