TROUBLE AHEAD?

THE TRENDS:  While technically the long term trend remains up, the intermediate term trend has flipped down, which may soon translate into shift down in the long term trend.  Take a look at the weekly SPY chart.  As you can see the week not only closed lower than last week, but it also closed lower than the previous 5 weeks AND below the all important 10 week moving average.  Also, for the 1st time in 5 weeks there are fewer stocks in bullish trends.  This is a very important confirming market breadth indicator that I look at.  NOTE:  From this point forward I'll be posting the weekly chart with price bars colored one of three colors (green, dark red and gray).  If the bars are green, the market is bullish.  If dark red, the market is bearish.  If gray, the market is neutral.

WHAT I WOULD DO LONG TERM:  I would be out 100%.  The intermediate term trend has flipped down.  It is possible that the market may stop and bounce off the 40 week moving average, which is just below price.  If that happens, I would get back in again.  But right now there is a decent probability that the market may decline even further.  Have a HAPPY NEW YEAR!

NOT MUCH PROGRESS

THE TRENDS:  Both the long term and intermediate term trends remain up.  But the weekly price action has me a bit concerned.  Take a look at the weekly SPY chart.  For the third consecutive week prices closed on Friday very near where they opened on Monday.  There is a lot of indecision in the market.  This may be due to the fact that we're very near a major holiday.  However, one of the most important market breadth indicators I look at still points to a very bullish market and prices remain above both of the important moving averages.












WHAT I WOULD DO LONG TERM:  Nothing has changed since last week.  Typically when we encounter the type of indecisive price action I take a certain percentage off the table and get 100% invested again if the market makes a more decisive move up.  Depending on your risk tolerance you may choose to do the same or just stay in 100% until an intermediate term sell signal is given.  HAVE A VERY MERRY CHRISTMAS!

BEARISH WEEK

THE TRENDS:  The long term trend remains up.  So does the intermediate term trend although there are some danger signs.  When looking at the weekly SPY chart you'll notice that prices this week traded higher earlier in the week only to close lower than the previous week and lower than where it opened on Monday.  Based solely on price action this is very bearish.  However, one of the other most important factors I use to confirm an intermediate term trend change is still very bullish. 

WHAT I WOULD TO LONG TERM:  Ideally I like to see all factors pointing up in order to stay 100% invested.  Since that is not the case I would likely take off 50% or so of my position and wait to see what happens next week.  The 10 week and 40 week averages remain very powerful support levels.  If the intermediate trend flips down I'm 100% out.  If it reverses back to the upside, I get back in 100%.  That is the money management strategy I use.  What you do of course is up to you.  Have a great weekend.

STAYING IN

THE TRENDS:  Both the long and intermediate term trends remain up.  As you can see in the weekly SPY chart, it closed higher than last week and above both the important averages (10 and 40 week).  Just as important, although the market closed lower than where it opened on Monday, it rallied late in the week after selling off earlier in the week.  This is typical of bull market behavior.

WHAT I WOULD DO LONG TERM:  I would stay in 100%.  However, I'm watching the longer term charts like a hawk now to look for signs that the market may correct again.  We are nearing the price levels reached in March 2008 where the market tanked over 54% over a 12 month period.  I'll keep you informed.  Have a great weekend!

BACK UP

THE TRENDS:  The long term trend remains up and all the elements I look at support a flip up in the intermediate term trend.  This past week closed higher than the previous week and also above both the 40 week and 10 week moving average.  The probabilities favor a test of the 148 level, which represents the high made in September  One of the reasons I say that is that the last time the chart looked like this was in late June (see circled bar).  As you can see the market ran much higher from that point.  However, it could be that we might only get another week or two of up side before another potential down leg.  I say that because the longer term charts I look at suggest that this market has made quite a run and the closer we get to the 148 level, the probabilities grow that any sell off may result in a longer term correction.

WHAT I WOULD DO IN 401-K:  I would be 100% in mutual funds but would be quick to exit if the intermediate term trend flips back down.  Have a great weekend everyone.