By: Scott Redler
Today I went on Street Signs talking about the complexion change in the market. Below is a video from that segment, as well as my preparatory notes.
- This month we started to watch for a composure change—look for technical signs to add up for a change in market complexion. It first started when GOOD EARNINGS were sold—JP Morgan (JPM), Intel (INTC), Goldman Sachs (GS), etc.
- The sell-offs have come on high volume and the bounces on low volume—this is UNHEALTHY! Leading stocks started breaking important moving averages while the market was sitting just below highs—another unhealthy sign.
- Then, on January 21st, we started to sell long positions—clean up our portfolio in anticipation of what should be at minimum, a 10% correction. The complexion was changing and we had to react. When the market broke 1,128-1,132, the UPTREND in place since July broke. That was time to trade from a net short, as opposed to net long, position.
- Right now, the market is short-term oversold. So, 1,080-1,085 on the S&P is trying to hold. We will see how weak the market is by the size of the bounce. If the market cannot take back the 1,115-1,120 area then we will have confirmation that a significant change has occurred and a move down to 1,040—the 10% retracement zone—is in the cards. If policy starts to fail, we do think the lowest level this market can see is 880-910, but you need to measure the move as it transpires.
- Investors need to manage their portfolios. This will be the year of the active trader. The market is in the spot it was ten years ago, but there are stocks that are up 750-1000% and others that have gone bust. Investors need to see where the money is rotating to and use options in order to hedge positions. NEVER CHASE BUBBLES—do not pile into the herd mentality. That’s how investors get burnt.
- We will be in for a ROLLING RECESSION—there will be times to buy stocks and times to be short or in cash. Now is one of those times. They say so goes January, so goes the year—I would not look too much into that statement. Just look at last year for a prime example. Watch the action of the stocks and trade accordingly.
