“The early bird catches the worm” is a phrase we all learn early on. I myself am an early riser—I’m writing this at 5:30 this morning in the peace and quiet of my home office with a hot cup of coffee. I’ve always done my best work in the morning hours, in fact, and try to get as much as done as possible before the morning rush.
But as you know, the market is a contrary animal; many things that are advisable in real life fail when applied to investing. (That, along with a general lack of discipline, is why most investors have mundane returns.) And so it is with being the early bird—leading stocks often take a while to get going, so investors who race to jump in first often buy the wrong stocks at the wrong time.
A more apt saying might be, “the second mouse gets the cheese”—when buying individual stocks. It’s not about buying first, but buying the right stock at the right time.
That’s especially true today, when we’ve seen a return of the hugely split tape from earlier this year. While the big-cap indexes look great, small- and mid-cap indexes are just so-so and the broad market is coming under pressure (our Two-Second Indicator is negative once again). Indeed, as of Tuesday, nearly two-thirds of all stocks on the NYSE and Nasdaq remain below their 200-day moving averages—not exactly a sign of strength.
As for growth stocks, they’ve bided their time during the past three weeks, setting up their next play … and in our view, their next play is going to tell us a lot about the potential of the current rally. Should some of the many set-ups we see lift off, new leadership should produce a sustained, highly profitable run. But if the vast majority fail, and all the market has for leadership are stocks like General Electric and McDonalds … well, let’s just say we won’t be as optimistic.
Still, in recent days, we have seen a few growth stocks lift off, and with several dozen key earnings reports due in the coming days, we’re thinking more could get going. But instead of anticipating, we’re content to be the second mouse—if stocks break out (especially on earnings), we’re happy to jump in, but if they don’t, we’ll go slow. Stay tuned.
The game plan here is straightforward: (1) Do some buying in growth stocks that are acting well, (2) keep tight stops on stocks that are lagging in this uptrend, and (3) have your shopping list ready should more growth stocks kick into gear.