Swapping the Laggard with Leader
October 30 2021 | Reading Time: 3 Minutes
Hey, India should have played experienced Ashwin in place of inexperienced Varun in such a big tour-
nament. If Hardik is not bowling, go with Ishan. This is how most Indian cricket fans reacted after losing the first T20 World Cup game. It elaborates on how we want to SWITCH the underperformers
with probable good performers. It is always about quality and performance. While Ashwin is a
well-experienced bowler, Ishan did well in the last few IPL matches and practice games. Applying the
logic of your cricketing strategy in the stock market can also work well.
From peak to troughs in the recent market correction, Nifty corrected around 3.5% in the recent fall while the broader market indices such as Nifty Midcap corrected about 6% and Smallcap corrected 7%. Most stocks retraced toward their key moving averages. If a stock breaches its key support on above average volume, it indicates technical weakness. Quality stocks generally rebound from these levels and consolidate sideways while the general market succumbs to selling pressure.
The evaluation of the purchases of an outperforming mutual fund led to this idea. The MF bought stocks only when they made new highs. What applies to buying merchandise on sale at a department store works in the completely opposite way when dealing with stocks. Ignore "buy low and sell high" and replace it with "buy high and sell a lot higher." Stock market winners always seem to be priced high because we only get to see their price history. The incredible gains to come are not yet visible, and therefore, high is rarely high when you are looking for really great companies.
If one waited for fundamentals to deteriorate to apply selling rules to stocks, it would take ages to happen, and the stock would have already corrected meaningfully on the charts. Hence keeping track of charts using price-volume action and key moving averages such as 21- and 50-DMA becomes really important. These moving averages act as support and resistance lines for stocks.
Stock prices do not go up by accident. A surge in buying demand is a must, and most of this demand comes from institutional investors who account for more than 75% of buying of the better quality leading stocks. Funds are just like elephants jumping into a bathtub. They are so big the water rises and splashes all over the place. But when the stock is going down due to small corrections in the gen- eral market, you should look for low volume. It indicates that funds are still intact in the stock, and weak investors are getting shaken out. This is a healthy correction/consolidation. These stocks should be kept on the radar and not be sold in panic.
“What is a quality stock?” people tend to ask. If we look at stocks through our O’Neil Lens of CANSLIM, we can surely identify traits of such stocks. Look for stocks with high earnings and sales growth in the recent quarters and recent years. Focus on higher ROE stocks. But concentration on fundamentals alone cannot help you time your decisions, and timing is everything. This concept is as genuine in the stock market as it is in real life.
As part of our study of stock market winners, we identify an optimal buy point or "pivot point" for a stock. This point, usually at the end of a sound basing area when the stock price breaks out into the new high ground, is the point of least resistance. This means that at this point, the stock has the most excellent chance of moving even higher based on its current and historical price and volume activity.
From peak to troughs in the recent market correction, Nifty corrected around 3.5% in the recent fall while the broader market indices such as Nifty Midcap corrected about 6% and Smallcap corrected 7%. Most stocks retraced toward their key moving averages. If a stock breaches its key support on above average volume, it indicates technical weakness. Quality stocks generally rebound from these levels and consolidate sideways while the general market succumbs to selling pressure.
When did O’Neil realize the importance of reading charts?
The evaluation of the purchases of an outperforming mutual fund led to this idea. The MF bought stocks only when they made new highs. What applies to buying merchandise on sale at a department store works in the completely opposite way when dealing with stocks. Ignore "buy low and sell high" and replace it with "buy high and sell a lot higher." Stock market winners always seem to be priced high because we only get to see their price history. The incredible gains to come are not yet visible, and therefore, high is rarely high when you are looking for really great companies.
If one waited for fundamentals to deteriorate to apply selling rules to stocks, it would take ages to happen, and the stock would have already corrected meaningfully on the charts. Hence keeping track of charts using price-volume action and key moving averages such as 21- and 50-DMA becomes really important. These moving averages act as support and resistance lines for stocks.
What is volume and why is it important?
Stock prices do not go up by accident. A surge in buying demand is a must, and most of this demand comes from institutional investors who account for more than 75% of buying of the better quality leading stocks. Funds are just like elephants jumping into a bathtub. They are so big the water rises and splashes all over the place. But when the stock is going down due to small corrections in the gen- eral market, you should look for low volume. It indicates that funds are still intact in the stock, and weak investors are getting shaken out. This is a healthy correction/consolidation. These stocks should be kept on the radar and not be sold in panic.
Switch Maarna to Hai But ‘BUY’ Kya Karoon?
“What is a quality stock?” people tend to ask. If we look at stocks through our O’Neil Lens of CANSLIM, we can surely identify traits of such stocks. Look for stocks with high earnings and sales growth in the recent quarters and recent years. Focus on higher ROE stocks. But concentration on fundamentals alone cannot help you time your decisions, and timing is everything. This concept is as genuine in the stock market as it is in real life.
As part of our study of stock market winners, we identify an optimal buy point or "pivot point" for a stock. This point, usually at the end of a sound basing area when the stock price breaks out into the new high ground, is the point of least resistance. This means that at this point, the stock has the most excellent chance of moving even higher based on its current and historical price and volume activity.
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