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There are two primary topics to the podcast this week:
1. Current market conditions: many charts are still well above their support line (trend lines).
Most stocks (more than 80% of stocks we follow) are in a positive trend. Typically, market meltdowns/market crashes do not occur in these kinds of settings. But anything is possible.
But also bear in mind, most charts are extended and in need of a pull-back. A pull back would be constructive for the longer term picture of the market. That’s long term.
In the short-term, pull backs can be a little frightening. See, a 3 or 4% pull back starts out the same way as a 23 or 24% decline…down.
We are not looking to buy on the pullback, but actually when charts begin to move back up after the pullback is over.
2. Relative Strength and the John Dorfman column this week.
Dorfman is clearly a value manager and seems to have no use for employing relative strength.
Which is OK, everyone manages money in a different way. We place a fair amount of importance on relative strength. Stocks (and any chart) on relative strength sell signals tend to lag behind the overall market. It does not mean we automatically sell. Relative Strength is just one ingredient in our recipe to buy, sell or hold: again, we typically do not make a decision to take based on just a relative strength signal. Dorfman mentions several stocks in his column we would typically avoid. However, a fairly recognizable name Dorfman did not mention was Target (TGT). Target triggered a relative strength sell signal in early February, the chart has meandered, giving a recent sell signal on it’s trend chart.
Target remains a big name in the retail sector we will continue to watch. The trend chart is on a sell signal, it has also now triggered a relative strength sell signal and is approaching the support line. Remember, a relative strength sell signal does not imply the stock will crash and burn. Often stocks on relative strength sell signals tend to lag behind the overall market.
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