Market Suspect Again

We are in a very tough market climate with lots of volatility. Even though we have a follow through day the market is not behaving well. Look at the plot below of the Dow Jones over one year. Graph is courtesy of www.bigcharts.com

You can see the 50 day moving average (MA) moving up until recently with the index following nicely and staying above. Notice how the MA acts as support each time the index falls to the line before it moves up again. Now the MA is moving down as of May and it’s starting to act as resistance to any attempt for the index to move up. You can see how each time it meets the MA then fails which is typical of a down market. We are at that point again and unfortunately volume has picked up as it moves below the MA again. Early next week we will know if this is a failure.

In the meantime you have to stall the buying and tighten up on the stops you have in place. The stocks I last mentioned have done relatively well under the circumstances and you should now tighten up those stops. Remember if you spent 10% of your investable cash to probe the market and had 10% stops then you can potentially lose a maximum of 1%. Now if you tighten up your stops it will be even less. By the way one stock I mentioned MEND got taken over just after I mentioned it at a premium. I would suggest you take the profit on that one and sell.