Today’s market action is confirming my decision to raise cash and position myself defensively against a weakening market. A healthy market should be able to bounce back after two days of aggressive, broad based selling. However, today’s action was not the case. This morning’s opening surge was short lived. Most leading stocks reversed early in the day, most notably, MOS, FFIV and RVBD. Today’s closing action reaffirmed the market weakness. To make matters worse, many of today’s best performing stocks have lower RS ratings. It is important to watch the market closely because many stocks are near or below their 50-day moving averages. This creates a meaningful tipping point for the market.

 

For me, all of these factors trump the current distribution day count. Some investors may wait to react until the market uptrend is confirmed to be over. Instead, I would rather make the market prove the uptrend is still intact by reversing the significant weakness demonstrated over the last few days. To restore my confidence, I would need to see the leaders snap back with enough volume to compensate for all of the recent selling. Otherwise, I have to assume the market could be topping here and continue within a defensive posture.  

 

Please remember we are not in the predicting business. We are not predictors. We are in the interpretation business. We will interpret the price and volume action on the major indices and leading stocks on a daily basis and adjust accordingly.

 

Best Returns,

 

Scott O’Neil

President of MarketSmith