Market Wrap – week ending 1/17/2014
Another fun week in the market. While we started the first day of the week with a sharp decline, the very next day we had an equally sharp reversal completely erasing the sharp downside from the day prior. The rest of the week we have had a relatively quiet consolidation (sideways movement), which generally speaking is good healthy action after such a volatile two days.
For four weeks now we have been trading at virtually the same level, with small caps and more risky technology oriented companies (IWM and QQQ) slightly higher, and the larger more traditional firms (S&P500, NYSE and Dow Jones) slightly lower. While it is a sign of strength to see the riskier stocks holding up better, clearly the market is having trouble making up its’ mind as to whether it wants to go higher.
As I mentioned in my mid-week alert on Monday, volume has increased over the past few days which obviously means more activity … more shares changing hands, and can mean the bigger institutional firms are moving to a more protective stance raising cash OR simply just people taking profits off the table. With the market holding relatively strong, moving sideways at this stage I have to think that this is just healthy profit taking and nothing to be concerned about.
All psychological indicators are still at decade level highs which isn’t something to be excited about, but these indicators are secondary in nature and therefore not good to use in your investment decisions. Although they usually indicate a top is forming … it could take months for the completion to occur.
For the time being, we stay invested but in a cautious manner. We were close to adding more exposure this week, but the lack of strength kept the buy signals from firing. As you know, we take a cautionary approach and would prefer to sit on the sidelines during periods of uncertainty vs. being fully invested (i.e. taking on more risk).
It was nice to see our new volatility trigger keeping us invested in the market after Monday’s severe drop, given that Tuesday’s move completely erased the decline. Prior to the installation of this trigger, we would have exited the market on Monday and been left in the dust on Tuesday’s rise. This is exactly what this new trigger was designed to do … keep us invested in times of weakness when the weakness isn’t at concerning levels to cause a full exit to cash. If we had this indicator running last year, we would not only have had much more profit by the end of the year, but also we would have had many fewer trades throughout and therefore less costs associated with our accounts.
Hope you have a wonderful and safe weekend.
Resnn Investments, LLC
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