Anyone remember the late 60’s television show, I Spy? It was a weekly secret-agent adventure and comedy series that starred Robert Culp as an international tennis player, Kelly Robinson, and Bill Cosby as his trainer, Alexander Scott.
Whenever agents Culp and Cosby got into tight situations—trying to hide or escape from evil spies and villains–Cosby would always turn to Culp and say, “Do you have the plan?”
Culp would look surprised, “No, man, I don’t have the plan. Don’t you have the plan?”
“No, man, I don’t have the plan,” Cosby would reply in a panicky voice. “I thought you had the plan!”
Neither one of them ever had “the plan,” causing more confusion and of course, more hilarity.
While Cosby and Culp always managed to dodge the bad guys by improvising, as investors and traders in a turbulent market, we may earn more profits if we have a plan.
The first step on my plan is to be aware of my surroundings, that is, to evaluate the market environment.
Before I enter a new equity or ETF position, I check to see if the S&P 500 Index is trading in an uptrend, downtrend, or in a range on a daily chart. Why?
Because, generally speaking, in a bull market environment, three out of five stocks will follow the market higher. In a bear market, four out of five stocks will follow the market lower. Common sense tells me to check out the mood and manner of our benchmark S&P 500 index, before I add new positions. You can do this easily by using the SPDR S&P 500 ETF (SPY).
Next, in a falling market, I exercise patience. I watch my target stocks with interest, but if they mirror the market’s slide south, I don’t participate until I see buyers approaching. That’s my plan.
Yes, yes, I know the “Buffettism,” “Buy when there is blood in the streets.” While I agree with that to a point, I prefer to refine it. Too many times, in a down market, we see investors buy when a stock is merely bruised. They find out a few days or weeks later that there is more pain ahead. (Ouch!)
I prefer to wait until I see the EMTs (emergency medical technicians) approaching, bringing splints and Band-Aids—or evidence of bulls drawing near. On a price chart, bulls show up as price support. And if enough bulls show up, their cumulative buying forms an orderly (more on my “orderly” requirement later) base, or consolidation. When I see an orderly base form, and price break above it, then I may decide to buy.
Below is a weekly chart of Exxon Mobil (XOM). In July, it rose to an all-time high of $104.76. Since then, it has fallen—mainly on the back of lower oil prices and Russian sanctions—to ~$91 (as of this writing).
Exxon Mobil (XOM) Weekly Chart
Created with TradeStation. © Trade Station Technologies, Inc. All rights reserved.
Should it continue to fall, my plan is to keep an eye on the level just below $90, as it shows prior price support, meaning potential buyers. If Exxon doesn’t form a viable base at $90, no problem. I’ll be patient. The next level of strong support resides at $85. Again, should price form an orderly base at that level, I may participate.
Of course, there are additional criteria in my plan, which we’ll discuss at a later date.
Until then, especially if this market continues to be cranky, please be patient.
And make sure that before you enter any new positions . . . you have the plan!
Keep green on your screen,