Many market participants have been eagerly trying to predict when the market might experience some corrective action. The bears have been incorrectly anticipating a pullback for weeks as they ignore the price action. As a reactive trader, though, I'm looking for a signs of a shift in price action before I become negative.
In particular the warnings signs would be:
1. Less aggressive dip buying. We had immediate dip buying again Wednesday morning but the indices are still in red. The selling did not immediately accelerate so that is a positive sign.
2. Lower low. Corrections and downtrends are a function of support not holding and a series of new intraday lows. There is no sign of that yet but watch intraday lows carefully.
3. Selling into strength. Dip buying provides support but if there is limited upside strength there is a greater inclination to take profits before they fade away. The lack of strong upside momentum is a concern now.
4. In poor markets the stock-picking because more challenging. I'm still seeing a number of stocks perform well such as my Stock of the Week, Sea Limited (SE) .
I still see no reason to be negative about this market. The conditions above have not been met. However, my cash levels are very high simply because I've been a net seller. I've been a net seller because my trade discipline requires me to take profits or stops and I'm not able to find sufficient new entry points to put that capital back to work.
Maybe I'm over-selective with my buys but I have no desire to force things.
Once again I remind you to stay reactive rather than anticipatory. When market conditions change we'll have plenty of time to implement some new strategies if we are vigilant.
