“Red Sky at Night, Sailor’s Delight”

I just arrived at my Michigan lake compound. I’ll be staying up here through the Thanksgiving holiday.

It’s getting cold and windy here on Lake Superior as winter quickly approaches…

Having grown up in the area, I’m well-conditioned to the cold. In fact, I jumped in the lake earlier this month when the weather was still a pleasant 41 degrees. But I have to admit, it will be difficult for me to keep my monthly streak alive in December as the winter chill sets in…

The gales of November have already resulted in some big waves.

Here’s a part of my beach staircase, which I found nearly a mile down the beach after the last storm ripped through:

beach stairs

Stairs salvaged… the other half was even farther down the beach!

I’ve already finished the recovery effort. Now I can begin the repairs. We’ll be ready for spring fun once the weather begins to warm up.

Even in the cold, there are still some beautiful sights up here…

beach

As the saying goes, red sky at night, sailor’s delight.

Good weather is on the way… and the same is true for the markets as we push to new all-time highs!

Keep it In the Money,

Alan Knuckman

Alan Knuckman
Editor, In-The-Money

Trading Tip of the Day: How to “buy the dip”

Greg Guenthner

You’ve probably heard analysts and market pundits telling investors to “buy the dip” more times than you can count. But you shouldn’t blindly throw money at a play just because it starts trending lower. Instead, you should wait for the right bounce to come along before scooping up shares.

First, you need to get an idea of where your stock should bounce.

How do you figure that out? You can draw a line or use a moving average that fits the play’s uptrend — whatever works best. A simple moving average is the average price of a stock over a certain period. For instance, a 50-day moving average is the average price over the past 50 trading sessions. The main benefit of using moving averages is that they effectively smooth out choppy price action to give you a better sense of a stock’s short-term and long-term trends.

Once you determine your support level, you should wait until the stock moves higher after visiting the line. If the stock fails to bounce in the neighborhood of your support line, then don’t buy. It’s as simple as that.

Sometimes, the stock will bounce nicely off your support line or moving averages. Other times, it will “trick” weak hands into selling by briefly breaking through support before quickly recovering.

It’s best to wait for your potential long-term play to close higher than it opened on the day. That way, you’ll know you’re buying a dip heading into an authentic bounce — instead of a potentially hazardous breakdown.

Of course, this isn’t an exact science. It works better with some stocks than others. You can’t get too hung up on making the perfect move. The key is to watch and wait. You take what the market gives you.

— Greg Guenthner

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Alan Knuckman

Alan hails from the home of options trading in Chicago, where he began working as a clerk on the floor of the Chicago Board of Trade (CBOT). Beginning with his days on the floor, Alan’s worked with all aspects of the options markets for the past 25+ years.

Transitioning from a clerk to a floor...

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