Why this Bull Market Requires Strict Discipline

by Darrin Donnelly on February 13, 2011

Click on chart to enlarge.

Click on chart to enlarge.

The market continues to surge higher and we closed last week with “The Weekend Rule” in full effect. 

“The Weekend Rule” is a trading term that refers to the markets (or an individual stock) closing at or near its high on a Friday – to end the week. 

When we see “The Weekend Rule” in action, it tells us that the big-money institutions are very bullish because they’re comfortable enough to hold major positions over the weekend.  When the institutions are uncertain or nervous about the market, they’ll often sell portions of key positions late in the week; so as not to be too worried about their holdings over the weekend. 

In the weekly NASDAQ chart attached to this article, notice how often this “Weekend Rule” has occurred over the past three months.  This behavior tells us we’re in a very strong uptrend right now.

When the market is this strong, it’s important to exercise some added discipline. 

Everywhere you look, new stocks are breaking out and moving higher.  It can be tempting to chase after the stocks you’re “missing out” on. 

Resist this temptation! 

Remember that a rising tide lifts all boats, even the poorly-built ones.  At the first sign of a pullback, the weaker stocks will get crushed while the strongest stocks will find support. 

Not only that, but in this type of strong market environment, a large number of stocks will have a stellar day or week, but it’s the elite leaders that will produce long upward trends. 

As Darvas traders, we’re not trying to find stocks that go up 10% one week and then swing lower the next week.  We’re looking for leading stocks that go up 50%, 100%, or more during strong trends that typically last 3-9 months.

In any bull market uptrend, there are usually 6-12 stocks that end up being the truly elite leaders.  I like to limit my portfolio to no more than 8 stocks (at the most) and my preference is to trade only the 4 or 5 absolutely best Darvas stocks.  This type of focused investing is how great fortunes are made. 

If you find yourself chasing 10 or 15 different stocks, you’re not being exclusive enough.  For that reason, you’ll notice that our Darvas Trader PRO newsletter rarely features more than 10 stocks at any one time. 

In short, there are plenty of one-hit wonders in this type of market.  Try not to get sucked into the hype.  Instead, focus on only the true leading Darvas stocks; stocks that are both the best of the best in terms of fundamentals and hitting proper technical buy points.

To access the nine elite stocks you should be focused on right now, read the current issue of Darvas Trader PRO, which you can download right here.

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