Ask Colin

How effective is the 52-week new highs scan towards the end of a bull market?

In my investment plan the proximity of the end of a bull market is dealt with by my strategy on market exposure. If I think we are in the third phase of a bull market, I will reduce the amount of my capital that I have in the market as described in my book Building Wealth in the Stock Market.

The more advanced a bull market becomes, fewer breakouts from accumulation phases on the value model will occur. Those that do occur need to be considered carefully. They may be dog stocks that are only rising on the backwash of the main wave. However, there may be a few genuine value situations where a non-cyclical company is recovering from bad management or ill-fortune.

There are two other situations that the 52-week new high finds:

1. A growth model chart that is breaking higher from a consolidation zone. If it is still reasonable value, these are very prospective situation for investment.

2. A value model or growth model chart that shows an ongoing strong uptrend. If these also still represent reasonable value, they are also highly prospective situations.

The beauty of the 52-week new high scan is that it keeps you looking at the charts that are in uptrends or breaking out. It keeps you away from charts in downtrends.