Harvest Profits NOW!

Harvest Profits NOW!

photograph by Ryan McGuire

This time of year I make sure that I'm harvesting profits from all of my positions, as soon as they meet my trade plan profit target. Given market conditions, I've lowered my expectations even further this week. 

I firmly believe that buy high, sell higher is an ethos to live by when trading momentum stocks. By nature, growth stocks are more volatile so I know that a sharp reversal in the market can result in me losing my profit quickly. This is something that is easily avoidable if you exercise caution and use a bit of discipline.

Market Conditions

IBD® identifies "Market in Confirmed Uptrend" as the condition of the market but I see some red flags going up. My detailed analysis of the market over this weekend leads me to believe that we are headed for "Market Under Pressure" this week.

Why?  Well there are 8 distribution days, with 7 coming just in the last 9 sessions - not a great sign of a healthy patient.  You may recall that we had a "Confirmed Uptrend" just 3 weeks ago and so far this year, the market has rolled over in 3 to 5 weeks every time market health looked good. Both $SPY and $DJX  are trading below the 50 DMA.

One of the most disturbing charts that I see is the defensive sector.  $XLP is already down by 6% over the last 3 weeks. Consumers are not spending money on basic items like cigarettes, soft drinks, paper products, detergents, personal hygiene and prescription drugs. I look at Walmart ($WMT) and see it' s down by 20% this year from its all time high in January 2015. These are very disturbing signs for me so I am willing to harvest profits now stay on the sidelines.

Watch List

Although I have a bearish outlook on the market, I always prepare a watch list every weekend. The market can turn to a positive outlook within a few days so I need to be prepared to pull the trigger if and when that happens. Here are 2 stocks that made my list this week.  For a full break down of their health, you can subscribe to my watch list service:

$CNC
$CRM

I plan on trading these only within 3% of their buy point. I will wait for 2 days to get my confirmations of healthy general market conditions and I will wait for the stocks to retrace to my buy point target.  I have prepared a detailed trade plan with full entry and exit conditions which you can access with a subscription to my trade plan service.

Happy Trading!