The M In CAN SLIM: Why Market Direction Is Key To Winning In Stocks

If you talk to California surfers about their passion, they'll tell you that conditions are pretty much everything. "When the waves aren't right, there's no point in going out there and getting beat up," a veteran surfer recently explained.
If the wind is blowing strong onshore and the ocean looks like a washing machine, you don't surf. If the waves are too weak, you don't surf. If the ocean's at a dead calm, you don't even try.
Transmogrify this into investing and you pretty much have IBD's stance on the stock market today.
If the M for "market" in CAN SLIM is missing, there's no point in opening new positions. Raise cash. Wait for better conditions.
This is a hard lesson for investors to learn, especially if they are intelligent. People like to point to great stock picks they made, as if choosing the stock was the whole story. They seldom give credit for a profitable run to the market or to the strength of the industry group.
The proud think investing is an intellectual test, and that they can outsmart a downtrend.
But investing isn't an intellectual test. It's more like the art of surfing. You can't outsmart the ocean into being something it isn't. If you're going to be successful, you need to be aware of conditions and make the necessary adjustments.

If the market isn't in an uptrend, you aren't going to make much progress. In an uptrend, three of every four stocks rise. In a downtrend, it's the reverse.

The market has three possible states: confirmed uptrend, uptrend under pressure and corection. Either stocks have a tailwind helping them, a crosswind confusing them or a headwind slowing them.
Market Pulse table included in each daily story detail the market's state every day.
An uptrend under pressure can be tough. It typically doesn't offer enough reward to justify aggressiveness or enough pain to drive you to cash.
All markets are dangerous because they shape your psychology, often outside your awareness.
People who work at IBD seminars say that investors themselves can become indicators at key market junctures. Near market tops, it isn't unusual to run into people who are ready to quit their day job and invest full-time. After all, they've mastered the game, and general market conditions had little to do with their success, right?
A dose of humility amid your success will serve you better. If you realize that the market itself has a lot to do with your success or failure, you will watch the market closely.
When an uptrend is under pressure, it isn't unusual to run into people who are convinced that IBD is missing calls. In a way they're right, though not in the way they imagine. A market that is under pressure invites argument. A lack of clarity is its chief characteristic.
When a market is in correction, some people quit watching the market altogether. This guarantees that they will be late in catching the next uptrend and in identifying the strongest groups and best stocks.
After the March 12, 2009, follow-through day, it was common to run into people who insisted that the market was terrible and any rise was a head fake. They missed a 77% jump in the Nasdaq over 13 months.
If there's one thing intrinsic to the IBD approach to investing, it's respect for the market. We make no claim that we can outsmart a downtrend, or predict the future. The market is like the ocean. It's a powerful force that must be respected.
You ride the strong waves as long as they last. You wait on the beach when there's no point in going out.