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3 Critical Correction Warnings PDF Print E-mail
Written by Greg Guenthner - Rude Awakening   
Monday, 28 July 2014 08:26

 

  • Small-caps sink
  • Momentum fizzles
  • Plus: How smart are stock traders?

The market is sending out a few critical warning signals this morning... 

"But Greg," you say. "Haven't you been talking about a potential correction all summer? Last I checked, the market's hitting new highs. Open your eyes, man!"

Well, you're right.

The S&P 500 just clocked a new closing high last week, while the Dow and the Nasdaq both fell just short or their previous highs. 

But under the surface, you'll find a few bits of evidence pointing toward lower prices. For the record, I'm not calling for a market crash. I don't think you should sell everything you own and move to the wilderness. However, I am seeing several warning signs that could point to market weakness. 

Here are three reasons you should plan for a pullback sooner rather than later: 

1. Small-cap performance is getting even worse.

We've discussed small-cap underperformance before. After leading the bull higher for years, small stocks are beginning to crack...

RUD Small 072814

You can see where the Russell 2000 and the S&P 500 begin to diverge back in early April. And aside from playing catch-up for a hot second back in June, small-caps have underperformed their larger cousins by a huge margin. So far this year, the S&P 500 is up more than 7%, while the Russell 2000 has dropped more than 1.6% over the same period. 

Small-cap performance is typically a good gauge of investors' risk tolerance. That makes the flight to larger stocks a concern for the overall health of the market... 

2. Momentum is fizzling at new highs.

Sure, "the market" is making new highs. But is the big index running out of steam?

d

"We are seeing some cracks in the rally more recently," comments our redident trading expert Jonas Elmerraji. "While the S&P 500 has been moving higher since June, our momentum gauge at the bottom of the chart has been trending lower. That disconnect is known as a bearish divergence, and it's typically a precursor to a drop in price."

3. The market needs a "reset".

A bull market doesn't move up in a straight line. Stocks occasionally need to blow off some steam. But since mid-April, the S&P has churned higher without as much as a pullback...

RUD What 072814

Pullbacks help keep the market's wall of worry intact. They shake out the loose hands and offer investors strategic buying opportunities. We haven't seen many of those lately. Instead, the market has been clinging to the very top of its trading range. Even if you're longer-term bullish, you want to see stocks release some of this pressure and "reset" before heading higher. 

Now, I don't know what's in store for stocks in the coming weeks. No one does. If we do see a pullback or a correction, I don't know how far it will go. But I do know what you can do...

Stick to the plan we've discussed since earlier this summer. Keep your position sizes small and your stops tight. And stick to the mega-cap stocks that are helping the market stay afloat.

rude

Today, a reader offers up a cruel statistic... 

"As a loyal reader (and Mensan) I want to remind you that HALF of your readers are below average!" he says.

Touché, smarty-pants. 

On a related note, I am sorry to report that Mensa rejected my application. I couldn't find a pen and was forced to fill out the requisite information with an old crayon. They sent a note along with the rejection slip asking me not to bother filling out another one.

That's a joke, of course. No one from Mensa has ever invited me to join...

Fortunately, the stock market doesn't force you to fill out an IQ test to make a trade. You don't have to be some sort of genius to learn a few basic trading rules. You just need to keep a level head and do your best to cut your losses when the market says so.

There are plenty of incredibly intelligent people who get burned by stocks every single day. They become enamored with a market theme or a stock idea... then it drops 20%. Then another 20%. Inevitably, they ride it to zero... and the genius idea that can't lose ends up ruining them. 

They're used to being right. After all, they're smart! Smarter than most... 

Unfortunately, brains can't save you from the realities of the markets. 

Just remember-- you're not smarter than the market. No one is. Luckily, it's not about being smart. It's about making money. 

Not sure if you're even smart enough to book huge stock market gains? You have until tomorrow to figure it out. Click here to get started now...

[Ed. Note: Send your feedback here:  This e-mail address is being protected from spambots. You need JavaScript enabled to view it  - and follow me on Twitter: @GregGuenthner]

 

 
Lance Roberts: Mishmash PDF Print E-mail
Written by Lance Roberts - The X-Factor Report   
Sunday, 27 July 2014 17:13

This week’s newsletter is going to be a bit eclectic as there are several issues that I want to touch on that I think are significant relative to the markets, investing and your money. Some of these topics I touched on in last week’s daily posts(join me on Facebook or Twitter for notifications of when I post)but important enough to warrant repeating in case you missed them.

kBX

 

 

.... read the entire report HERE

Money Talks Ed Note: One great thing about Lance's detailed reports are the original charts that he includes like this example:

Fed-Rate-Crisis-072614

 

 
10 Oversold Canadian Stocks PDF Print E-mail
Written by Canada Stock Channel   
Friday, 25 July 2014 09:10

(1) RSI Alert: Macro Enterprises (CVE:MCR.CA) Now Oversold triggered: 07/23/2014

Macro Enterprises through its subsidiaries, is engaged in the provision of support services to oil and gas companies through pipeline and well site facility construction, plant maintenance and construction of oilfield equipment.

10oversold

Read full article in a new window: RSI Alert: Macro Enterprises (CVE:MCR.CA) Now Oversold

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Mark Leibovit
23 July 2014 ~ Michael Campbell's Commentary Service

We intruded on Mark Leibovit's summer break and asked him for...   Read more...

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