Watch Your Portfolio's Relative Performance

There are thousands of publicly traded stocks, and you just can't own them all. While you could opt to own the StreetTracks Total Market ETF (TMW - commentary - Cramer's Take), you'd rather see if you can outperform the broad market averages. Like most traders, you want to find the right stocks at the right time.

There's an endless list of factors you can consider when selecting stocks, including relative strength, valuation, market cap, index membership, institutional sponsorship and insider buying.

But let's examine this from another angle. How do you know whether the combination of stocks you already own is working? Sometimes the simplest tests are the best. Here are some general ideas for portfolio assessment.

• When the market is strong on any given day, are your holdings advancing, too? They don't have to be on fire, but you want a portfolio that performs well in a strong environment. If money is flowing into the market, then you want your stocks to attract a sizeable portion of that money. If they're not doing so, that means the money flow is going elsewhere, and so should you.
• During a tame day, are your stocks still firm, or are they volatile? If they're volatile, check the trend. If it's down, then chances are your stocks are being liquidated. Don't stick around. Move to a better neighborhood.
• When the market starts lifting during the middle of the day like it did yesterday, do your stocks also advance? If your stocks are going nowhere, then money could be rotating out of them in search of a new home. You should do the same.

If you stay attuned to how your portfolio is performing relative to the rest of the market during the day, you stand a better chance of being in the right place at the right time ... or at least avoiding being in the wrong place at the wrong time.

Let's look at some reader requests.

Amazon

Amazon (AMZN - commentary - Cramer's Take) reports earnings after the close today. The logical line of support is at $36. Back in October, the stock gapped from $34 to almost $38 before settling in at $36. If current support breaks down, I'd look for the next line of support to be down between $32 and $34.

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Greater China Fund

Greater China Fund (GCH - commentary - Cramer's Take) was on fire during the last half of 2006, but has cooled off quite a bit. However, the 50-day moving average continues to hold heavy buying interest, so as long as that support holds, I'd remain long. But if you look at the volume, you'll see that the late-December ramp was likely a blow-off top, a last gasp of buying before it starts falling back to Earth. If you're still hanging on to it, then try using $25 as a reference point for setting a stop-loss.

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Potash

Potash (POT - commentary - Cramer's Take) had been trading in a very tight range for the past couple of months. But last week, the stock blew right through $145 and didn't stop until it hit $160. Now we're seeing a bit of a pause, and I'd look to buy on any successful test of support.

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Career Education

Career Education (CECO - commentary - Cramer's Take) traded sideways within a tight range for a couple of months before gapping to $27 in mid-January. After pulling back to test the breakout level, the stock is now running along the upper Bollinger Band. That's what strong stocks do, and I'd hang on to this one unless it falls below the 50-day moving average.

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AES

After running from $20 up to $24, this slow mover has pulled all the way back to $20. So far, that level is holding. If you bought AES (AES - commentary - Cramer's Take) a few weeks ago on that dramatic selloff, there's no reason to sell unless the stock falls below $20, With the relative strength index, or RSI, leading the way, a move back above $21 should lead to further gains.

Be careful out there.

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At the time of publication, Fitzpatrick had no positions in any of the stocks mentioned, though positions may change at any time.

Dan Fitzpatrick is the publisher of StockMarketMentor.com, an advisory newsletter and educational forum dedicated to teaching effective risk management and trading methodologies to aspiring traders and investors. He is a former hedge fund manager and a member of the Market Technicians Association, and he now trades from his home in San Diego, Calif. While Fitzpatrick holds various securities licenses, he does not give recommendations to buy or sell stocks. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. He appreciates your feedback; click here to send him an email.