The Weekly Trader

Each weekend, I will list signals from some of the most useful market indicators.*

A full list of the major indicators with signals can be found in my book, All About Market Indicators(McGraw-Hill).) I’m also the author of the best-selling Understanding Options (McGraw-Hill), Understanding Stocks (McGraw-Hill), and Start Day Trading Now (Adams Media). In addition, I write a monthly column on long-term trading for MarketWatch.com.

IMPORTANT NOTE: Read my interview with Investor’s Business Daily market expert Amy Smith below the line.

Note: Here is my latest MarketWatch article, this one from the Twilight Zone – http://on.mktw.net/16Cjdxc

 

AAII survey (8/14/2013)

34.5% Bullish. 37.3 % Neutral. 28.2% Bearish.

Sell signal: Over 60% bullish.

Buy signal: Over 50% bearish.

 

Investor’s Intelligence (8/14/2013)

47.4 % bullish. 20.8% bearish.

Sell signal: Over 50% bullish.

Buy signal: Over 50% bearish.

 

CBOE Put/Call Ratio: .60

Sell Signal: Lower than .75 is a sell (more call options are being bought). Less than .50 is a screaming sell.

Buy signal: Higher than 1.0 is a buy (more put options are being bought)

 

VIX: 14.37

Sell signal: Lower than 12.

Buy signal: Over 40.

 

Moving Averages (daily): S&P 500 above its 200-day MA, above its 100-day, and slightly below its 50-day MA.

Sell signal: Index crosses below 50-, 100-, or 200-day MA.

Buy signal: Index crosses over 50-day, 100-day, and 200-day MA.

 

MACD: MACD is above the zero line and below the red 9-day signal line. (Note: I’m using the settings, 19,39,9, recommended by Gerald Appel, MACD’s creator.)

Sell signal: MACD line crosses below 9-day (red or gray) signal line. MACD line (black line) crosses below zero line.

Buy Signal: MACD line crosses above zero line. MACD line crosses above 9-day signal line.

 

Analysis: Investor sentiment has turned cautious but there is little panic (for now). Financial newsletter writers are still bullish about the long term prospects of the market. The VIX is on the low end and the put/call ratio still shows excessive bullishness. These are all negative signals. In addition, the technical indicators turned negative, and there is more room for the market to fall. If you follow the indicators, you are cautious and prepared for a rough ride. The negative scenario could take some time to play out, so be patient.

Opinion: The market revealed its hand, and it was not pretty (if you are bullish). As I wrote last week, this is a dangerous market. As it turned out, MACD gave us an early warning signal that the market was in trouble. Now, the indicators are firmly bearish. This doesn’t mean the bull market is over, only that a market pullback or correction is highly likely in the next few weeks or months.

Hopefully, you are temporarily in cash or you scaled into inverse, non-leveraged ETFs (Be careful with leveraged ETFs because they are so unpredictable, and can viciously turn against you if you hold more than a few days, or weeks). If you are new to the market, I’d also be cautious about selling short individual stocks, as that takes experience and discipline.

Even many long-time bulls went on TV last week and admitted that a 10 percent correction is likely. They were quick to add they see this as a buying opportunity. The bulls suggest that you don’t panic, that you don’t sell what you own, and that the market will end up higher at the end of the year than now. Only one mainstream equity analyst believes the S&P 500 will end the year below 1700. Everyone else is in the “1700 Club.” They are right about one thing: You should not panic.

The bulls are also confident because they (wink, wink) have insurance. Let me explain. When you trade options, you can buy protective puts, an option strategy that helps protect your stock positions. Instead of protective puts, however, the bulls have something better: the Bernanke put. In other words, if the market starts to plunge, they know that Uncle Ben is going to say two magic words, ”No Tapering,” and everything will be all right. On the day he says these words, the markets will reverse direction and the bull market will continue. At least that is the story many people are telling. After all, when the market plunged by 700 points in June, it bounced back. The theory is that any future pullback will be temporary.

When the selloff does begin, it may start off slow, but could turn fast and furious. To alleviate the damage, in addition to the Bernanke put, the name of the new Fed chairman could be leaked or announced (Janet Yellen is the current favorite). The market will likely approve.

Unfortunately, if there is anything that I learned about the market, it’s that anything is possible. In Florida (where I live), when a hurricane is headed in your direction, you prepare. You protect your house, buy supplies, and if the storm is bad enough, you leave the area. Sometimes the hurricane makes a direct hit, and sometimes it’s a lot less damaging than originally thought. Right now, a financial hurricane is headed our way. It may not be a disaster, but it could be.

Keep in mind that a lot of new money entered the stock market in the last two weeks. Some of that came from bond mutual fund holders who wanted a better return. (Welcome to the stock market, bond holders!) If the market starts to falter, the new buyers will be the first to panic. Right now, there is little fear as people assume there will only be a temporary pullback. But no one can predict if the pullback will be temporary or not. If investors panic, they might flee the stock market in droves. If that happens, the market may not recover immediately.

Bottom line: Keep an open mind. As you know, there are a lot of conflicting and converging developments throughout the world that could create a perfect storm. The technical indicators have turned bearish and a pullback is imminent. No one knows how vicious it will be or how long it will last. This is a difficult market environment, even for the pros, so you must be nimble and observant. For now, take out the popcorn and see if this tired market can rise back above its 50-day moving average (that would be bullish). The market should put up a good fight.


Interview with Amy Smith, Market Expert at Investor’s Business Daily

Amy Smith, author of “How to Make Money in Stocks Success Stories” and a market expert at Investor’s Business Daily, gave her view of the overall market.

How do you see the overall market?

There’s been sideways action in both indexes for awhile, and then the uptrend came under pressure after two Fed officials suggested quantitative easing could start being scaled back this fall.  Yet, as we know the Fed’s thinking can sometimes change day to day.  Just another reason that in the market you want to remain flexible and nimble, and monitor the market each day.  If you see a lot of heavy selling days in a short period of time, that would spell trouble for the market.  But if you see heavy volume to the upside and stocks breaking out of price consolidation, then we are in a good market.

The S&P 500 went just above 1,700 last week, and hit an all time high on August 2. That was very positive. There have been a lot of stocks report positive earnings, and that is also positive for the market. But there also have been some high profile earnings misses, so it pays to be cautious and watch the overall market for signs of strength or weakness each day.

How do you look at industry groups?

We look at the New High List in Investors Business Daily© (IBD). It’s a good sign when you see a lot of stocks making new highs.  Stocks came from a number of different groups such as medical and retail. One stock from the medical group that reported strong earnings was QuestCore Pharmaceuticals (QCOR). They have a gel that treats multiple sclerosis. Their earnings rose 96 percent and sales were up 64 percent in the most recent quarter.  There are also a lot of stocks in retail doing extremely well.  For example, Starbucks reported strong earnings and did some cost cutting. That stock has been an institutional favorite.

How can investors take advantage of earnings?

The key is to keep your watch list up to date, look for stocks showing strength, that have good fundamentals, and that are setting up solid bases, also known as price consolidations.  That’s the most complete way to analyze a stock’s potential.

LinkedIn was an example of how great earnings can move a stock.  Last quarter its earnings were up  138 percent compared to the same quarter a year earlier.  Institutions always look for positive earnings.

Why should investors buy stocks high?

First, you don’t buy stocks that are too extended in price past a potential buy point. You want stocks that are showing strength in the market, and when you see stocks hitting new highs, it’s usually because there is good news, and it’s usually because of solid earnings numbers. Stocks with the best potential often report stellar earnings, which captures the attention of institutional investors.

* Note: These signals are not actionable trades, but only guidelines. Always use other indicators, and your own research, to confirm before buying or selling.

Each weekend, I will list signals from some of the most useful market indicators.*

A full list of the major indicators with signals can be found in my book, All About Market Indicators(McGraw-Hill).) I’m also the author of the best-selling Understanding Options (McGraw-Hill), Understanding Stocks (McGraw-Hill), and Start Day Trading Now (Adams Media). Finally, I write a monthly column on long-term trading for MarketWatch.com.

IMPORTANT NOTE: Read my interview with Investor’s Business Daily market expert Amy Smith below.

AAII survey (8/7/2013)

39.5% bullish. 26.6% bearish.

Sell signal: Over 60% bullish.

Buy signal: Over 50% bearish.

 

Investor’s Intelligence (8/7/2013)

51.6% bullish. 18.5% bearish.

Sell signal: Over 50% bullish.

Buy signal: Over 50% bearish.

 

CBOE Put/Call Ratio: .58

Sell Signal: Lower than .75 is a sell (more call options are being bought). Less than .50 is a screaming sell.

Buy signal: Higher than 1.0 is a buy (more put options are being bought)

 

VIX: 13.41

Sell signal: Lower than 12.

Buy signal: Over 40.

 

Moving Averages (daily): S&P 500 above its 200-day MA, above its 100-day, and above its 50-day MA.

Sell signal: Index crosses below 50-, 100-, or 200-day MA.

Buy signal: Index crosses over MA.

 

MACD: MACD is above the zero line and above the red 9-day signal line. (Note: I’m using the settings, 19,39,9, recommended by Gerald Appel, MACD’s creator.)

Sell signal: MACD line crosses below 9-day (red or gray) signal line. MACD line (black line) crosses below zero line.

Buy Signal: MACD line crosses above zero line. MACD line crosses above 9-day signal line.

 

Analysis: Although mixed, indicators are leaning towards the bear side. Sentiment indicators are a bit frothy. S&P is resting on the 20-day moving average and MACD is poised to fall (slightly below the 9-day signal line), thanks to a negative week. We’re getting confused signals because we have a confused market. As the tug-of-war continues, market could go either way.

Opinion: This is still a dangerous market and that should continue for some time. You should not be scared, but prepared. This is time to think clearly and be ready for any possiblity. Even some money managers believe the market could take a 10 to 20 percent hit, and many are looking for a buying opportunity. In fact, if the market plunged, one comment by Bernanke that he will not taper would rally the markets higher. Because this market is so unpredictable with mixed signals, you must be on guard.

For your information, most professional equity strategists are predicting the S&P will be above 1700 by the end of the year (they are now referred to as the “1700 Club”). The most aggressive prediction is 1775 by the JPMorgan equity strategist, Tom Lee. The lone exception is the Wells Fargo Securities strategist, Gina Martin Adams, who is predicting a year-end target of 1440 on the S&P. Therefore, most mainstream strategists believe the market is going higher, and I can’t wait to see if they’re right. 1700 Club – very catchy.

Nevertheless, many people have short memories. They don’t remember 2008, or don’t believe it could happen again. Personally, I want the U.S. economy to improve, unemployment to fall, and our debt to diminish. Even though I want this to happen, I must be realistic. The good news: The U.S. appears to have the strongest economy (although the 17 trillion in debt is a serious problem). The bad news: Emerging markets are still vulnerable, especially India and Brazil, and perhaps Russia. China released extremely positive growth numbers, but behind the curtain there are major concerns.

It’s possible we’re reaching a tipping point. In a worst-case scenario, we could have a perfect storm of problems that will affect not only the stock market but our economy. In the best case, the market could take a quick hit, recover, and then continue on its bullish way.

The challenge, as always, is no one can time a pullback or correction. You can, however, look for clues, such as late day reversals and selloffs. If the volume, and momentum, increases on the downside, that is a clue. At this time, it appears as if the 30-year bull market in bonds is coming to an end. Judging by mutual fund redemptions, many investors are selling bond funds and moving into stock funds. In my opinion, until we get more clarity, cash is still the safest place to be (but only for the short term). Those who have high risk tolerance could slowly scale into inverse ETFs (non-leveraged). The danger of shorting is the markets will reverse if Bernanke makes one positive comment. Even more dangerous, this indecisiveness and volatility could continue for several months.

Bottom line: We’re still in the danger zone. As the bulls and bears play tug-of-war, be defensive. The bulls do not want the party to end and will do anything in their power to keep it going. Even if the U.S. economy continues to improve, there are too many potential land mines that could derail the market. In addition to being cautious, you must also be patient. Let the market reveal its hand before committing too heavily to one side or the other. August is traditionally quiet with low volume, so the real fireworks should occur in the fall. Nevertheless, anything is possible before then.

 

* Note: These signals are not actionable trades, but only guidelines. Always use other indicators, and your own research, to confirm before buying or selling.

Each weekend, I will list signals from some of the most useful market indicators.*

A full list of the major indicators with signals can be found in my book, All About Market Indicators(McGraw-Hill).) I’m also the author of the best-selling Understanding Options (McGraw-Hill), Understanding Stocks (McGraw-Hill), and Start Day Trading Now (Adams Media). Finally, I write a monthly column on long-term trading for MarketWatch.com.

AAII survey (7/31/2013)

35.6% bullish. 25.1% bearish.

Sell signal: Over 60% bullish.

Buy signal: Over 50% bearish.

 

Investor’s Intelligence (7/31/2013)

48.4% bullish. 19.6% bearish.

Sell signal: Over 50% bullish.

Buy signal: Over 50% bearish.

 

CBOE Put/Call Ratio: .58

Sell Signal: Lower than .75 is a sell (more call options are being bought). Less than .50 is a screaming sell.

Buy signal: Higher than 1.0 is a buy (more put options are being bought)

 

VIX: 11.98

Sell signal: Lower than 12.

Buy signal: Over 40.

 

Moving Averages (daily): S&P 500 above its 200-day MA, above its 100-day, and above its 50-day MA.

Sell signal: Index crosses below 50-, 100-, or 200-day MA.

Buy signal: Index crosses over MA.

 

MACD: MACD is above the zero line and above the red 9-day signal line. (Note: I’m using the settings, 19,39,9, recommended by Gerald Appel, MACD’s creator.)

Sell signal: MACD line crosses below 9-day (red or gray) signal line. MACD line (black line) crosses below zero line.

Buy Signal: MACD line crosses above zero line. MACD line crosses above 9-day signal line.

 

Analysis: Once again, we’re getting mixed signals. The technical indicators are telling us the bull market will continue while the VIX and Put/Call ratio are flashing caution signs. If you follow the technical indicators, you are bullish, but also concerned there is too much complacency (i.e. VIX). Surprisingly, retail investors were less bullish last week but that could change quickly if the market keeps going higher.

Opinion: I was expecting fireworks last week but it was more like a sleeper (except for one exuberant day). Last week, it seemed like all of the problems of the world went away. The U.S. economy got a little stronger (manufacturing improved and unemployment was lower), China had fixed its economic problems (it only took a week), and Europe was finally getting out of recession. Across the world, markets went much higher including a 3% gain in the Chinese stock market and even higher in Japan. The S&P went above 1700 for the first time.

And on Friday, even with a disappointing jobs report, the market rallied at the close, pleased that the Fed will continue with QE indefinitely, or until they are forced to stop (more on this later). In addition to the Fed, central banks across the globe flooded their countries with easy money. After all, it worked here, so why not try it everywhere? With the Fed behind you, which is like a slow moving freight train, you don’t want to get in the way. Short sellers, be gone! Everyone else, what is there not to like?

And yet, QE can’t go on indefinitely. In a must-read column for MSN Money, Bill Fleckenstein wrote that you should keep your eye on the bond market, and I agree. The bond market, as Fleckenstein pointed out, could give the first clues that the Fed has lost control as interest rates go up (which has already started). If this continues, QE might end sooner rather than later. Here’s a link to Fleckenstein’s column: http://on-msn.com/12NnTzk

For four years, being bullish has been the right strategy, and that may continue as long as the Fed has their foot on the gas. As I’ve said before, the market could still go up an additional 4 or 5 percent (or higher) this year. Nevertheless, the downside risks keeps increasing. Yes, the indicators are pointing up but you must also look at other factors (such as rising interest rates and money flow). It may be hard to believe right now but bull markets eventually end, although no one knows when. Until then, the market could go up higher than anyone believes. Yes, anything is possible.

With the market reaching all time highs pumped up by the Fed, you just have to be on guard. The good news is that the U.S. economy is showing signs of strength, but not enough for the Fed to stop QE. That is why it is not a good time to aggressively short this market (unless you are an experienced trader looking for short-term opportunities). The bad news is we’re in uncharted territory.

I’d like to tell you to go full speed ahead on the long side but I know from past experience that a catalyst could quickly reverse the upward momentum. I am sure about this: When the market turns from bullish to bearish, it will be brutal and swift, even if the Fed is pumping.

Bottom line: There is still upside momentum in the U.S. market but that could change in a heartbeat, so be prepared. If you’re long, be cautious and ready to move to cash if there are signs of trouble. Cash is terrific for short-term protection but you don’t want to be there indefinitely. Also, being short the US market has not been a great strategy, but shorting bonds and emerging markets has been profitable, although it’s not for risk adverse investors. Again, watch the bond market to see if interest rates move higher. If that happens, it should be a very interesting summer.

 

* Note: These signals are not actionable trades, but only guidelines. Always use other indicators, and your own research, to confirm before buying or selling.

Each weekend, I will list signals from some of the most useful market indicators.*

A full list of the major indicators with signals can be found in my book, All About Market Indicators(McGraw-Hill).) I’m also the author of the best-selling Understanding Options (McGraw-Hill), Understanding Stocks (McGraw-Hill), and Start Day Trading Now (Adams Media).

AAII survey (7/24/2013)

45.1% bullish. 22.6% bearish.

Sell signal: Over 60% bullish.

Buy signal: Over 50% bearish.

 

Investor’s Intelligence (7/24/2013)

51.5% bullish. 19.6% bearish.

Sell signal: Over 50% bullish.

Buy signal: Over 50% bearish.

 

CBOE Put/Call Ratio: .64

Sell Signal: Lower than .75 is a sell (more call options are being bought). Less than .50 is a screaming sell.

Buy signal: Higher than 1.0 is a buy (more put options are being bought)

 

VIX: 12.72

Sell signal: Lower than 12.

Buy signal: Over 40.

 

Moving Averages (daily): S&P 500 above its 200-day MA, above its 100-day, and above its 50-day MA.

Sell signal: Index crosses below 50-, 100-, or 200-day MA.

Buy signal: Index crosses over MA.

 

MACD: MACD is above the zero line and above the red 9-day signal line. (Note: I’m using the settings, 19,39,9, recommended by Gerald Appel, MACD’s creator.)

Sell signal: MACD line crosses below 9-day (red or gray) signal line. MACD line (black line) crosses below zero line.

Buy Signal: MACD line crosses above zero line. MACD line crosses above 9-day signal line.

 

Analysis: The indicators are almost identical to last week. The technical indicators are bullish while the sentiment indicators reflect optimism, but not at extreme levels. However, looks can be deceiving.

Opinion: If you had only looked at last week’s closing prices, you wouldn’t have known the market plunged on two days, including a 150-point drop on Friday before coming back to even. The bulls came out in full force to make sure the market squeaked out a small gain. It was a very impressive performance.

And yet, it’s hard to ignore what is going on in the rest of the world. First, Chinese President Xi Jinping has made an aggressive effort to cut down on government debt, reduce corruption, lower growth expectations, and get control of shadow lending practices. We won’t know for a while whether he succeeds, but we do know the problems in China are deeper than many people realized.

While the U.S. bull market continues, there are other problems around the world. Europe is struggling to get out of a deep recession, many emerging market countries are in serious financial trouble, and the Mideast is still in turmoil. Eventually, these problems will affect the U.S., but no one knows when. In a bull market, bad news is often ignored until it can’t be ignored any longer.

Back in the States, it will be a busy week. Many companies are releasing earnings, the FOMC (Federal Open Market Committee) is meeting for two days, the GDP report will be released on Wednesday morning, and the July employment report will be released on Friday. There should be plenty of fireworks as market participants digest the news, or lack of news.

On the positive side, the U.S. economy seems to be improving but at a lackluster pace. More important, if the Fed lets the market believe that QE will go on and on, we should go nowhere but up (in the short term). On the negative side, the Fed will eventually have to taper QE, or at least remind the market of that fact.

Bottom line: Because of all these cross currents, this is a dangerous market. Although the market might end the year up by an additional 5%, as many people predict, the odds have increased that it will be an extremely bumpy ride. While retail investors are starting to believe in this market again, it might be at the exact wrong time. In my opinion, this four-year bull market is showing signs of wear and tear. Even though the technical indicators are pointing up, the clues point to problems ahead. As for me, I am going to look for those end-of-day reversals. Take out the popcorn, the market is going to put on a very good show this week.

 

* Note: These signals are not actionable trades, but only guidelines. Always use other indicators, and your own research, to confirm before buying or selling.

Each weekend, I will list signals from some of the most useful market indicators.*

A full list of the major indicators with signals can be found in my book, All About Market Indicators(McGraw-Hill).) I’m also the author of the best-selling Understanding Options (McGraw-Hill), Understanding Stocks (McGraw-Hill), and Start Day Trading Now (Adams Media).

UPDATE: Here is my latest column for MarketWatch — http://on.mktw.net/13SBlLY

 

AAII survey (7/17/2013)

47.7% bullish. 21.3% bearish.

Sell signal: Over 60% bullish.

Buy signal: Over 50% bearish.

 

Investor’s Intelligence (7/17/2013)

52.1% bullish. 19.8% bearish.

Sell signal: Over 50% bullish.

Buy signal: Over 50% bearish.

 

CBOE Put/Call Ratio: .54

Sell Signal: Lower than .75 is a sell (more call options are being bought). Less than .50 is a screaming sell.

Buy signal: Higher than 1.0 is a buy (more put options are being bought)

 

VIX: 12.54

Sell signal: Lower than 12.

Buy signal: Over 40.

 

Moving Averages (daily): S&P 500 above its 200-day MA, above its 100-day, and above its 50-day MA.

Sell signal: Index crosses below 50-, 100-, or 200-day MA.

Buy signal: Index crosses over MA.

 

MACD: MACD is above the zero line and above the red 9-day signal line. (Note: I’m using the settings, 19,39,9, recommended by Gerald Appel, MACD’s creator.)

Sell signal: MACD line crosses below 9-day (red or gray) signal line. MACD line (black line) crosses below zero line.

Buy Signal: MACD line crosses above zero line. MACD line crosses above 9-day signal line.

 

Analysis: It’s a tale of two indicators. The technical indicators are saying the bull market will continue while the sentiment indicators are warning that it’s getting frothy. Individual investors are hopeful, but they still don’t believe in this market 100%. Once they do, however, it will be a huge warning sign.

Opinion: This time it’s different, or so many people believe. Because Ben Bernanke has us covered, many believe there is little risk in investing in the market. I notice the change in sentiment: It’s been a long time, but in the last week I got two stock tips, one from a customer at the bookstore and another from a bagger at the supermarket.

Early in the week, Bernanke went to Congress and answered questions, calmly reassuring investors that no matter what happened to the economy (or the market), the Fed would use their tools to keep things stable. The market liked what it heard, and it sailed through a difficult week.

In fact, the news was not good. Google and Microsoft missed earnings estimates. Oil prices rose to over $108 per barrel, and Detroit declared bankruptcy. When the market opened on Friday morning, there was a big yawn (except for Microsoft, which got hit by 10 percent). The Dow ended down by only 4 points. In the old days, the market would have plunged on bad earnings by market leaders and a bankrupt city. There is little doubt about it: This market is ignoring reality. (To be fair, however, U.S. economic indicators have been generally positive.)

Here’s the important point: You can complain about the unfairness of the market, and how it “should” react, but opinions don’t matter. No matter what you think should happen, the market is going up. And yet, the sentiment indicators are flashing danger signals, although not at extreme levels (for the moment). Who are you going to believe? Unfortunately, sentiment indicators should not be used to time the market because sentiment can remain extreme for long time periods. But it does tell us that many investors do not see (or care about) the warning signs.

If you believe in the power of the Fed, you won’t care about the slowdown in China, the turmoil in emerging markets (remember?), high oil prices, risky bond funds (at least they were two weeks ago), and the earnings miss by two major technology companies. Retail investors are getting lulled into thinking this bull market is unstoppable, and for the moment they are right. But only for now.

There is no doubt that a pullback or correction is coming, but it is impossible to time. And don’t forget: If there is a pullback, the Fed will step in. With the Fed making people believe that investing is risk-free, it would not be surprising to see this market keep climbing. In reality, investing is not risk-free. Getting off the quantitative medicine is not going to be easy. In fact, just the mention that the medicine might stop is enough to send the market into a tizzy.

In my opinion, it is a dangerous market simply because most people are unaware it’s so dangerous. I am not writing this to scare you, but to prepare you. This market cannot keep going up forever. When the market plunges one day, I am hoping that you will be ready. Unfortunately, we cannot predict when that day will occur. But we can look for clues (including using market indicators).

If you are long (or short) the stock market, use strict money management techniques (see a list at the end of the article) to minimize losses. This is not the time to make huge bets on either side of the market. The safest place to be right now is in cash, but that is a decision only you can make (since it’s quite possible you will miss out on the next 500 points). In my opinion, it’s a trader’s market. There is still enough bad news in the world (and even in the US) to give any realistic investor heartburn.

Bottom line: Because of Bernanke’s soothing words, the market keeps going up, ignoring bad news. It may not be fair, but you can’t fight the tape. One day this bull market will end, perhaps sooner rather than later. Be ready with a trading plan and be nimble if there are signs of an imminent pullback or correction. Aggressive traders can hedge with inverse ETFs while cautious investors can increase cash positions.

 

Four Money Management Rules that Can Save Your Assets

Note: These are not hard and fast rules, but guidelines. Adjust the rules to fit your risk tolerance.

  1. If you lose more than 5 percent on a position, that is a warning sign, so be prepared to sell. At 6 or 7 percent, sell.
  2. Don’t buy any stock or index on the way down.
  3. Never add to a losing position (but it’s okay to add to winning positions).
  4. If you have a gain, and the stock or index pulls back 3 to 5 percent, sell to lock in that gain.

 

* Note: These signals are not actionable trades, but only guidelines. Always use other indicators, and your own research, to confirm before buying or selling.