Market May Need a Breather

While going over my screens Monday evening, I found very few stocks meeting my strict selection criteria. In addition, many leading stocks (such as $NFLX $AAPL $CMG $CREE $LULU) have experienced healthy moves over the past few weeks and may need time to digest their gains. I am not turning bearish, I simply feel the market is not offering good risk/reward scenarios right now and may need some time to setup better technically.

I lightened up my portfolio exposure on Monday for several reasons:

1) Low risk/reward right now. For example, starting a NEW position in $AAPL here at $270 would not be wise as it is running into a high probability of a pullback. Of course the stock could “blow-off” from here and run above $300, however I wrote the word “NEW” in capital letters because I am referring to the risks in initiating a new position now.

2) The Federal Reserve meeting on Wednesday. I don’t believe they will say anything drastic, however the market could sell-off if investors decide to lock in profits ahead of the meeting.

3) The put-to-call ratio closed at 0.66 on Monday, indicating a heavy amount of call buying. Call buying is when traders “speculate” that stocks are going to move higher. I like to use investor sentiment as a contrarian indicator. In other words, when the majority thinks one way, “the market tends to fool the majority.”

4) Sometimes there is month-end selling pressure as money managers lock in their monthy gains.

5) By next week, earnings season will be mostly over and there will be few upcoming catalysts.

Again, I am not turning bearish. I am simply recommending locking in some profits, especially if some of your stocks have made strong +10% to +20% gains or more over the past several weeks. Of course the market could astonish people and continue its resilient ways higher, however I feel it’s worth locking in some profits and waiting patiently for higher probability situations. Who knows? They could appear sooner than later.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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