With the Russell down nearly 2% today the cacophony of collapse reverberated yet again. A familiar theme has been when the market hiccups the masses hyperventilate, and today was no different. Is this a cause to be alarmed or is this merely the ebb, flow and the natural order of things? How many licks does it take to get to the center of a tootsie roll pop?
There were warning signs that the market was becoming extended from a breadth perspective and that it might be wise to in the least anticipate anticipation and be on alert. One of the more pertinent and reliable indicators that I use in my tool box is the $MTMW which informs us of the number of stocks on the $NYSE that are above their 20 period moving average. On a shorter term horizon this suggest that there is an extension of breadth that historically is not tenable on this time frame and we should expect some reversion in stocks.
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| $MTMW July 07, 2014 |
On a longer term time frame the primary indicator I use reached a level that in the recent past has acted as a ceiling to broader rallies and led to a lesser number of participating stocks which increased the significance of proper vehicle selection or even avoidance due to an increased risk of churning.
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| Primary |
In addition there were signs in the overall Market Monitor suggestion that the current bullish move was losing steam.
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| Market Monitor |
Under the current environment I consider the prudent form of speculation is increasing cautiousness and decreasing risk. From a swing trading perspective, time in the market is not time on my side. Being aggressive has not paid well under these scenarios so trading under my normal position size and expected value should be muted. Cons aside, there are still a number of set ups that are piquing my interest and a number of stocks on my watch are still valid in formation even with today's dip in small caps. Two of note are CODE and PEGA.
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| $CODE |
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| $PEGA |
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