The most recent uptrend from mid-December to April was exceptionally strong and therefore called for being fully invested. Thus, at the beginning of Week 13 the portfolio was long 16 growth stocks. However, as distribution days began to build in the overall market, it called for more and more caution and by April 11th (middle of Week 15), the portfolio was in 100% cash. In general, in this type of environment it is best to remain patient and watch for overall market accumulation. Though for an experienced trader, there are still opportunities that exist but the trader must manage their risk by shortening their typical time frame, using smaller position sizes (of at least 75%), and adjusting their sell rules with tightened stops.
One such recent opportunity was in ISRG which of note previously bounced from its 50-day moving average just under 450 in mid-January which provided a more conventional buying range during the uptrend. As the downtrend began, ISRG’s volume showed positive signs (lacked large volume selling which indicates institutional selling) and stayed strong above its 50-day moving average. Bespoke also published an article stating of ISRG’s 31 reports on file, EPS Beat Rate was 94% and EPS Miss Rate was 0% with the average 1-day % change of +6.31%. The combination of known strong fundamentals (99 composite rating on IBD), the relative technical strength, and strong data pointed to a positive risk/reward setup heading into earnings. A position was made on April 13 at 547.4899. After previously observing several failed breakouts, such as in CSTR, and knowing the risky environment, I went into the trade with a very short-term time frame no matter the action in the stock post-earnings. I sold on April 19 at 583.0001.
I hear many traders who get very upset when selling at a gain and the stock advances. It is also common for inexperienced traders to maintain a position in a stock beyond their original time frame because their stock position is currently at a loss. A trader must always follow their risk management and sell rules made prior to purchase which will help them remain as unemotional as possible about the result while also limiting risk and of course potential loss. It is always important to remember that a down market always turns around and with a proper watchlist there are always opportunities in an uptrend.