Notice how the recent move down has been on higher volume, definitely not a good sign with lots of distribution days. Also the horizontal line shows how recent support (last trough) is about to be broken to the downside. The story goes that the economic recovery we are in is starting to slow. That may or may not be true there are many people smarter than us that don’t know the answer to that question. However as I said the stock market from an investment point of view is the final arbitrator. The stock market is the collective thoughts of every investor in the world and I am sure would include some very smart people. By the way this is the reason you don’t look at a companies earnings results so much as the market reaction to those earnings.
For the above reasons we have to be more cautious moving forward until the market tells us otherwise. The current situation is NOT a message to sell all your holdings. As I have said in the past, once you are in a stock you have to ignore what the major indexes are doing and just manage those positions. If the position is holding up then you have no reason to sell and if that position is moving up you may even add to it.
Recent picks like AZO, PANL, CRUS, CRM to name a few are still holding up pretty well. Remember we look for stocks that are holding up in a down market, these have good relative strength. Do not buy these stocks now since the major indexes are suspect however if you are holding these positions you can note they are holding up very well. You may choose to tighten your sell stops and if they move up you may also consider adding to them. Go back and read my notes on to add to stocks and still maintain your zero loss risk management. In the meantime maintain a list of the strongest relative strength stocks with great earnings and revenues and be ready to buy as they break out (once the stock market is on a stronger footing).
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