10-10-2012 comments

The close yesterday below the 50-day on the NASDAQ gave us an S9 sell signal. This reset and turned the power trend off. When the power trend is off the maximum exposure gets set to +5. We were +6 previously. The sell signal then got applied to the the resulting +5 givng us a current exposure count of +4 (maximum of 90% portfolio exposure). This calls for getting off margin and raising at least some cash level in portfolios. IBD placed the market under pressure with 6 days of distribution on the S&P500 and NYSE Composite. None of those distribution days are very old so my expectation is that the distribution level will rise in the next two weeks.The S&P experienced 4 distribution days recently within a 5-day period, an S13 sell signal on that index. In my experience S13 distribution cluster signals seldom occur within a healthy uptrend but are quite common in a correction or as the market is topping.

The NASDAQ is in a short term downtrend making lower lows and lower highs. It is also in a medium term uptrend. Closing below support at 3100 is also not good. Caution is advised until Mr. Market sorts this out. We are at the beginning of earnings season so this may take a while.