Investor Spotlight

CASH is King

"This year has seen a number of one - day meltdowns like Tuesday's. We strongly suspect that they were not driven by capitulating humans but engineered, literally, by computer-driven trading algorithms"

By Ed Yardeni(Yardeni Research)

Currently the leading Growth Stock index $QQQ has plunged from the 200 day sma(simple moving average) all the way down to the 400 day sma. This is very concerning. Similar thing happened from January 2016 to the lows in mid February 2016. If similar scenario is to play out this time around, one can expect for the market to drop down another -5% to -8%. Dr. Yardeni makes a good observation with a statement above that was published in the Barrons magazine over the weekend edition of Dec 10th. If this were to happen, one could expect the $QQQ to drop down from the current levels of $161.38 all the way down to the levels past the February 9th 2018 lows. That would essentially be a -20.25% correction from the all time highs achieved on Oct 1st of this year. You would have to attain a gain of +25% just to break even. This is why it's critical that retail investors close out their losing positions and conserve CASH.

According to IBD(Investors Business Daily), they had changed the market pulse to "Market in Correction" as of the market close on October 10th. $QQQ index had dropped down to the 200 day sma and it was time to start migrating to CASH and conserve the capital. That was a loss of -7.76% with $QQQ. Not taking any defensive action at that time would now result with a loss of -13.32%. The next leg down will result in a further loss of another -7%. We as retail traders do not have an access to the algorithms that hedge funds utilize to automate their trading. What we do have however is the nimbleness to get out of the market when the market pulse according to IBD, changes to "Market in Correction".

Performance of My 14 Stocks

I had identified 14 Health Care stocks in my blog post on November 18th that met my very strict criteria of selection of the leading stocks in the leading sector. They all had an RS(Relative strength) ratings above 90. 11 of them had the ratings of 93 and above and they were all hovering around the 20 day sma while the $QQQ was under pressure trading below the 200 day sma. These stocks have withstood the carnage in the market since October 5th. Institutions supported these stocks while dumping other stocks in the other 8 sectors of the market. Below is the comparison of the performance of these stocks with the $QQQ since the "Follow Thru" day on Thursday Nov 29th:

$QQQ ... - 3.94%
14 Stocks ... - 3.70%

The 14 stocks lost less than the leading Growth Stock index. They are also trading above the 50 day sma and most of them are still above the 20 day sma. $QQQ on the other hand is depressed down all the way to the 400 day sma. In order to conserve the capital, only 2 stocks are held currently - $AMED and $EW. Both of these 2 stocks RS ratings has notched up last week. That indicates the support of the institutions.

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