Market Analysis for Jul 22nd, 2021


Quick reminder on market environment+context, evaluating and picking best in breed individual names

I typically like to keep 25-50s names on a watchlist and then concentrate bets on a selective few 8-15 names. Personally, I stick with megacaps+large caps + selective growth names (strong moat, strong numbers, strong growth and typically companies that I understand on a very basic level)

The market takes turn doing rotations, nothing goes linear up all the time. Push-pull factors, 3 steps up, 1 step down, 3 steps up, 1 steps down, 3 steps up...rinse and repeat.

Typically, if you have more names then 20-25~ in a portfolio where you ACTIVELY manage (not long term, buy and hold)...you'll very likely lose focus and then underperform vs the market. No need to be in everything, focus on the best in breed.

It's not very hard to outperform in a trending market if you've got a solid plan and do extensive homework on individual names. It is also very easy to get churned out/whipsawed in a rangebound market. You ought to know what type of market environment you are playing in.

For example, I showed everyone here in my room the general process of scanning/doing homework on individual names. You want the strongest momentum/uptrend patterns followed by the most solid base setups. As demonstrated in real-time and before the breakouts/extensions, majority of the names I've shared in my best in breed list performed as expected into their +15-20% targets.

Friendly reminder, in a bull market, most things go up anyway so you're starting the battle with an inherent advantage. 

Don't pick the crappers that are resting at 52 week lows while US indices at/near 52 weeks...statistically speaking, it's a futile exercise, you won't be able to outperform. It's a much tougher exercise in practice.

Remember, your #1 goal in a bull market is to pick the fastest, strongest and winningest horses while minimizing the damage of failed breakouts. The ones you know where people say they'll buy on a dip but it never really dips much. Why? everybody wants a dip, why would market let you get your toes into it? when it dips you want another 2-5% dip to get your foot in the door and then typically you see a V-shape recovery vs an immediate support zone. Voila, you shot yourself in the foot again. Congrats

I'm ranting at this point, but there's a reason why the most successful traders/fund managers/investors have something in common when doing concentrated bets after completing their homework. Gotta learn from them, no need to fix what's working. I like to pick setups that are either near/at 52 week highs, multi-week/month coiled up bullish pattern....ready to unleash the beast/coiled springs. Over and out.

Ricky Wen is an analyst at ElliottWaveTrader.net, where he writes a nightly market column and hosts the ES Trade Alerts premium subscription service.