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A Rough News Driven Market June 4, 2011

Posted by Tom in Thoughts.

A rough news driven market . . . but you already knew that.  The fundamentals haven’t changed (that quickly), but perceptions have.  Very quickly, people are realizing that it will take years and years, not months and months to recover.  Perhaps one day folks will realize that we came very close to a full-scale depression, yep it is/was that serious.

If it were not for the Fed making “cheap money” available to the banking and investment community, the stock market would be much lower.  Perhaps the concern about the second phase of Quantitative Easing ending is also a big factor here.  In any case, the market is showing big one day moves up and down.  It’s hard to make any sense of this, let alone any investment money.  There really are no clear trends right now.  Weekly charts show that we’re at the low edge of a rising channel; daily charts show that we’re in a down channel. 

What to do?  Do what Richard Wyckoff would do:  Go to Cash or Hedge out your exposure, and wait for a favorable environment.  No one knows if this correction will end tomorrow or last for months.  We are entering into a seasonal weak time for the markets; a.k.a. The Summer.  I’ve gotten “small” in this market and will exit more positions as my lower level stops are hit.  Capital preservation is important, as there will come a day when we’ll need it to re-enter an oversold market.  The question is when.  Note that my June newsletter is now posted in that tab; double click on it to enlarge it for reading.

Here’s what I’m seeing now:

Chart used with permission  www.highgrowthstock.com; copyright 2009-11

The Accumulation & Distribution of the broad based S&P 1500 index is shown above.  nearly twice as many stocks are in a Distribution phase than in Accumulation; not showing strength.  Also the direction (trend of) A/D shows 38% going Up, 3% Unchanged and 59% headed Down; again, not very Bullish.

Strong Sectors are:  World ETF’s, VIX (market volatility), Micro Cap. (? a risky sector), Defensive Stocks and Dividend Stocks.  So far, there doesn’t appear to be a mass exit from stocks but more of a rotation into less riskier stocks and general lack of buying.  You know not much is happening when the top ETF’s are Switzerland, Gold and the Swiss Franc.  🙂

Be careful, observe and don’t get caught up in the news cycle.  Opportunity will come . . . just not right now.  Have a Great Week !


1. Lester - July 3, 2011

Thank you for trying to describe the terminlogy towards the learners!

2. Lucas - July 3, 2011

It is very hard to find skilled persons about this matter, nevertheless, you seem like you understand what you are referring to! Thanks

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