Follow through

Number of factors lined up for this reversal. Sentiments became excessively bullish. Mom and pop investors returned to market near top. Major newspapers had stock market news dominating the front pages and Barron’s screamed Dow 15000.

But above all market breadth based models screamed risk of pullback is increasing. Whether it is the Worden T2108 indicator or $BPNYA or Stockbee Market Monitor . Extreme bullish readings on breadth indicators tend to lead to reversals in next 2 to 6 weeks. All the breadth indicators had reached extremes in recent weeks. Breadth based timing strategies are the most reliable strategies for overall market.

The weakness will play itself out and at some stage the market will stabilize and set itself up for another rally this year. In recent 3 years pullbacks have been sharp but of smaller magnitudes and have also been of shorter duration. Each pullback or bearish phase has resulted in massive action by Fed worldwide or by policy makers.

As of now our Lemonade Strategy for 401k is in cash. It went in to cash couple of weeks ago after market breadth reached extreme. It will remain in cash till fresh Market Monitor long signal shows up. The active trading account had open long positions which were closed yesterday, but if a long with good catalyst shows up , I will still be a buyer for trade. The Working People Portfolio still has 2 open positions. The Working People portfolio focuses on position trades so it will continue to hold positions unless stop is hit. In active trading focus is on finding good risk reward shorts at this stage.

Every market correction offers growth investors and momentum traders time to upgrade their skills and research markets and methods. One of the areas of focus should be vehicle selection. While many novice traders spend lot of time on chart patterns and indicators, they pay little attention to vehicle selection. Many lack basic understanding of key vehicle selection strategies. This is the right time to focus on this key skill of proper vehicle selection.

On members site we are kicking off multi week vehicle selection education and collaboration effort to refresh key understanding of vehicle selection strategies. 

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2013-02-26 07:38:50

Source: http://stockbee.blogspot.com/2013/02/follow-through.html