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Do This Before You Buy the Dow's Breakout

Dan Caplinger
September 7, 2012

Everyone knows that the worst time to sell is after the market has already crashed. Giving in to fear just when stocks are near their lows is just about the worst mistake you can make with your portfolio.

By contrast, the other side of the fear versus greed equation doesn't get a lot of attention. It can be just as detrimental to your portfolio, though, so before you get swept up in the bullishness that you'll find throughout the stock market today, be sure to take a gut check and make sure you won't do something you'll regret later.

The bull's back, baby!
If you haven't seen the headlines yet, you will soon enough: Stocks closed yesterday at multiyear highs, with the Dow Jones Industrial Average (INDEX: ^DJI  ) climbing to its highest level since late 2007. The immediate cause for celebration came from Europe, where the continent's central bank finally caved pressure to institute a program allowing for purchases of sovereign bonds from struggling eurozone member countries.

The impact was immediate and global in scope. European stocks gained roughly 3%. Many companies in those countries helped most by the European Central Bank's decision made even stronger moves. Spanish telecom Telefonica (NYSE: TEF  ) , for instance, jumped more than 5%, as investors clearly believe that a healthier Spain means better prospects for the geographically diversified company.

The speed with which gains spread around the world made it clear just how threatened investors have felt by Europe's drag on the global economy. In Brazil, Vale (NYSE: VALE  ) climbed more than 4% on prospects that a healthier Europe could reignite demand for the natural resources it provides. Solar-energy giant First Solar (Nasdaq: FSLR  ) soared more than 7% on apparent hopes that European solar orders might rise again if the economy there stops getting weaker. Even Ford (NYSE: F  ) , which has suffered from poor sales in Europe for some time, joined the party, gaining almost 4% in light of a new strategy to recover its strength on the continent.

With all this good news, you might feel compelled to invest all your spare cash in stocks now before the b