Adjust your strategy or get whacked

Jim-SamsonFollowing on from what I wrote about here two weeks ago, I’m still unimpressed by the market action of late.

As a result, I’m starting to switch strategies, and it’s vitally important that you do too unless you enjoy getting whacked…

Long-time readers know how much importance I attach to being in synch with the overall market- do not underestimate how much the prevailing winds of the overall trend fill or empty the sails of your trades. When buyers are around in numbers even a bad trade can perform. But when they aren’t, even great trades can tank. And it’s the latter case that I’m seeing more and more, and that’s giving me more cause to believe this old bull could be transforming into a bear cub.

As I said two weeks ago:

1)     The smart money has clearly moved into defensive stocks like utilities and energy.

2)     The Nasdaq looks sick.

3)     This bull market is about as old as bull markets get.

The bear IS coming, it ALWAYS comes in the end. Any fool can make that prediction. The trick is saying WHEN it will happen, and that’s what I’m talking about here. So I can profit from it.

Here’s the long term chart of the Nasdaq that makes me inclined to be bearish:

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The blue line is the average price of last 50 days, and the red line is average price of last 200 days. As you can see, the Nasdaq is stubbornly ‘living’ under the 50 day line and above the 200 day line. What I’ve been waiting for and have not seen is the healthier picture of the price back above the blue, 50 day line, to confirm that the uptrend remains intact.

But if Nasdaq drops below 4,000 and violates the red 200 day line, the bear will likely be born, and I will be shorting everything that moves..

Look how that blue 50 day line is pointing down. The longer Nasdaq stays below it, the more it turns down. The more it turns down, the greater the chance of Nasdaq breaching 4,000.

The trouble with making the bearish case at this time is that despite all this evidence elsewhere, the S+P and Dow Jones is still in an healthy uptrend:

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So if I had to make a guess here I would say that this could be a transition phase.

One thing that’s for certain is that this market is being very unforgiving to stocks that don’t perform. Such choppy and nervous action is also indicative of a market top.

So my strategy now is switching from a 100% BUY strategy to a 50/50 BUY/SELL strategy. What that means is that I’m buying the strongest stocks and selling the weakest stocks.

But that will probably change again if Nasdaq stays down there for much longer.

Jim Samson.

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