How to Deal With the Downtrend

Uncertainty is never good for the stock market, and it's rampant again. Sunday night futures were pointed toward sharp losses for the major averages, but the declines weren't too bad early Monday. The euro fell early Monday, and the U.S. dollar strengthened as election results across Europe unnerved investors. The U.S. Dollar Index has strengthened in recent days, but it still has more work to do to prove that a new uptrend is for real. Early Monday, the index was trading around 79.72, up 0.28%, but it's going to have to get over 80 for a true breakout. U.S. Dollar Index Source: StockCharts.com View Chart » View in New Window » There's a lot of noise out there, but the most important thing to realize is that the market is in a downtrend now. For growth investors, it's the time to take partial or full profits on some of your winners and to keep losses manageable in other cases. There's no sense watching a small loss get bigger. If institutional investors are taking profits, you should be doing the same. During Friday's market downdraft, several top performers were hit hard while others held up OK. Nasdaq 100 components such as Apple (AAPL), Baidu (BIDU) and Chipotle Mexican Grill (CMG) look vulnerable here, but names such as Zillow (Z), LinkedIn (LNKD), Web.com (WWWW) and SolarWinds (SWI) continue to act well. Still, stocks acting well are in the minority at this point, which is a cue for me to stay on the sidelines. It's a quiet week of economic data, but on Thursday, watch for the latest reading on weekly jobless claims. They're forecast to come in unchanged at 365,000. Last week, investors finally got some good news as claims fell more than expected to 365,000, down 27,000. On Friday, watch for the latest reading on wholesale inflation. Overall, prices should be flat with the core rate up 0.2%. In March, producer prices were flat after rising 0.4% in February. Excluding food and energy, core prices increased 0.3% in March, up from 0.2% in February. Also on Friday, the first reading on consumer confidence for May will be released by the University of Michigan. The index is expected to tick slightly lower to 76.2. The final reading of the April University of Michigan Consumer Sentiment Index was revised up to 76.4 from a preliminary reading of 75.7. Finally, first-quarter earnings season is winding down, but a few high-profile growth names are set to report. After the close today, Rackspace Hosting (RAX) will release quarterly results. First-quarter profit is seen rising 80% from a year ago, to $0.18 a share, with sales up 31%, to $300.5 million. The company gets about 80% of its sales from Web-hosting services. The other 20% comes from cloud services, in which customers basically rent computing resources from Rackspace via the Internet. Rackspace broke out powerfully in early February. Headed into Monday, it was still holding above its 10-week moving average, but it's a high-multiple stock that will be held to a high standard when it reports. The stock could have more left, but it looks to me like it's ready to base and consolidate gains for a while. Rackspace Hosting (RAX) Source: StockCharts.com View Chart » View in New Window » Below are some other earnings reports I'll be watching this week. Tuesday: CommVault Systems (CVLT), DirecTV (DTV), TransDigm Group (TDG), Walt Disney (DIS). Wednesday: Stratasys (SSYS), Cisco Systems (CSCO), Priceline (PCLN). Thursday: Beacon Roofing Supply (BECN), Express Scripts (ESRX).

How to Deal With the Downtrend

If institutional investors are taking profits, you should be doing the same.

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