I often write about how it is better to react to market action rather than anticipate it. I've suggested it is better to stick with an uptrend, like we've had recently, until there is a shift in the price action that is sufficient to cause a change in market character. Is the action today bad enough to cause a change in market stance?
It is a difficult question because the bears have done such a poor job in creating downside momentum. Just when it looks like the indices are on the brink of a breakdown.
This market looks very different if you are looking at the Nasdaq 100 (QQQ) rather than the Russell2000 ETF (IWM) . The QQQ has cracked support at its 50-day simple moving average and many of the key components have broken some key levels. There is no question that if you focused on technology stocks and the QQQ that it is time to have a more bearish view and to play defense.
The IWM, which hit a new all-time high this morning before reversing, is much more difficult. The primarily reason it has been stronger has been outperformance in financials. There is not enough of a shift in the IWM to cause a technical breach but it really is more a matter of what sectors you are looking at.
I tend to let my individual stocks be my main guide to my market position especially when there is such a difference between the technical patterns of the QQQ and IWM. As a result I've taken stops in a number of technology names but I am still long some biotechnology.
One group that is holding up well today, despite the QQQ, is oil-related. In that group I like the chart of Rice Energy (RICE) which has formed a cup and handle pattern and now needs to move through 29 with some conviction.
Ultimately the key to exceptional returns is making sure you keep accounts as close to highs as possible and don't give back gains. When an index is acting like QQQ then it is better to error on the side of selling but don't be quick to dump those sectors that are still working. There are always going to be rotations and it is better to stay flexible rather than treat the market as a simple monolithic entity.