Investor Spotlight

Can You 'TIME' The Market?

Absolutely ... Positively ... YES YEs Yes

I have often expressed my sentiments about the power of institutions in the stock market. Institutions are the hedge funds, mutual funds and pension funds. They have several hundred $Billions of assets under their management. They account for over 75% to 80% of the total $ amount of trading volume every day in the US stock market. When they choose to exit a stock position and start harvesting profits, it shows up as a spike in volume of the stock with the stock price plummeting. There just aren't enough other institutional buyers out there to buy the dips and it shows up as a distribution day on the major indexes. We had only 2 distribution days between the $SPY and $NASDAQ 2 weeks ago. Last week we added a cluster of 5 distribution days resulting in 9 total distribution days at the end of the trading session last Friday. That has thrown off the pulse of the market to "Market Under Pressure"

I wrote a special midweek blog post on Wednesday January 3rd to give everyone a heads up to look for ways to protect the portfolio with the use of options on $VIX when it was trading at $9.20. I also indicated that one should look out if the indexes trade at upper bollinger bands between 10 to 14 days because they tend to revert to the mean when they do that. That is exactly what happened by Friday January 26th. Monday morning on January 29th, it was time to change your thinking cap and get into a defensive mode immediately. Stocks that were the laggards in your portfolio should have been the first ones to close out and raise CASH immediately. That was the time to start lightening up on your stock positions.

Market Outlook

Historically, February traditionally has been one of the worst months of the year in the stock market. $SPY has a return of -0.01% on an average over the last 50 years. Last week a lot of damage was done to the leading Growth Stocks. The 3 major indexex - $DJI, $SPY and $QQQ are all trading at the 34 day ema (exponential moving average). Every major sector was taken down along with the indexes except the $XLF (Financial Sector). It is hovering around the 21 day ema. Lower bollinger bands on all the 3 major indexes is currently at the 50 day sma (simple moving average). The last correction of less than -3% that we had in mid August of 2017, the 3 major indexes did drop below the 50 day sma. If this were to happen next week, we would be adding some more distribution days to the count and market pulse could easily change to "Market in Correction". That would mean that we would have to be a 100% in CASH if that were to occur.

Institutions look at the 50 day sma as a support for the positions that they hold. I am not suggesting that the overall market has turned bearish for the long term. What we are witnessing is a counter trend in the established bullish trend. Caution is to be exercised this week. This is the week that one must exercise the use of trailing stops to mitigate losses. This is the time to be raising CASH and only hold the stocks that are trading above the 21 day ema. These are the stocks that are withstanding the carnage we are going though with the indexex.

My lower target established for the 3 major indexes is:

$SPY ... 271
$QQQ ...160
$DJI ... 25,000

If the above indexes do trade below the 50 day sma, you can expect the $VIX to spike +50% and trade at $26.72. That's what happened during the correction the first few days in November 2016.

Mentoring Program

Were you stunned last week when the market dropped 1,096 points on the $DJI? Do you know what preventive actions you should have taken before last week to mitigate losses to your portfolio? If you are feeling sick to your stomach with the carnage we faced last week, than you need to make a commitment this year to learn:

How to TIME the Market?
How to find the Winning Growth Stocks?
How to Buy the Stocks Right?
How to Plan your Trade for Profit, Loss and Time in the trade?
How to Sell your Stock Right?

I shall be opening up a very limited number of slots for mentoring in February. Schedule a FREE 30 minutes of "Discovery Call" with us and see how best we can help you become a consistent and a profitable trader and an investor in 2018. Don't pass up the opportunity of making a difference in your portfolio. Start out the new year with a resolution to invest in your education.