With the Nasdaq and S&P 500 soaring to record highs, shares of the Magnificent Seven Nvidia (NVDA) And Meta platforms (dead) leads a strong group of names on the IBD Leaderboard. To further highlight the demand for shares of Meta, Nvidia and other tech giants, 10 of the 13 members of the IBD Leaderboard also made the list of this month's new buys by top mutual funds.
A raging bull market and seemingly relentless demand for companies exploiting artificial intelligence continue to drive these and other stocks. But when market indexes rise, investors should stand still, armed with time-tested rules regarding when to sell stocks for profits.
One of the keys to managing risk in a strong uptrend is to monitor the stock in relation to its 50-day moving average. And don't forget the all-important earnings season, with Shopify scheduled to report tomorrow and Nvidia scheduled to report earnings on February 21st.
Yes, Nvidia has one. But this is not the Mag 7 you expect.
How high is too high? Meta, Nvidia Stock and their 50-day lines
In a healthy market, leading stocks will trade solidly above their 10-week and 50-day lines. In addition, these parameters will be on an upward trend. Currently, this is certainly the case for Meta Stock, ServiceNow, Shopify, Nvidia, and other IBD Leaderboard names.
But it is possible that the stock could rise well above the 50-day line. This suggests that a pullback or sideways move may be appropriate.
For example, after Nvidia crossed the 700 mark, it is now trading more than 30% above its 50-day line. Meta stock is up nearly 26% above this index. Before earnings, Shopify stands at more than 14% above its 50 day. Meanwhile, Uber is about 12% above its key moving average.
Generally, when a stock rises more than 5% above its 50-day line, the chances of a pullback begin to increase. It is by no means an automatic sell signal, but rather a reminder to monitor the stock to see if it and the indicators may be overheating.
It might be a good idea for stocks of Nvidia, Uber, Meta, and others to decline moderately or trade sideways for a while. This helps them absorb their big gains and avoid becoming too foamy.
Manage risk by securing some gains
Investing in stocks is rarely an all-or-nothing game. Investors can manage risk by taking a gradual approach to buying stocks and deciding when to sell.
One guideline for making some gains on the way up in big winner stocks like Nvidia stock and others is to take some profits when the stock rises 20% to 25% above the initial buy point. This strategy can be applied when a stock makes a significant run over a long period of time.
For example, while maintaining a position in stocks of large companies such as Meta, Uber, and Nvidia, investors can make partial profits. This allows investors to preserve recent profits while still benefiting from the ongoing rally.
Follow Matthew Galgani on X (formerly Twitter) at @IBD_MGalgani.
You may also like:
Investors are ignoring the siren cries that the S&P 500 is overvalued
Nvidia is king, but this frog may turn into a prince
Are the best mutual funds to buy stocks for your watchlist? Here's how to find out
Stock Picks: Google and Nvidia Reveal 7 Distinctive Traits to Watch
“Amateur organizer. Wannabe beer evangelist. General web fan. Certified internet ninja. Avid reader.”