Absolutely not. Earnings and market fundamentals often don’t turn around until well after the market has hit bottom. That means taking those factors into consideration would cause you to be very late to the party. Remember, there has never been a new bull market without a follow-through confirmation preceding it on one of the three major indexes. Therefore, taking underlying earnings and fundamentals into consideration is not only unnecessary but could be very costly.
Once you’ve decided to buy a stock that has reached its pivot point, you should buy it as quickly as possible. There is no reason to wait until the market closes. Remember, once a stock goes 5% or more above its pivot point, there is a greater chance that you’ll get shaken out of it.
I would not recommend the use of trend lines except to track long-term trends over a period of months. Shorter-term trend lines can be very misleading. Often, by the time the shorter-term trend line (weeks or less) is established, it becomes obvious, and fails shortly thereafter. Moving averages are a better guide.
Our research indeed shows about 40% of stocks that ease back to the pivot (buy) point after a breakout will still go up. However, your best chances of success are when you buy a stock as it breaks out of a sound base on heavy volume.
The important thing to know is that breakouts can still be in good shape unless the stock dives below the pivot point. As always, sell the stock if it goes 8% below your purchase price. Sometimes, you may get away buying a stock when it goes back to the pivot. But that’s not likely to happen in a weak market.
Charts should be used to help you time both your buy points and sell points for individual stocks. With regarding to topping patterns, one of the most recognizable is the climax top, where a stock will run up at a much faster rate than in the prior weeks. For example, it may advance 25% to 50% in one to three weeks after a long advance. Trading volume generally picks up during this period. One of the days towards the end will probably show the stock’s greatest one-day price advance since the beginning of the move up. Sell into this unusually stong price action. Recognizing distribution days in a stock’s pattern will also help you analyze whether or not a stock is showing signs of topping. For example, if after a long advance, volume picks up with no further price progress, this may be a sign that institutions are unloading the stock. Charts are not as helpful when considering when to buy or sell a mutual fund because volume figures are not posted for mutual funds.
