Stocks Down Near Midday; How IBD’s Rules Protected FANG Investors

The stock market hoped for a calm up session Thursday morning, but didn’t get any part of its wish. Losses were uncomfortably high, and volume remained fast-paced.

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Small caps trimmed 0.3% on the S&P 600. The Nasdaq was down 0.2%, but the large-cap S&P 500 fell 0.7%. The Dow Jones industrial average sliced off 0.6%.

Volume rose vs. the same time in the previous session’s fast pace.

Market watchers offered competing explanations on why the market dropped so sharply Wednesday. Some blamed Federal Reserve chief Jerome Powell’s “long way from neutral” remark but that came a week ago. Others pointed to oil prices, the rise in Treasury yields and the midterm congressional elections, which are only four weeks away.

IBD-style investors don’t find their guidance by wading in the swamp of why. They look to the chart and heed sell and profit-taking signals. IBD-style investors do buy stocks on the fundamentals and technicals, but selling is via the charts alone.

How To Make Money With The Rules

A look at the FANG stocks — Facebook (FB), Amazon.com (AMZN), Netflix (NFLX) and Alphabet (GOOGL) —along with Apple (AAPL) shows how IBD’s rules protected investors.

Facebook triggered the 7% to 8% sell rule July 26 for those who bought the breakout at 195.42.  For shareholders who refused to heed the 7% to 8% loss-cutting rule, the loss is now about 23%.

Amazon.com invoked the 20% profit-taking rule in August, a gain measured from the late-April breakout.

Netflix offered 20% profit-taking opportunities from two separate breakouts, one in early January and another on May 23.

Alphabet rose as much as 11% from a 1161.20 buy point but then returned to the entry. The action illustrated another IBD rule: A stock should be sold when it threatens to erase a solid gain. In Alphabet’s case, a 3% to 4% gain could’ve been locked in when the stock cut under its 50-day line Sept. 5 and Sept. 6. Granted, a 3% to 4% profit doesn’t sound like much and did not qualify as a round-trip sell signal, but it beats the 6% loss the stock currently has.

Apple reached the 20% profit-taking level Oct. 4 after clearing a 194.30 buy point in late July and early August.

The point here is that the chart-focused investor has an advantage in times like these. The savvy investor looks for either profit taking or loss cutting signals and acts. Such investors will do better than those who sit around speculating on why the market is acting as it is.

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