AskGil

By Ask Gil

January 10, 2012 12:08 am ET

Q: How should one operate in different follow throughs? It seems to me that we have FT’s like in March ’08 with old stuff and stuff coming off the bottom, and you seemed to be very quick to get out on any market distibution. Then there are FT’s like in ’03 with lots of new stuff, and the potential for huge gains, where sitting tight and not losing one’s position, giving some room, would seem to be the right approach. Do you make such a distinction of FT’s in your thinking or market operations vis a vis trading around positions vs holding on?

G: Marginal follow-throughs in markets that are “late” in the cycle, such as we had in March generally mean, at least from my perspective, that you don’t want to give your positions too much room, since some could be breaking out of late-stage bases, and breakout failures from these can be brutal if you sit too long. If we are in a newer bull market with lots of new leadership, I am more likely to give the positions some room. It all boils down to trying to assess the strength of the follow-through based on the types and positions of stocks that are breaking out, as well as the general “age” of the market in the overall bull market cycle.