Wishing you all a great first of the month for December 2022. Looking at how November ended, we could be in for an interesting end to the year.
The indices pushed up further at the end of trading on Wednesday, bringing November to a strong end.
The Nasdaq had the strongest day out of the three major indices pushing up over 4.5%. What does this mean for the tech sector?
As a trend follower, this means very little to me. I prefer to wait for the S&P 500 to confirm a bull market and then look for the strongest stocks in the strongest stocks.
Regular readers of my blog will know that I particularly like to look for stocks that meet the following criteria:
- A solid history of performance
- Breaking out from long-term consolidation
- Printing new all-time highs
ACGL is a good example of a stock that I am monitoring closely. I have the monthly timeframe below.
Arch Capital Group Ltd. ACGL
The tech sector has taken quite a beating this year, with many tech stocks dropping far quicker than the indices.
Value investors will no doubt be looking for a bargain, buying stocks at a cheap price, hoping they will rally. I see this as a very inefficient approach to investing, and how many end up in the ‘catching a falling knife’ scenario.
This is when you buy a stock at a cheap price, hoping it will shoot in your favour, only for the stock to continue dropping.
Value investing works for Warren Buffett as he has pockets deep enough to hold negative positions for a long time before returning a profit. Most everyday investors do not have that luxury, so I recommend a trend-following approach. It is less work and far more profitable in the long run.
After all, the name of the game is to be profitable, not to be right. Right?
Let’s look at some of the monthly timeframes of the major tech players.
Apple Inc AAPL
Dropped by 30% this year. The price has formed a base and is now holding well. If it breaks out, I will consider it for the portfolio. Having said that, I don’t think Apple has the smoothest performance history. Price can and will swing against you.
Microsoft Corp MSFT
NVIDIA Corporation NVDA
A massive drop of 70% this year. A stock that has performed well for me in the past. I will be standing aside for now. Once it meets my criteria, I will consider an entry, but that is likely to be many months from now, given how far the price is away from its current all-time high.
Tesla Inc TSLA
The fan favourite of day traders, meme stock traders and anyone else that like a punt. Price fell 60% since the high of last year. As much as I admire Elon Musk, this stock has never appealed to me because of its volatile nature. I prefer stocks that move slowly and steadily, allow me to compound, and that I can hold for 12 to 24 months.
And talking about Mr Musk, let’s have a quick look at Twitter. Now, this is what you call an ugly-looking stock. No history of trends, and it is highly volatile, swinging all over the place.
Twitter Inc TWTR
When you have stocks like AGCL setting up and presenting themselves, and there are plenty of these, I list here, why would you repeatedly risk slicing your handing on falling knives in the tech sector?
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