Wind of Change

Posted by Ivanhoff
on November 16th, 2010

Change and uncertainty are the only constants in capital markets. There are many signs of distribution and a decline in general risk appetite. The first negative week that the equal weighted St50 index experienced, was a good leading indicator of the forthcoming market weakness. Leading stocks are called leading for a reason. They lead the market on the way up and when they start to break down, it is time to protect monetary and mental capital.

Over the past few days, relevant moving averages and levels of support were broken in various industry groups. On Friday, for the first time since August, the number of stocks making new 20-day lows exceeded the number making new 20-day highs. There is still plenty of dip buying on the StockTwits stream. It is not as pronounced as last week’s, but it still exist. Encouraged by the superior performance ytd, many market participants are not afraid to step in at major moving averages, secretly hoping that institutions will help. Hope is not a viable market strategy.

When the facts change, you need to change your mind and protect capital as momentum stocks move fast in both directions.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.