On May 8th, I looked at the Decaying Markets using Investor's Business Daily's Accumulation/Distribution Rating on two major indexes. I've updated that table here:
The fact that the rating on the S&P 500 has gone from B down to E (see the previous article for a description of these ratings), while the index has traded basically sideways, should be a warning sign.
On May 15th, I did a similar analysis using the Up/Down Volume Ratio (Where Are The Guests At This Party?). I've updated that table here:
Both approaches show that major stocks have deteriorating support. It is likely institutions are lightening their positions. This may be a good time to lighten your own positions. Take profits. And consider some protection against a sudden market selloff:
(from my December 13, 2013 newsletter…)
“I would consider small positions in inverse market ETFs with a trade plan to exit them quickly upon a strong upside reversal in the market. My favorites in the past have been SDS (ProShares UltraShort S&P500, an ETF that seeks daily investment results that correspond to two times the inverse (-2x) of the daily performance of the S&P 500), SKF (ProShares UltraShort Financials, an ETF that seeks daily investment results, before fees and expenses, that correspond to two times the inverse (-2x) of the daily performance of the Dow Jones U.S. Financials SM Index.), and FAZ (Direxion Daily Financial Bear 3X Shares, an ETF that seeks daily investment results, before fees and expenses, of 300% of the inverse (or opposite) of the performance of the Russell 1000Â® Financial Services Index).
Do not use inverse ETFs for medium to long term investing, only very short term trading. Also, since they use derivatives and leverage to achieve 2x or 3x performance, make sure you understand how they work and what their tax implications are.“
Another way to buy insurance is to trade the volatility index. On April 29th I covered a trade setup on VXX:
“We can buy the iPath S&P 500 VIX Short-Term Futures Exchange Traded Note, symbol VXX. If volatility as measured by the VIX jumps, this ETN will quickly jump. This is meant to be a hedge trade, a small trade to offset a sudden pullback. Consider it insurance. I would do a small position only. Also, be sure to check the tax consequences on any ETF/ETN based on a futures contract like VXX is.“
My standard cautions are to consider small positions only, and quickly exit on any strong overall market reversals to the upside when news, sentiment, and the markets seem to be improving.
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
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.
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