MLR - With so many stocks to buy in an uptrending market, how do you find the best ones, or do you buy them all?

Q: With so many stocks to buy in an uptrending market, how do you find the best ones, or do you buy them all?

A: With so many stocks that we have reported on that are acting well (KORS, MNST, TSCO, INVN, RAX, PII, etc), the temptation might be to try and “kiss all the babies,” so to speak. In order to make big money, one must focus their capital into the strongest names. If you have 12 stocks that all issue pocket pivot or base breakout buy points over several days, but you set the maximum number of stocks in your portfolio at 5, you can either sell part of the position in your weakest name to make room for the new stock, meaning you will then own six stocks. Or you could sell a position in full so that you will not exceed five stocks. If all the stocks in your portfolio are doing fine, you can sell the one that is showing the weakest characteristics on the basis of fundamentals (earnings, sales, ROE, PM, industry group rank, institutional sponsorship, etc) or technicals (lowest RS, sloppier price/volume action, etc).

Keep in mind that if we have a good position at a good price in a new, emerging leader that has some aspects of “new” in it, like INVN or SAVE (as of February 8, 2012), for example, there is no need to tamper with it or sell off a position that might be consolidating recent, strong gains in favor of something that is “moving” today. For example, Monster Beverage did not move much on Thursday and Friday (February 2-3, 2012) when the market was up, but that is fine. Since it is often the characteristic of a leading stock to move up on days when the general market may be flat or even down, one should not be surprised if such leaders “rest” on a day when the market is up. As long as the stock is resting normally, there is nothing to do, and chances are if you bought something like MNST at around 100 and sell it after a quick 5-6% gain, the stock will then just move higher without you later on. Even looking at the daily chart of MNST we can see that the stock is perched along its 10-day moving average, and a continuation pocket pivot buy point could emerge at any time, perhaps even on a day when the market is going down, so for now that is all you need to focus on with MNST: the next buy point.