Wednesday, 6 March 2013

New high for the DOW

Up, up and away???

I write this as the US market is about to close on Tuesday night. It’s a nail-biting moment. The DOW JONES 30 index has broken its all-time high and is currently pulling back. 

Will it close above that high or will profit takers pull it down again? Will tomorrow be the day that profit takers move in and grab what they can, while they can? Or has this been the moment when markets push into the stratosphere and get ready to plummet into a new bear market? My money, cautiously (as ever) is on the last possibility. We should note that the S&P 500 still has a way to go before it hits its own all-time high.

Well the market has closed now and the DOW is some 40 points above that all time high number. The futures market tentatively suggests another rise tomorrow. The volume of trades was low and the move up has not been dramatic so there is little to suggest that this is the end of the line. 

The main cause for worry is that it has made the news headlines. News headlines are important because they signal the moment that everyone knows what has been happening. The reason why the volume of trades is important is that when volume is low it suggests that money is still waiting on the side-lines. There has been no panic by uncommitted investors who jump onto the fast moving train before it’s too late. Big rises on high volume are the kiss of death for a market. Soon there'll be no more money.

My new shares

What have I been doing? Over the last few days I've been refilling my portfolio. (Recently it dropped below 70% because I was fearful of the slowdown in the market and shed my weaker shares, but I’m now 96% invested).

On Sunday I made a thorough examination of the selection criteria that Vector Vest offers and picked out three that seem to work very well: two that I have been using for some time and one new one. They are:

  • ·         Stocks that have improved in their fundamentals over the past three weeks, are in industries that have been doing well, and stocks that have relatively low prices
  • ·         Stocks  which have shown a sharp rise in earnings in the past quarter with decent fundamentals and price movement
  • ·         Stocks that have hit a new one year high, have rising earnings, have good fundamental qualities and have relatively low market capitalization.

The shares I have picked to fill my portfolio are: (all US stocks):

You see that my approach is to spread my risk. The trick to tracking all these shares is to have a very robust and flexible system for keeping an eye on them. I know immediately when any are falling behind. I am ruthless in weeding out dead wood and taking profits on shares that have done well but are beginning to fade.

I keep the information easily accessible on an Excel sheet that is linked to a live feed. It is neither hard work, nor time consuming to check what is happening. At present I hold 35 shares.

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