For the second time in two weeks Small Cap stocks notch a follow-through day. Follow-through days always proceed a stock market rally. While not always 100% correct no rally ever begins without a day with big price gains with volume higher than the previous session. We have seen the Russell 2000 lead the market lower during the Coronavirus outbreak and it is a very positive sign to see it led the market higher. Large Cap technology stocks continue to be sought after as the NASDAQ 100 as measured by QQQ gained 7.15% on the day. IWM gained 7.64%. The surge in volume is a great indicator of institutional involvement. Despite the negative news cycle this market was able to at least show signs of life. Now, we must be vigilant in what we do next.
A sound game plan is what it will take to proceed and win. First and foremost an open mind is a must. We cannot make decisions based up on our emotions or what we think might happen. Data driven decision making is a must. Do not trade what you think is paramount. Once we get past our own bias and emotions, we must know our risk. Developing and implementing a sound risk management process will help us through this tough market. Knowing position sizing and exits is more important than any buy signal. While we do not want to chase stocks higher it is paramount, we do not have too large of position sizes nor let losses run out of control. In fact, our number one rule is to cut losses short. The key to success in the market is in your risk management process. The last two months prove knowing when to get out is more important than when to get in.
There were plenty of stocks jumping. AMZN, NFLX, and MSFT were all big winners today for the NASDAQ 100. Keep an eye on these big boy stocks as they are likely to push the market higher. There are opportunities all around us. We must be prepared with a sound game plan to execute.
