Similar to the start of last year, the market environment is choppy and volatile. Currently, the NASDAQ is up 2.8% from the shift in market outlook on 2/10/2015. The NASDAQ is still above its trading range and seems to be fighting for support near its 50-day MA. The same interpretation applies to the S&P 500.

At this time, there are eight distribution days on both the NASDAQ and S&P 500. Historically, when markets receive a cluster of distribution days near the highs, markets tend to pullback and correct. With the current market activity, investors should be asking what the risk versus reward measurement is from here.

Since there is elevated distribution in the market and investors never know how far a pullback or correction will last, investors should adjust portfolio risk accordingly. Meaning, if investors have profits it’s best to lock in gains near the 20-25% mark. It’s also prudent to cut losses quickly at the 5-7% mark. In this environment, letting losses go can be a costly mistake. Remember, the number one rule in investing is to live to invest another day.

As long as investor’s portfolios are making progress, it’s best to maintain long equity exposure, but if those gains quickly disappear, it’s best to cut losses and book profits. Keep in mind, a stock can always be bought back after a clear market direction is painted. Moreover, with eight distribution days on the market, it’s best for investors to move forward with carefulness.

As always, if you have any questions please call us at (800) 424-9033 or email us at reachus@maketsmith.com.

Best returns,
The MarketSmith Team