I often write about taking a reactive rather than an anticipatory approach to the market. My thesis is that it is generally better to wait for market weakness before becoming bearish, rather than to continually trying to predict turning points. The key to being effective isn't to wait for losses to occur. Watch for subtle warning signs and be proactive protecting profits.
The action today is a good example of how subtle flaws can develop. Although the indices are still solidly in positive territory and breadth is strong, the momentum isn't aggressive. I'm seeing a number of recent leading names reverse. For example, Acacia (ACIA) and Lantheus Holdings (LNTH) have gone from green to red. My list of stocks at intraday highs is very thin with just a few small-cap names like Hudson Technologies (HDSN) and Tableau Software (DATA) .
The challenge is not to let existing biases influence you. If you already have a bearish inclination, it is much easier to find negatives. I try to make a conscious effort to find positives, even when I'm not feeling optimistic.
The key to producing superior long-term returns is to work as hard as possible to keep your accounts as close to highs as possible. Nothing is more unproductive than making losses, so you are far ahead of the game if you can limit the give-backs.
Keep in mind that we are not likely to see any major change in market direction as the speech Friday from Janet Yellen is going to be key. There is obviously an inclination to protect profits today and we need to make sure we keep a close eye on things. There still is nothing overtly negative about the price action but a few subtle things are of concern and we should keep that in mind.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider HDSN and LNTH to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.