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Rock 1: Buy only when market in uptrend

Rock 1 is pretty cut and dried. IBD (CAN SLIM) has 3 market stages: Confirmed uptrend, under pressure and in correction. Only buy when in confirmed uptrend. The best uptrends come after long corrections, so they generally herald the start of a long bull market. For instance, March 12, 2009 was the first follow through day after the financial crisis mess. Between then and Sept 2014 we had a nice long run with minor corrections (and a bigger one in 2011), but the runs up were strong. But bull markets get old and everyone gets invested. A chart of the S&P will quickly show you that we have been choppy since then. There have been uptrends, corrections, and a lot of thrashing between under pressure and uptrend. That is when you start to be a little pickier and faster to sell, but more about that later I am sure.

They point out that 3 of 4 stocks follow the markets direction, so if you are buying in a declining market, you are really fighting the odds.
The book says “It pays to be picky”. Use their checklist to help find the best stocks. Historical data shows that those with the highest CAN SLIM “ratings” have be the huge outperformers. You can find a copy of the check list here:
But as you would expect, if you subscribe, they provide a nice color coded one for you to eliminate a lot of the research.

After you find good stocks with the check list, then check the chart for proper patterns and breakout buy points (more in a future chapter).
Follow Through Day: FTD This is the back-tested indicator that a new uptrend has a good chance of succeeding. While it does not guarantee success, they claim no successful market uptrend has started without it.

They point out that these often occur when economic and other news is bad So, instead of using your emotions and guess work, use a FTD.
1. New Low: When in a downtrend, look for one of the major markets to hit a new low. (yes, they are probably hitting new lows often, so go to the next steps!)
2. Attempted Rally After a new low, look for a day that closes higher, that might mean the decline is over.
3. FTD Look for a FTD on day 3-7 of the rally. Day 4-7 is most common, but the 3/12/2009 FTD was on day 3, which is fairly rare. The index should make a large price gain, usually 1.5% or higher and on volume heavier than the previous day. (the heavier the better in my opinion). This tells you the big boys are ready to play again
4. Get back in gradually . Not every rally works out, don’t consider it a greenlight to bet the house. If it is a good one, the leading stocks will continue to be bought on heavy volume and you will have time to get in.

Here is an instructional video:

Distribution Days: Days of heavy selling (volume) in the major indexes. These are the telltale signs that institutions are selling and too many of them in a short period will cause the trend to be declared “under pressure” or “in correction”. By their definition: when an index closes down 0.2% or more on volume heavier than the previous day. Remember, big institutions take a long time to build a position and to get rid of it, we can use this system and signals to help take advantage of that.
If you get 6 distribution days in a 4-5 week period, the uptrend will typically roll over into a downtrend.

And yes, with the subscription you can see their tracking of these counts along with their calls on the trend changes.
They note that generally a bull market typically lasts 2-4 years and a bear market typically last 8-9 months. So you should know where you are in the cycle. And they say The really big gains typically happen within the first 2 years of a bull market. I think we can all feel that is true in our gut.

When the market becomes more choppy and volatile, it is a sign the bull is getting tired. Kind of sounds like the last year or so as we sit here in June of 2016.

Leading Stocks start to roll over is another sign of the end. When the institutions start to cash in gains, their selling pressure will cause the leaders to decline, often dramatically. Don’t fall in love with a stock, see the signs and take your profits.
Side note: This is diametrically opposed to the way David Gardner likes to invest, and he has done quite well!

Always stay engaged, even in a down cycle. When you are out of a market in correction, it is the “offseason”. The time when you keep in shape and prepare your watch list for “opening day”. The big gains happen early in the new cycle, you must be ready.

Look for New Leaders in a New Bull Market. Old leaders rarely lead again, new technology and trends bring new leaders. In the 1990s, internet stocks led because it was the internet revolution. But they claim that prior leaders usually drop an average of 72%. After the tech bubble burst, I think we all remember that. Did AOL, Qualcomm, Dell lead us into the housing and financial bubble? Nope. They say only 1 in 8 leaders of the prior bull market are leaders again. After tech, we had a biotech revolution. We had a smartphone revolution after that, etc. So, Look for new leaders in a new bull market

The Big Money is Made in the Early Stages of a New Uptrend they add Winning Stock Often Launch Their Big Moves Right on or Just After the FTD

So, make your money in an uptrend and protect it during a downtrend. Find new leaders. Stick with your routine in a downtrend.
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