The steep market correction of the past week or so has dropped lots of stocks back to their 25-day moving averages and more than a few back to their 50-day moving averages and below. So, since Cabot’s market timing indicators are still positive, this must be a great chance to pick up some real bargains on some great stocks, right?
Well, not so fast.
It’s one thing to buy an individual stock that has just undergone an orderly pullback on reasonable volume. But it’s another thing entirely to buy into a significant market correction that has yet to put in a convincing bottom. Investor sentiment is a little sour, and every down day is only increasing the acid reflux level of equity investors and their eagerness to unload more stocks.
I subscribe to the old stock market saying that you never try to catch a falling knife. The probability of cut fingers is just too great.
So stick to your sell disciplines on the stocks that you already own. Watch to direction of the market’s movements and the volume trends that tell you which way the momentum is shifting. But let caution be your guide in this kind of unsettled situation. This bearish mood may pass in a few days and we’ll be back on the yellow brick road again. You never know.
But for now, dare to be cautious.