IBD article on CASH.
IBD...Avoid The Daily Whipsaw By Sitting In Cash
Friday August 4, 7:00 pm ET
Trang Ho
Sometimes the best thing an investor or trader can do is nothing.
It's hard enough to make money in a bear market. It's also tough not to lose it. Three out of every four stocks follow the broad market's direction. Thus when the market falls into a downtrend, it's important to cut your losses, pocket your profits and move toward cash.
Sitting in cash lets you free yourself from the daily market noise. You can use the time to reflect, go over past trading mistakes and sharpen your skills.
Despite what some so-called market gurus say, your probability of finding a gem that bucks the downtrend is very small. Rather than finding a needle in a haystack, it's better to just go for the haystack.
If you are chasing breakouts or getting in just to be active, you could be subjecting yourself to a lot of volatility. It could eventually whittle away your money and, even worse, your mental health and confidence.
If you wait patiently, you can be prepared to jump in when the next opportunity arrives. Your chance of finding winners grows dramatically in an uptrend.
Stocks have managed some gains in the past couple of weeks. But we've yet to see the market follow through, then build on and sustain a new round of gains. Until that happens, further patience is advised.
It's best to wait for the market to confirm a new uptrend with a follow-through day, when one or more of the major indexes makes a substantial price gain on heavier volume than the day before.
However, not all follow-through days confirm a new uptrend. You want to see the indexes keep climbing, with leading stocks breaking out of bases and surging to new highs as well.
When leading stocks such as Goldcorp (NYSE:GG - News) start breaking down after huge run-ups, that often signals a shift in market direction.
Goldcorp topped on May 11 along with the major indexes . It had vaulted 124% from the 18.60 buy point of its long base in September.
The stock plunged 42% from its peak to its June 13 trough . It's now trying to rally off its 200-day average for the second time. But there's a bearish divergence: price gains in lighter volume .
AI
