After this month's follow-through day, stock and ETF investors face the question of how to invest back into stocks. And just as important is the question of how aggressively to be invested in what is arguably the midst of a bear market.
XThe follow-through day essentially tells investors when to start buying quality stocks again, as they break out past buy points. In the more than five decades since William O'Neil began tracking this signal, the IBD founder says he's never seen a bull market that didn't begin with a follow-through.
How To Invest: Buying After A Follow-Through Day
But not every follow-through results in a sustained uptrend, which is why investors need to gauge their level of exposure in the days and weeks that come after this signal. You want to buy in sync with the market, so that you don't overcommit to an uptrend that may reverse on you.
On Oct. 21, the Nasdaq composite and S&P 500 staged follow-throughs, signifying the start of a potential uptrend, according to that day's The Big Picture column. But buying opportunities were mostly missing until recent sessions.
Remember, don't panic if you miss the first couple of breakouts. The Nasdaq is still more than 30% off its all-time high. If this stock market rally is real and meaningful, then there will be plenty of time to buy stocks and make money over the coming weeks and potentially months.
Indeed, the number of institutional-quality stocks topping buy points grew in just the past several days.
With the stock market uptrend still in its potential early stages, be patient and disciplined when buying stocks. Don't let FOMO — the fear of missing out — get the best of you. There will be ample opportunity to build exposure if the uptrend is for real, as top stocks gain strength and recover from the bear-market volatility.
And if the stock market starts to break down again, you can reduce exposure without losing too much capital.
Watch for sell signals in stocks coming out of bases. Specifically, sell any stock that falls 7% from your purchase price. Another way new breakouts fail is when a gain of more than 10% from the buy point disappears.
Breakout Stocks To Buy And Watch: AutoZone, Cardinal Health, Eli Lilly
Investors should be looking for stocks to buy and watch during the nascent market uptrend.
A few of these top stock ideas are AutoZone (AZO), Cardinal Health (CAH) and Eli Lilly (LLY). Remember, be sure to buy as close to the buy point as possible. Lilly and Cardinal are already too extended from buy points. Buying right is a key rule of investing.
Auto parts leader and recent IBD Stock Of The Day AutoZone broke out past a cup base's 2,362.34 buy point. The 5% buy zone goes up to 2,480.46, so this one is already extended.
IBD Leaderboard stock Cardinal Health is above its buy range from a short cup with handle's 71.22 entry, according to IBD MarketSmith chart analysis. Shares are also breaking out past a flat base's 72.38 buy point. Earnings are slated for Nov. 4.
IBD SwingTrader stock Eli Lilly is in buy range past a flat base's 335.43 buy point after the Oct. 21 breakout move. The 5% buy zone goes up to 352.20. Earnings are due Nov. 1.
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