There’s reason for caution today. Right now, the chart above shows that the market is flashing yellow. We have closed below the 200-day EMA, broke through the bottom channel of the Bollinger band with force and turned down right at the midline. We’re seeing a noticeable elevation of volume, pushing stocks down. And, most telling, is the RSI of the broad market. Look at the last 2 times it dipped below 50 and couldn’t break that level. In short, in downturns, the RSI usually stays below 50 and does not break 60, and in bull markets, it usually stays above 50 and does not break 40.
I took the 3% down day last week to be a warning. When you consider SPY to be the ETF tracking the greatest 500 stocks in the United States, you come to realize just how diversified this index is, which should put into perspective how violent a 3% move in one day is. We are not recommending selling stocks, but we are recommending that you mind your trailing stops, and be patient with entry into other names. Some of our stocks tested support, and are currently right above their recommended support levels. Let’s see what the market decides to do before adding or initiating any positions.