IMO when the market starts to behave differently, it is wise to pull your money out of the market into cash until you can see how the market has changed, or at least until the correction is over. The length of time that is required for this depends of course on your investment timeframe.
This market's sentiment has definitely changed. This has IMO altered how stocks are behaving and therefore to some degree how stocks respond to TA. For instance, the momentum on some key stocks have evaporated and now are becoming much more responsive to OB/OS indicators. Also, these same stocks are less likely to "ignore" developing divergences and other technically weakening conditions since investors are now not as "exhuberant" as they were in the recent past. I see investors now more cautious and even somewhat pessamistic.
First rule of TA: never trade against the trend. For that matter, high RS stocks are the ones to get hit the hardest on a correction. So unless you trade day by day, it would be wise to determine the direction of the market before jumping back in. However, what is making this difficult is the recent behavior of the market which exaggerate price swings in the indices like the Dow. I think this will change when we get into September. I do think many are keeping a cash position waiting for the market to take a definite trend (up).
I want to stress for some here that the goal here is not to trade frequently, but trade intelligently. Wait to encounter the right opportunities. There will always be opportunities. Matter of fact, this is one of the commonn mistakes that new floor traders make: they believe they have to trade, and trade frequently they do. And they lose frequently as the result: well over 90% do not make it through their first year.
And finally, I do not believe the correction is over. So you still have significant downside potential as the market has been demonstrating albiet in slow motion. The Dow is currnently testing its previous low that it had rebounded from. I have found in the past markets like this can surprise me be moving past significant supports when I did not expect it to. Anyone else notice this before? It is like the analogy where when water is slowly heated, most people do not take notice and respond, while when water becomes hot quickly, people are very responsive, such as what we see with reaction lows. Any thoughts on this? However, IMO if the price breaks through its perevious low at about 7672, there will be more of a price drop to come.
Just my opinion. Feedback welcome. What do you think?
Bob Graham |
