Tuesday, July 29, 2008

Investors Business Daily Changes Outlook to Market in Confirmed Rally

Investors Business Daily (IBD) changed its market outlook from "Market in Correction" to "Market in Confirmed Rally" today. This change came after the large increase in the Dow and NASDAQ on higher then average volume.

IBD uses a combination of fundamental and technical analysis as well as market timing to identify stocks that they believe are attractive. IBD is geared more toward Traders. These Traders are looking to buy growth stocks and use more Momentum/Technical indicators to identify stocks to trade with. While this is not a method that I subscribe to, IBD has one of the better market timing indicators that I have found.

IBD watches the technicals and volume in the market to identify attractive times to purchase stocks. They do this by looking for large up moves in the market along with large volume. They believe that when large institutional investors are buying in the market they can be supportive to individual investors.

I'm not a huge fan of market timing. I think that the best way to make money in the long run is to do your homework, buy strong companies, and build a well diversified portfolio that includes many asset classes. Then you monitor your investments and liquidate the investments that no longer look attractive from a valuation standpoint or if there is a problem in the investment that will keep it from increasing in value over the long term.

I do believe that when you are looking to buy stocks it can be beneficial to look at some technical analysis though. Technical analysis can help you avoid falling knifes or value traps, two things that value investors must try to identify and avoid.

In conclusion, IBD has given the all clear to their readers that they can now invest in the market. This can add conviction to your buys but only after you do your own fundamental and technical analysis to identify quality companies that will increase your net worth over the long run.

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