Who Knows When To Get Back Into The Stock Market?

You log into your stock market account at your favorite discount broker (I like TDAmeritrade), you go to the tool bar to find “tools”. You select “screen stocks” and search for what you consider the best valued stocks. After researching Standard & Poors or Morningstar, you select the stocks that seem best suited to your portfolio as you think, “After this drop in the markets, it might just be the right time to buy these stocks. So, here I go.”

Your next step is to place your buy-orders on line. You fill in the stock symbol, select “buy”, fill in the dollar amount you are allocating or the number of shares you want to purchase. If you buy on margin (don’t), you select “margin” or “cash” (select “cash”).

Now, the next step is to “Preview Your Order”. You review each entry; it all looks correct. The next step is “Submit” You hesitate. You think about it. “Hmmm, the market is up this afternoon. There are two more hours until 4PM, but it looks OK. The market must be rebounding from the recent contraction. Time to buy.” You hit the “Submit” order and in an instant your confirmation acknowledges your order is “entered”. But, did you do it right?

At 4PM, the market closes and the Dow Jones, the NASDAQ, and the S&P 500 are all down. You check your stocks; each one is down from the price of your “buy” order. “What to do…What to do?”

Here are a few rules:

1. When the stock markets go through a severe correction in one day, wait a while.

2. If after a major market drop, the next day is a positive closing, the next one a negative, the next one, the market is up during the day, but closes down at the close of the day, you may have placed your stock buy-order at the wrong time.

3. “Waiting a while” means waiting at least 4 days after a market correction for what Investors.com (founded by William J. O’Neil) calls “a follow-through signal”. These are days when down volume falls and the market does not close below the low-close of the correction day. However you need to know that you have to observe at least 4 rally attempts after the low-close. Your buy signal, according to Investors.com, will come on the 4th rally attempt or later.

Don’t buy too soon; be patient.

Like this post? Subscribe to my RSS feed and get loads more!