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This post is a free excerpt from our most recent Sector Selector update.
The Sector Selector is designed for patient trend following investors and traders. It’s especially useful for those whose 401 (k) plans which allow ETF investments or for those with self-directed IRAs as it’s a trend trading system designed for low transaction frequency. By allocating a portion of your retirement funds into ETFs during uptrends and selling them during downtrends you are enhancing the long term return of your portfolio.
The stock market made is in profit taking mode and the natural instinct is to run. Yet, our trading plan says wait and see. This is especially important if you’re trading a long term focused account such as your 401(k) or IRA based on our ETF strategies.
Of course, it’s easier to be patient when you’re sitting on a nice set of gains and have been tightening Sell stops methodically to preserve profits, as I suggested here last week. That said, we should take the current market’s short term pullback seriously while asking if anything has changed to make traders sell other than they’ve made some money and want to preserve profits.
The major reasons for owning stocks haven’t changed. Consider the following:
AI and technology stocks are in a long term bull market
Industries that support AI and technology – construction, power generation, and financing infrastructure are still needed and remain in long term uptrends, and
In other words, little has changed on the industrial side of the ledger. What has changed is that last week’s employment report showed more strength than expected and that means that traders who were betting on lower interest rates are cashing in.
But interest rates are not as important as liquidity, the amount of money in the system that big players can use to own stocks. Thus, since liquidity remains stable, the odds are that the current selling will be short lived. That said, we need to see the dip buyers come back into the market within the next few days.
In case today’s selling is more than just a blip, I’ve adjusted the Sell stops in all our positions in order to preserve our profits.
Market Update
The stock market is selling off this morning. The New York Stock Exchange Advance Decline line (NYAD) may retreat to its 20-day moving average before the selling slows or reverses.
The U.S. Ten Year Note yield (TNX) is back above 4.3% as bond traders are starting to worry about inflation resurfacing after the stronger than expected jobs report last week.
The S&P 500 (SPX) has rolled over. Short term support is now at 6000-6100 and the 20-day moving average.
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