Market’s Running Out of Steam

I went mostly into cash today (4/11/11) for the following reasons:

1) The number one criteria I use to evaluate the health of the market is the price action of leading stocks. Right now, I am finding very few quality trading setups and many of the stocks that did well over the past few weeks are extended beyond proper buy points.

2) The most recent Investors Intelligence numbers indicate extremely high bullish sentiment. This usually coincides with a pullback in the market. Keep in mind, the market is meant to fool the majority of investors most of the time. In other words, when everyone is bullish, it makes me a little cautious from a contrarian point of view.

3) I made several trades late last week with very little progress. That is usually a sign that the market is “churning” and may need a breather over the near-term.

4) I had a great run over the past 3 weeks and I’m going to do my best to protect those gains. As they say, many people make money in healthy markets, but not everyone keeps it.

Currently, two positive signs for the market include: 1) The vast amount of liquidity being pumped into the system and 2) The next few weeks tend to be seasonally strong. Although I am keeping these factors in mind, the lack of high probability trading setups overrides everything and makes me cautious for now.

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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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