Happy Birthday Jim Cramer! I am dedicating this post to Mr. Cramer because he inspires me every night and has made me a significant amount of money. Thank you!
I was just inspired by a comment he made on tonight’s show and I must admit it proves I am not crazy. This is something I have been thinking for several weeks as I watch the market fluctuate daily. It’s important and if you have a group of companies / stocks that you watch constantly like I do then what I’m about to tell you becomes easy.
In fact, having a group that you monitor daily is a requirement, but don’t have more than ten (10). You cannot monitor, research and track more than ten (10) and feel comfortable. Trust me.
Having a group and watching them daily forms a bond between you, the company, the stock and the price of said stock. It’s important you become familiar, almost one with the stock price. At any moment if that company is mentioned by anyone you should know what the current stock price is. This bond, this knowledge allows you to do the most important thing in trading…
Find the bottom.
Everyone complains about the market today. The violent fluctuations, the “flash crashes” and how the algorithms, God and even Santa Clause is at fault (we all waited for the Christmas rally that never came – thanks Santa). BUT, this volatility makes finding the bottom almost easy IF you’re paying attention.
Take McDonald’s [stock_quote symbol=mcd] for example. During Mad Money tonight someone called in regarding McDonald’s and everything he said was exactly right. The caller noticed McDonald’s was doing well, had a good dividend and while everything was crashing around it McDonald’s found a bottom and held. It not only happened with McDonald’s, but with many other stocks as well.
This week the market has been hammered and many stocks have dropped dramatically in value – have you seen Tesla? McDonald’s traded at $124 just a week or so ago and I purchased it at $115 Monday. The novice trader or investor would be scared to enter at this time or this price, but did you watch the stock? Did you notice the bottom? Again, watch any stock long enough and you can see it happen. Once McDonald’s landed around the $114-115 mark it stopped going down. It stopped going down when everything else continued to drop. Regardless of what the market did McDonald’s hovered and started going sideways and then back up and that’s when I pounced. Now, again, McDonald’s is not the only stock that did this. Home Depot landed at $110 and hovered. Ford at $11.02 last week and I knew if Ford broke $11 we were in serious trouble, but it held.
The great thing about extreme fear, volatility, a high VIX and overall bearish sentiment is when the market and individual stocks crash there is ALWAYS a price they stop going down. This sounds stupid, of course there is a price they stop going down, but it’s more than that. It’s a feeling. I’ve personally witnessed many, many stocks simply crash right before my eyes. I mean crash. I owned Disney at $112 and watched it crash to $103 within a matter of days. It just wouldn’t stop falling. Your stomach turns, your heart races, you get light-headed and think about bankruptcy and how all your friends and family will make fun of you and say things like, “this is why the middle class shouldn’t play the market” (thanks mom). You begin to realize you’re about to throw up at the very moment panic takes over. Then, it stops. You regain control of yourself, take a deep breathe and accept you’ve just lost more money than most make in a year, but it’s ok. You’re ok. You’re alive and the stock has stopped falling. This is what I’m talking about – the moment it stops going down. You just watched it happen. You felt it when your heartbeat dropped from 190 back to a reasonable 110 (ha). Now what?
There comes a moment when you realize the worst is over. Just like with SolarCity [stock_quote symbol=scty] at some point the stock becomes so cheap the buyers come back and the remaining sellers just can’t take the pain of walking away. Do not buy SolarCity you would have to be insane. I am using them only as an example.
When the sellers stop and the buyers come back in – this is the support level and what the market considers the stock to be truly worth after the carnage. That moment, that price will always be your point of entry if you want in. If you’re scared (which you will be) buy in slowly and watch it for a few days to make sure. If it bounces right back and you “lose” your chance so what. You’ve made money and there are worse things. Viacom [stock_quote symbol=viab] is an example of why it is important to wait. If you thought $36 was a good price, you’re loving $31!
For me some of this trading “stuff” comes naturally and I don’t realize it. When McDonald’s hovered around $115 on Monday my antennas went up. When it dipped into the 114’s I said to myself, “you better buy it” and when it bounced back to 115 I bought it and it promptly fell back into the 114’s for a short period. I didn’t panic I just figured if it kept going down I would buy more around the 110-111 mark. You must have a plan and remain calm. I knew I wanted in, I knew it would go back up so really anything 115 or below was fine with me.
As your skill level and experience grow you will be able to find the bottom. I’m just glad to know I wasn’t crazy in thinking when a stock holds strong when everything else is crashing it’s a good time to buy and my boy Jim Cramer reaffirmed that tonight.
Thanks pal…Happy Birthday