Second attempt to push lower finds more buyers

The sellers are still playing chicken with the market. The second day of attempting to push the indexes lower creates the same results… sell early, rally late, and close slightly down. Last night in the update I stated the market is getting toppy and my belief is without a catalyst on the downside we would establish a modest range until investor see or experience a┬ácatalyst in either direction. Since the breaking above resistance three weeks ago the market┬áhas been working towards this type of action. I state this again so we all understand where we stand currently, topping, but not enough selling to overly worry about the downside. The question: how do we deal with this relative to our holdings?

First, take some of your profits on trading positions. We have hit targets on positions added on the break higher the first of February and banking some profit is prudent money management on those trades. Longer term position, define how much downside risk you are willing to accept as we progress forward. Short term volatility is to be expected when holding longer term assets and the move may present an opportunity to add to the those longer term positions or take a trade off the position going forward. Planning is always best done before the proverbial #$%^ hits the fan.

Second, track the potential issues, events or fundamentals that could be the next catalyst… good and bad. The Fed is still in play as it pertains to raising interest rates. The economic data is flat, but surprises in the jobs report on Friday could spice things up. Europe, Russia, China, the dollar, earnings, geopolitical, global economics, etc. all are still on the table and any one or a combination of them could be the next trigger for the trend up or down.

Third, watch the trendlines relative to the different timelines. All the current trends are pointing higher, but the longer we drift sideways the micro trend (0-13 weeks) will be the first challenged and then the others will not be far behind. If the trend breaks it is a warning sign for a trend change on the longer term timelines. Be aware of what is taking place technically in the markets.

Four, watch the moving averages relative to price. The S&P 500 index broke below the 10-day SMA today and tested the 20 day SMA. As the charts break key moving averages investors and traders will act or react to the moves. Again, it depends on your time horizon relative to each position as to how you will treat the move in price relative to the moving averages.

Last, but not least, watch how indicators like money flow, volume, relative strength and sentiment are moving. Is confidence coming out of the markets short term or do you see confidence building on itself? Let all the data assist you in determining the best course of action to take as we move forward.

Two down days on the indexes that combined are close to┬áone percent don’t make for a reason to run for the hills. The sky isn’t falling, no hurricanes in sight, just some profit taking and rotation for now. If it adds up to more than that, you will know soon enough and with your exit points already planned there won’t be any questions or hesitations on what is the best course of action to take to protect your assets. As always we will take it one day at a time and let the future unfold versus taking on the role of being a prophet.