Part of my daily investing routine is to check the IBD current market direction. This information is found each and every day in the Big Picture column located on the front page of the Investor's Business Daily or on investors.com. The market's current outlook is an important piece to the CANSLIM puzzle. It represents the "M" and stands for market direction. As part of my stock market investing routine, I've integrated this as my first step when I review the market because William O'Neil has stated that most stocks follow the overall market direction. He advises to only invest when the market is in an upward trend.
Both the paper and the website do an outstanding job of helping me understand the trend at the moment. Over the years, I think that they have simplified the "Current Outlook" feature of the Market Pulse. They now have three status messages that appear here. They are:
- Market in confirmed uptrend
- Market uptrend under pressure
- Market in correction
They compare this list of three alerts to a stop light. When the market is in an uptrend, the light is green and it's your signal to invest in the market. When the market is under pressure, you'll want to exercise caution just like a yellow light. Do this by keeping a close eye on your holdings and do not make any new buys. When the market is in correction, it's a red light and your cue to be in cash.
As a subscriber to the paper, you can also find this information by using the Stock Checkup feature. It will show a red, yellow or green status to tell you what you should be doing at the moment.
He goes into great detail in his books about the importance of following the trend. While it is possible that you may find a stock that might buck the trend, it's a lot harder task based on his research of winning stocks. I have many friends who were in individual stocks during the last bear market. Had they followed this simple system, they would have saved a huge chunk of their portfolio. Compared to the advice that brokers give, which for the most part is buy and hold, this type of monitor to the stock market's action could very well save you between 30-50% of your portfolio.
Currently, the market as of today is "Market in correction". I think you should know that means it's a red light and time to sell if you haven't already.
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