Decaying Markets?

Since late March the S&P 500 hasn't been fond of down-days. Down-closing ‘streaks' have been only 1 or 2 days in duration, while the up-closing ‘streaks' following them have averaged 2 to 3 days. Even though the major indexes appear to be consolidating, perhaps for another run up, I wanted to get a feel for how strong the markets really are.

Investor's Business Daily provides a wealth of information every day. One interesting item is their Accumulation/Distribution Rating, which they provide not only on every individual stock, but also on the major indexes.

In William J. O'Neil's book, “How to Make Money in Stocks” (4th ed.), which should be on every investor's nightstand, Mr. O'Neil describes the IBD A/D rating this way:

“It tells you if your stock is under accumulation (professional buying) or distribution (professional selling). This thoroughly tested, complex, and proprietary formula is highly accurate and is not based on simple up/down volume calculations. Stocks are rated on an A to E scale, with each letter representing the following:

A = heavy accumulation (buying) by institutions

B = moderate accumulation (buying) by institutions

C = equal (or neutral) amount of buying and selling by institutions

D = moderate distribution (selling) by institutions

E = heavy distribution (selling) by institutions”

I don't pay attention to IBD's Accumulation/Distribution ratings on the major indexes as often as I should. But this morning I was curious on how the markets currently rate.

I went back to the start of the year and with the first IBD copy of each week, I noted the A/D rating of the S&P 500 and the NASDAQ Composite indexes.

The picture I ended up with shows deteriorating markets:

Until these ratings show an improving trend, it is best to be conservative in entering new bullishly-oriented trades. It is ok to sit on the sidelines. As they say, ‘Cash is a position'. Avoiding one loss can often have a more positive effect on your end-of-year net results than having multiple small gains. If you enter new trades, consider smaller positions to start. They can always be added to as the underlying stocks prove themselves and start setting newer highs on strong volume.

Of course, there's much more you need to know and many more stocks you can capitalize upon each and every day.  To find out more, please click on the following link: www.markettamer.com/seasonal

By Gregg Harris, MarketTamer Chief Technical Strategist

Copyright (C) 2015 Stock & Options Training LLC

Unless indicated otherwise, at the time of this writing, the author has no positions in any of the above-mentioned securities.

Gregg Harris is the Chief Technical Strategist at MarketTamer.com.

The content on any of Market Tamer websites, products, or communication is for educational purposes only. Nothing in its products, services, or communications shall be construed as a solicitation and/or recommendation to buy or sell a security. Trading stocks, options, and other securities involve risk. The risk of loss in trading securities can be substantial. The risk involved with trading stocks, options and other securities are not suitable for all investors. Prior to buying or selling an option, an investor must evaluate his/her own personal financial situation and consider all relevant risk factors. See: Characteristics and Risks of Standardized Options (http://www.optionsclearing.com/publications/risks/riskstoc.pdf). The www.MarketTamer.com educational training program and software services are provided to improve financial understanding.

 

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