Rather than being caught in the strong downdraft that days like Friday’s can create, its time to take stock of the Market Health and remember to evaluate each stock on its own merits. The last thing you want to do is sell a stock that isn’t breaking any rules, and then have it turn around and double on you. Doesn’t it always seem to happen that way?

 

Counting the number of distribution days (the days where the index closed down on heavier volume than the previous day) within the last few weeks can give you clue if the market is changing its trend. (See the Archived Webinar on Market Timing).  As of Today, the Dow has 5 distribution days, NYSE has 4, the S&P 500 has 3 and the NASDAQ has 2. Normally we would be selling because of the five distribution days on the Dow. But the NASDAQ has been the leading index this year in terms of price performance, and it only has 2 distribution days (See above). The current count is not definitive, but it is enough to put us on our guard. It’s also interesting that all of the major indices are hovering around their 21 day moving averages. So it’s possible the market may hold here. Should the market continue downward, then we will be forced into lightening up some positions. Unfortunately we are back in that grey zone where the indexes could go either way.

 

If you believe the market will move higher, now is not the time to dig in your heels either. Regardless what the market is telling you, it is important that you monitor your individual stocks for sell signals and use that as a confirmation of what the market is doing. As we interpret the current market action, leading stock behavior is the key. So with that being said, what are your stocks telling you?