Good evening StockBandits!
Whether it was a delayed response to China, a reaction to Greece, or just a market which finally had grown tired after an 11-week rally, we finally saw stocks give up some ground today. That broke the 2-month streak of the S&P 500 for no 1% declines, as the last one had been December 28th.
I noted here last night the technically precarious position the NAZ and S&P 500 were in going into today’s session as the NAZ had broken its primary uptrend line and was testing its February trendline, while the S&P closed right at its 2-month uptrend line at 1364 last night. Today’s break gives us a clear signal that the pace of the recent advance has at the very least changed, and it also opens the door to some continued selling in the days and weeks ahead.
To be clear, that means if you have not already raised cash as per my cautionary comments here, this is a technical indication to do so. Looking back at last week’s prices and wishing you had them will do you no good. What you must consider at this point is whether we can move a fair amount lower from here, and that’s a possibility. Raising cash when the market is technically breaking down can sidestep big moves like we saw last July and allow you to re-enter with greater clarity by avoiding the pain. I went to cash on July 25th, and just days later was relieved to have done so. Today I returned to cash, as there is just greater technical risk at this point on the long side than we’ve seen in quite some time given the lack of profit-taking along the way.
Before becoming a perma-bear and embracing Dow 4000 theories, keep in mind that going back to last October the bulls have been paid to buy every dip. Lately, that has been in the minor dips of just a few hours, but we’ve seen higher lows emerge from multi-day pullbacks in both November and December. That dynamic may not change quickly, and with some key levels down below, we could certainly see the bulls take another stand.
In the short term, however, the market is technically breaking down and that deserves respect. I’ve been cautious with new trades lately, and the potential for a move like today’s was the root of that. Now that we’re getting some more intense selling, it’s important to preserve capital, protect cash, and wait for better setups to arrive (and they absolutely will). There’s no need to jump in front of the selling in hopes of catching a turning point, so some patience here is a must. And for those who are more active, the short side may offer some opportunities for some near-term cash flow.
I’ll cover my game plan for tomorrow in the video, and as always, feel free to share your own thoughts, trade ideas, and questions down below in the comments section.
Here is tonight’s video:
The Bandit Broadcast Video – Click to Watch!
Video Stocks Discussed: LNKD, DPZ, GRMN, MPC, MCP
Swing Trading Candidates:
NONE TONIGHT – 100% cash.
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The Hit List is a separate post which contains discussion on open positions and swing trade stops and targets, so be sure to check it for further details on swing trades.
