Market Conditions - Second Red Flag

The market showed a strong second red flag today. The S&P 500 Index dipped below the 13-day moving average. While the market may drift higher this week, these are times to be extra cautious. I would not recommend jumping into the C Fund at these levels. The S&P 500 Index closed @ 1165. I got out of the C Fund @ 1176.

Several points were noteworthy about today's action:

1. The market had its biggest selling day in two months.

2, Today counted as a "true selling" day. According to trader Gary Smith, it is wise to step away from the stock market when at least three major market indexes have dropped by more than 1%. Today, all of the major indexes were down by more than 1%. To quote Smith, "A 1 percent true selling day occurs after a period of rising prices of at least two weeks in which the Dow, S&P, Nasdaq 100, and Russell 2000 indexes all close down 1 percent or more on the same trading day. These types of days often are trend busters and can be harbingers of serious price declines ahead." How I Trade For a Living by Gary Smith, page 112.

3. There was a sharp drop in the Relative Strength Index (RSI). Remember how we closed yesterday at an unsustainable level of 70.89? Well, today the market had a "Come to Jesus" moment. The RSI closed in the 50s. This is a warning sign that all is not well with the market.

4. The flatlining MACD histogram has turned negative. For me, this point alone would be a "time to go" sign. But I'm very conservative when the market might be turning down.

5. The MACD line has turned down. This condition is bearish.

I must sound like a broken record. My philosophy is that the C Fund isn't the place to be when the market has stalled or is about to fall. We are nearing the edge this evening. Its that simple.

May you make wise investing choices!

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