by Dr. Bart DiLiddo
Friday, 03/13/2009
The explosive rally we had been expecting for the last two weeks finally arrived on Tuesday morning. I was ready for it, sitting at my computer when the market opened on Tuesday, just as I had described in my February 13, 2009 essay, "Another Day at the Races."
I was looking at my VectorVest RealTime QuickFolios of the five strategies suggested in Monday night's Views. Wow, "Jail Break - No Contra ETFs" exploded out of the gate and was up over 15%. After a few more minutes, all five of my QuickFolios were moving higher. "Jail Break - No Contra ETFs" was up the most, way ahead of the pack. I was itching to buy, but I waited until 10:00 AM. "Jail Break - No Contra ETFs" was up 17% by then. Obviously, I wasn't the only one eager to buy those stocks. Fortunately, "Jail Break - No Contra ETFs" continued to go up that day and closed with a gain of over 30%.
The next day, Wednesday, "Jail Break - No Contra ETFs" was up another 14% at the open. The Midnight Cowboys who placed orders to buy at the open, but didn't use limit orders, were hung out to dry. I have seen this happen many times before and it's precisely the reason why we try to avoid suggesting specific strategies at specific times. We learned a long time ago that a stampede into a hot strategy moves the market, and that's not good for anybody but the market makers. Although we didn't specifically suggest using "Jail Break - No Contra ETFs" on Tuesday night, it was the strategy we went long with in our Model Portfolio and it was a logical choice to use on Wednesday. So how can we avoid getting caught up in the stampede to buy stocks?
The best way, if you're right, is to get in ahead of the crowd. In this case, it wouldn't have been that hard to do. We had been advising of the possibility of an explosive rebound for almost two weeks and reinforced the message last Friday with my essay, "Itching to Rally." Additionally, we tried to make this buying opportunity eminently clear with our comparison of current market conditions with those of the October 2002 bottom. Had you jumped in early on Monday and bought the top 10 "Jail Break - No Contra ETFs" stocks at 3:45 PM, you would have had a gain of over 67% at 10:15 AM this morning. Of course, this example uses perfect hindsight and we're never going to tell you to buy stocks until we see the market moving sharply higher. But jumping in a little early with part of your cash is not that bad of an idea when the evidence is compelling.
Another, possibly preferable, way of avoiding the bull's rush is to alter an existing search. The secret to these searches was revealed in my essay on "Jail Break," dated November 28, 2008. It's simply a matter of dividing a desirable factor, such as RV, RS, or VST, by RT. This week's "Strategy of the Week" presentation will demonstrate a simple alteration to our favorite bottom-fishing searches that could be just what you're looking for. Using what you learn, you may want to create your own search. It's not hard to do, so give it a shot.
Another way of not paying inflated prices is to pick a strategy that you know works, but didn't jump out of the gate that fast. I've seen this happen with Pirates Long on several occasions. I don't know why it happens, well, maybe a 207% gain in TWC may have something to do with it this time, but Pirates Long was up only 15% on Tuesday and its up 62% as I write this essay.
So even with great guidance and super strategies, the final step to making the most money lies in Avoiding the Stampede.