Newsletter of Danny Merkel - Issue #140
Market Review:
I received a question asking me when I buy stocks. The answer is that I buy stocks breaking out of bases to new highs.
For example, Boeing broke out of a massive base on the monthly chart back in December of 2016 to a new all-time-high.
This strategy is a form of momentum trading. And momentum trading works really well in a bull-market. But the problem - as I’ve been painstakingly trying to convey all year - is that we’re not in a normal bull market.
Therefore, before considering any stock to buy one first must look at the overall trend of the market.
If you’re trading growth stocks, you could consider first reviewing a growth stock ETF such as FFTY, which follows the IBD 50 index.
I use long-term moving averages to partition a chart into uptrend and downtrend zones.
As the chart below shows, FFTY has been in a long-term downtrend for almost 2 years: