Hey, Ross here:
Welcome to a new trading week.
The bull market rages on. The Dow, Nasdaq, and S&P 500 indexes made new all-time highs for the second week in a row.
We have been preparing members for this move for months. If you followed our advice, you are fully invested and enjoying the fruits of your diligence.
But if you still have cash waiting to be deployed, the best way to do so is to buy on pullbacks.
You’ll find a couple of examples below.
Chart of the Day
One of the best places to buy pullbacks is at its moving averages. Stocks that trend well, especially large-cap stocks, tend to find support at one of their key moving averages on the way up.
The two I watch are the 21-day exponential and 50-day simple moving average.
For very strong stocks – those rising 15-20% per month – I like to buy on pullbacks to the 21-day.
The chart above shows the 21-day EMA (blue line on chart) “supporting” the stock price of CrowdStrike on the way up. Any touch of this line is typically a good place to buy during a strong trend.
For large, slower-moving blue-chip stocks, the 50-day moving average is by far my favorite place to buy during trends. If a stock cannot hold its 50-day, it is likely in trouble and not experiencing the kind of institutional buying that leads to large moves.
Below you can see Microsoft as an example of this (red line on chart).
So that’s the quick and easy way. Look for leading stocks in strong trends and buy on pullbacks to the 21- or 50-day moving average depending on how rapidly the price is rising.
If you are unsure which to use, just split the difference and try to buy between the two. You don’t need to risk more than about 15%. When bought at proper support, the stock should reverse soon and resume its uptrend.
Insight of the Day
The primary challenge when buying leading stocks on pullbacks is identifying the leading stocks in the first place.
There are thousands of stocks out there to choose from – and the market leaders are much less obvious than most think.
Sure, names like Microsoft and even Crowdstrike are known to most traders – but they’re not the only market leaders out there.
In fact, I believe the biggest opportunity is targeting the market leaders in small-cap stocks. Two reasons for this.
One, small-cap stocks can move fast. And two, small-caps are still lagging their larger counterparts, giving them huge room to rise just to catch up.
The problem is, almost every small-cap stock is a virtual unknown, and separating the leaders from the laggards can be extremely tedious.
Fortunately, there’s a simple formula for targeting the small-cap market leaders – one the best traders in the world have been using for decades now…
Embrace the surge,
Editor, Stock Surge Daily