I always like to keep an objective and level-headed approach to the market. I look at the positive and negative signs and decide how much capital to commit based on the information given. Today, I moved to 100% cash for the following reasons:
1) The buildup of distribution days on the major indexes, showing that institutions are selling stock.
2) The breakdown of many of my stocks. I was in 8-12 quality positions recently and got stopped out of all of them. Some didn’t hit my stops, but I got out to be extra defensive.
3) The Nasdaq Composite breaking below its 50-day moving average.
4) The price action in $AAPL (THE MARKET LEADER) is making me cautious as it continues to see heavy selling.
The positives include 1) The never-ending QE that continues to support this market 2) Stocks are the best game in town because other investment vehicles provide very little return and 3) Traditionally, the 4th quarter is a good time to be in the market.
I am keeping all these factors in the back of my mind. In addition, it seems like every time I’ve been cautious lately, the market screams back to new highs. Of course, if things stabilize and stocks setup again, I HAVE NO PROBLEM GETTING BACK IN. But, for now, I have to stick to my discipline and listen to what the market is telling me.
One final note, before you message me “But, but, but…” keep in mind that my style of trading is not for everyone. Many struggle with getting back in at potentially higher prices, but I have no problem with it. Again, do what works for you based on your time frame and investment philosophy. Good luck!