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 Watchlist Challenge Don’t Take Profits Too Soon

The most common theme amongst new investors is a tendency to take profits too soon and let losses go too far. In addition, many new traders wind up selling at the worst possible time, on a capitulation low. Last week we experienced the latter. Fear gripped the market.

The Challenge: Don’t Take Profits Too Soon

You have been presented with a gift. If you have cash on hand, putting it to work this week has a higher probability of success.

Statistically, the days following a capitulation low, where breadth, sentiment, and stocks hit extremes, result in mean-reversion back to normal levels. What’s normal? Considering the severity and speed of the move, most likely we head to 61.8% Fibonacci.

Futures are higher (+30)

The chart below is the S&P500 Equal Weight Index which obviously weights all 500 stocks equally. We find this works best for inflection points, as the “heavyweights” don’t overemphasize current conditions.

SPX EW watchlist don't take profits too soon

The extremes over the last two weeks elicit an opportunity that should not be squandered. Resist the temptation to sell too soon.

The number of stocks that are trading above their 50ma has reached an extreme. The chart above illustrates this point. The task then becomes, when do I sell? Well, considering the extremes and StochRSI indicator signaling a trigger today, we would watch the targets shown and extrapolate this chart to your charts.

Most stocks look very similar. Hammers are everywhere. The wick in each hammer tells you “this is where the buyers came in” to support the index or stock. Overhead resistance levels are the moving averages, Fibonacci retracements, and VBP. Watch for selling as each case dictates.

Monitor VIX

Volatility indicators will reverse today. We would suggest watching these tools; VIX in particular. If volatility continues dropping this week, stocks should do the inverse.

Watchlist Challenge

The watchlist presents stocks I am considering today. Most likely, everything will move together today. Keep telling yourself, “don’t sell too soon.” Watch the shorter time frames, like the 60-minute. A loss of the 9ema would potentially signal a reversal.

TCP-watchlist-02-11-2018 Don't sell too soon

The watchlist stocks in the lower panel, “additional candidates”, present various opportunities. Most have a combination of relative strength and oversold RSI at support.

BOFI held above the 20sma. It looks strong, relative to the sell-off in banks. We also like JPM and BAC. Big banks, in particular, present an opportunity. These should do well in a rising interest rate environment.

BOFI dont sell too soon

NVDA is most likely the number one tech stock on traders shopping lists.

NVDA don't sell too soon

While it might seem redundant, we cannot state enough how important it is to seize this opportunity. 10% drawdowns don’t come every day. Comparatively speaking, the last 10% correction was January 2016; needless to say, the opportunity was seized by institutions at that time.

Additionally, the probability of success is heavily biased to the long side.

We will be LIVE at 9:20 AM. See you then.

Happy Monday,


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