When stocks are in a strong uptrend, it can be difficult to determine when a significant corrective move will take place. We all want to capture as much of the uptrend as possible, especially when momentum is strong, but strong uptrends come with risks, which makes it important to have a “sell discipline” for profit taking. We have seen many strong uptrends take hold in this momentum-driven tape, especially in some of the market’s largest stocks such as Microsoft, Nvidia, Amazon, Meta, Berkshire Hathaway, Eli Lilly, Broadcom, and JPMorgan Chase. Therefore, it is important to have a plan for how to handle stocks that have “gone parabolic,” meaning the momentum behind their uptrends has accelerated. A 20-day moving average (MA) can be useful as an indicator of short-term momentum, in general. It is especially useful in helping us stay on the right side of strong uptrends. Two examples of strong uptrends are Meta (Meta) and Nvidia (NVDA), both illustrated below. Quite simply, when the 20-day moving average points higher, as it currently does for NVDA and META, it supports maintaining existing exposure. When the 20-day moving average turns lower after trending higher for an extended period of time, it is a sign that momentum is waning and that the stock is poised for a significant pullback. Looking back, for both NVDA and META, the 20-day moving average reversed in early August 2023, preceding medium-term corrective phases in the third quarter of last year. We include the Ichimoku cloud pattern in the charts because it can be a good indicator of initial downside risk in strong uptrends. The cloud worked particularly well on META’s chart during its corrective phase, and led to the discovery of initial support for NVDA in early August as its correction began. The 50-day moving average is another useful way to evaluate initial support in uptrend stocks. As a general rule, we recommend reducing partial exposure when the 20-day MAs reverse after strong upward moves. The percentage reduction should take into account how the stock fits into an overall portfolio. A break below cloud pattern support and/or the 50-day moving average can be a catalyst to sell stocks, often with the intention of revisiting them once they become oversold again from a medium-term perspective. —Katie Stockton with Will Tamplin Access free Fairlead Strategies research here. DISCLOSURE: THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO PURCHASE SECURITIES OR OTHER FINANCIAL ASSETS. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT THE UNIQUE PERSONAL CIRCUMSTANCES OF ANY INDIVIDUAL. THE ABOVE CONTENT MAY NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. 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