While the Smart Money Positions for a Market Top, Be On Guard to Add to Winning Positions

The crowd is almost always wrong. Day after day traders come to market with the same sentiment. “We are overbought, the economy cannot sustain the rally, position yourself for downside.” And day after day your writer sees trader after trader take short position after short position and almost always stop out for a loss.

This doesn’t mean that the market won’t correct. It is certainly entitled to it after four strong weeks of gains that have initiated a second leg higher off the March bottom. But from the action on the indices and trader sentiment it appears any correction is likely to be contained.

Rather than worry about a general market pullback well positioned longs should simply observe how their stocks trade. This is generally not the time to be initiating new positions, which would be in stocks that are either extended, and thus risky, or laggard, and thus usually not worth your focus. But it IS a time to prepare to add to existing winning positions should they continue to act well.

You should look to add to your biggest gainers. They are the markets leaders and, although it might seem counterintuitive, are likely to be the stocks that continue to gain the most in a continued market uptrend.

For the most part these candidates should be trading tightly in spite of having large gains. That means they are correcting through time rather than price, a highly bullish development. They should base in this fashion for at least three weeks and you should add smaller shares as they move to fresh highs.

Many of the best stocks having been trading tightly for a couple weeks, meaning you’d like to see continued constructive action for another week at least before adding to a position.

We’ll be watching the stocks we recommended on our sister site and advise when and if the opportunity arises to add to our best positions.