Time To Start Buying Stocks

This week, the Investor's Business Daily gave the green light this week to start buying stocks when they changed the current market outlook to "market in confirmed uptrend". Market direction can be one of the biggest factors in whether a stock's price rises or falls. The CANSLIM investing strategy recommends only investing in stocks when the trend is up, not down because their research shows that 3 out of 4 stocks follow the trend. Therefore, you should only buy stock when the indexes confirm an attempted rally with a follow through day. I talked more about how to do this in my post called How to Determine the Direction of the Stock Market Today Using the IBD.

The key to a successful stock market investing strategy is to learn how to master every nuance of it. With CANSLIM, the first step is market direction. Many times, the leaders that break out on a follow through day go on to post the best gains. The hard part is figuring out which stocks to buy when the market turns around. The other difficult part is that just because the market indexes follow through, it doesn't mean that it will be a sustained rally. O'Neil has said that rallies fail but that every bull market has started with a follow through day. This means that you'll need to be prepared as always to sell any stock that falls in price 8% below your purchase price and keep an eye on the overall market and start watching for distribution days.

The real key to finding the best stocks to buy is by building a solid watch list of stocks close to breakout points. These are stocks with CANSLIM fundamentals and those within 15% of their previous highs. By watching stocks within that price range and finding ones that clear their old highs, you've put yourself in the best position to post gains because all the overhead of people wanting to sell has cleared out.

But finding a stock that clears a buy point, called a pivot point, also requires that it breaks out on higher volume as well. This tells you that the big money has decided to buy a stock as well. Without their money behind it, the stocks price won't advance as far or as powerful as if they were.

This is the key concept behind the CANSLIM strategy. Buy stocks only in an uptrend, only when they pass a buy point and only on surge of volume.

Good luck and keep watching those market indexes for clues to how this uptrend will play out.