WHY IT IS KIND OF TIME TO BE KIND OF CAUTIOUS…KIND OF
I feel compelled to qualify any seemingly bearish titles with cushions of preordained defeat, such as phrases like "kind of." This is a legitimate means of dealing with the psychological ramifications of a market that has been as one sided as any we have ever seen. Surely, this must be a sign that bullish sentiment has hit a crescendo, you may calmly be muttering to yourself. It actually may have this time.
I would caution, however, that I believe strongly in weekly closes being a much more powerful signal than anything on a daily basis. I am curious to see how the market closes this week. Continued weakness, persisting into the close on Friday, will certainly bolster the bearish case for the markets into the end of August.
Here are some of the reasons I am worried as a participant who is sitting on a good amount of net long exposure:
- Financials (BKX) are comfortably residing below a key technical point that has marked a slowing of the bull trend twice before this year: April and June. I'll illustrate this coming weekend.
- The Nasdaq seems to be in the mood to make just a slightly lower high here. An acceleration/range expansion to the downside from this point is highly negative for the Nasdaq into September.
- Dow Transports - a leader during this entire bull market - have suddenly started to look precarious in both their technical pattern and the volume that is accompanying the technical pattern
- The Dow is in the process of violating a fairly significant short to intermediate term technical point. Again, watch for the weekly close here.
- Market leaders such as GOOG are starting to display accelerating downside momentum
- Commodities are starting to get way too perky. Copper as a recent example. Crude oil, of course, as well. Precious metals are also starting show some resilience. We haven't experienced this throughout 2013. A change in the macro landscape of this nature is always something to pay attention to.
- The biggest concern perhaps is with the SOX. It is getting daringly close to a key technical point that has led to some pretty harrowing market action in the past. I covered the ramifications of a break of this technical point recently here.
Let me clear with the following: In a bull market of this caliber, signs such as the aforementioned are not a reason to get short, move to 100% cash or begin reading ZeroHedge again. Systematic, deliberate and calculated modification of risk is all that needs to take place.
As an example, if you are leveraged here and the week closes on a sour note, you may want to reduce exposure. If you are 100% long, you may want to bring it down to 75% long. If you are adding to long exposure here recently in an effort to catch up to your coworker who has doubled his account this year, you may want to slow your roll.
Whatever you are doing that has a bullish slant to it, just slow it a down a bit.
And that is how easy it should always be.
