A report by Fitch on US bank exposure to Europe sent stocks into a tailspin late in the trading session. For most of the day it appeared the market was gaining intraday support like most other days in the market. Leading stocks were acting well, but with the NASDAQ sporting 5 distribution days this uptrend is now under pressure. It is wise to begin to trim laggards in your portfolio. You can always get back into the stocks if they rebound, but capital preservation is paramount for how to trade stocks successfully.
Your portfolio is the number signal and if it begins to lag it is a signal the market is not healthy. That is if you are only trading leading stocks. Leading stocks will always tell you the health of the market and if your portfolio cannot keep up with the market overall than it is a red flag. Remove laggards from your portfolio and move into cash. If new stocks setup, you’ll have ammo to take advantage of stocks breaking out. On the other hand, if the market turns south you’ll be protected by staying in cash.
It will be interesting to see how the market reacts to Fitch’s report over the next few days. Of course we aren’t going to anticipate moves we’ll just let the market come to us. I am sure CNBC and Bloomberg will be all over the news story flooding the airwaves with nonsense analysis. Remember, CNBC and other financial media exist to sell ad space. They need viewers to make money and they try to hook you buy offering “expert” analysis. Even market mavens, bond kings grace your television trying to convince you they know where the market is heading. They don’t, look at Warren Buffett if not for the AIG bailout he would have gone BUST! It is all noise, stick with the trend.
Our uptrend is under pressure and while we could reverse higher, the downside can get nasty. Cut your losses short and take profits when necessary.
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