Is It Time For You To Lighten And Tighten Up?

The Economy
— Indications are that the economy continues to improve. A strong economy
should help the stock market until inflation becomes prevalent. This doesn’t
mean that the market won’t be prone to a normal 10%-15% correction. We
have been overdue for a correction of this magnitude for a while.

Neutral:

Foreign Markets
— Foreign market action has been so-so lately. Europe has performed the
best and many European markets have held up quite well. South American indices
have had trouble holding their 50-day moving averages, as have some Asian markets.

Negative:

Accumulation/Distribution
— Or should I say Distribution/Distribution, because that is all there’s
been? The market has been going down on higher volume and up on lower volume
pretty consistently. Until this pattern changes it will be difficult to make
any headway.

New Highs vs. New
Lows — The number of
new highs has been noticeably weakening. New lows have not gained significant
strength at this point. Breadth is no longer an ally of this market and is another
reason for caution currently.

My Shrinking Watch
List — Rather than seeing
many new stocks form bases as was consistently happening for months, I have
noticed many potential bases falling apart. Fewer stocks are setting up, and
those that appear to be set up are faltering before they even attempt a breakout.

Sentiment
— Investment advisors remain overwhelmingly bullish. Not good. Shorter
term, the S&P 500 sold off 5 days in a row coming into today. As I write
this around 1:20 PM ET, the S&P 500 is up a mere 2 points today. Looking
at the VIX over the same 5 ½ day period, it is lower now than when the
selloff began. Apparently, this selling hasn’t scared anyone yet. I would
sure like to see the VIX spike more on selloffs. This complacency isn’t
helping the market.

UUWNHI
(Unofficial, Unscientific, Working/Not Working Hanna Indicator) — Let’s
start with the obvious. Breakouts are having a really tough time. A few recent
examples would include
(
ACH |
Quote |
Chart |
News |
PowerRating),
(
VTSS |
Quote |
Chart |
News |
PowerRating),
(
IPAR |
Quote |
Chart |
News |
PowerRating) and
(
NGPS |
Quote |
Chart |
News |
PowerRating).
As noted in the New Highs vs. New Lows, breakdowns haven’t really taken
hold yet, so if you’ve been making money on the short side, it is likely
playing topping or trend reversal patterns. In a market with little breadth
and no strong trend, follow through can be hard to come by. If your trading
strategies and setups aren’t performing as well lately, that is a signal
to lighten up and play your trades a little tighter than you would in a better
environment.

Best of luck with your trading,

Rob Hanna

robhanna@rcn.com