While it’s been pretty easy going in the market these last few weeks, my antennae of concern is now raised. So far none of my holdings have triggered any sell rules, which is why I’m alert, but not yet reacting. The concern is the number of distribution days mounting on the major indices, most notably the S&P 500. As cited in today’s IBD, the S&P began the day with a count of 5 distribution days, which is a lot. When the distribution day count reaches 5 to 6 in a 25 day period, it is a sign the current trend is being stressed by significant selling and may be in jeopardy of changing to the downside.

 

While I have conviction in my current holdings, if the distribution day count increases I will have to respond by trimming back my exposure. If the market begins a new downtrend, 3 out of 4 stocks will follow; including the leaders. Now it is time to prioritize your holdings and be prepared to cut weaker positions. If this trend remains healthy, we shouldn’t see much more distribution. Instead, we should see previous distribution days fall off the count, as they either become too old or the market moves high enough to make them irrelevant. I encourage you to do the research necessary to be prepared either way.

 

Best returns,

 

Scott O’Neil

 

President, MarketSmith Incorporated

Follow Scott O'Neil at Twitter.com/WScottOneil