“Buy when the market tells you, sell when the stock tells you.”
That is a stock-market adage coined, I believe, by the late great Kennedy Gammage of the Richland Report.
The first part of that quote is always the timing trigger to enter any long in the market, having the breadth, the mass psychology of the general market, positive to reduce the initial risk of any trade and/or investment.
That is what market timing is all about.
The second part of the quote is about time. If one is a trader, the decision might be to exit any trade when the market turns negative. Even for one day. If one is an investor, the decision would be to hold the stock until is reverses, or hits a stop loss level, or violates a trend line or violates a moving average, or any number of other indicators that could cause the stock to tell sell. Each of those stock exits are up to the individual investor’s risk tolerance or profit motive.
Applying the adage is rather simple which is why Mr. Gammage was great.
The stock of TSLA (see the chart panels below) is a perfect example today of how this works. My three swing trading signals were all on buy signals indicating a positive market for at least a day trade. TSLA finished the day yesterday on an intra-day buy signal of its own that would carry over to today’s open (see right chart panel below). In addition, TSLA was oversold on the close yesterday (the cyan color coding in the panel on the left).
That was the set up for a buy on the open today – the result a 4 percent gain on the close.
So what now? Today’s market environment has weakened as two end-of-the-day signals, price and volatility, have given sells. While the short-term breadth signal continues to climb (for a dicey fourth day in a row), long-term breadth is still negative. Long-term breadth is always the context for trend trading (or for counter-trend trading like TSLA today). So going into tomorrow the trend is down with two out of three daily signals once again in agreement making the market play again to be flat or to be short.
SWING TRADING SIGNALS:
PRICE: Sell. (Day 1).
SHORT-TERM BREADTH: Buy. (Day 4).
VOLATILITY: Sell, (Day 2).
LONG-TERM BREADTH: Sell (Day 16).
CNN MONEY’S FEAR AND GREED INDEX: (19 falling, extreme fear).
NIFTY-50 STOCK LIST: 28 Buys falling; 17 Overbought, 4 Oversold, 4 new buys today, 9 new sells.
(click on the chart for a larger view)