3-6-12 Comments

The Market entered a Power Trend on the NASDAQ at Monday's close. This is simply caused by the 21-day ema trending above the 50-day for 40 days with no closes below the 50-day during the period. In past history this can also be a time when a strong market pulls back. The intent of the Power Trend is to keep portfolio managers aware that the market has been acting very strong and to not go to sleep in a pull back. Not all Power Trends end with a refreshed uptrend after a pull back however remaining engaged if and when the market pulls back has historically been the best option. I don't see evidence that we are putting in a major top so currently this looks like we are possibly entering a normal pullback at this juncture.

The Russell 2K seems to be retreating from an 830 resistance level. The Dow Transports are now living under the 50-day moving average. Yesterday was a distribution day on the S&P500 and the NYSE Composite. The distribution count on the NYSE Composite is 4. The NASDAQ (leading index) has only 2 days of distribution and has only pulled back 1.7%. Leading stocks seems to be holding up. The current exposure count is +4 (90% invested).

Looking ahead if the NASDAQ closes 0.2% below the 21-day ema it would cause two sell signals: S5 break below the 21-day and S6 overdue break below the 21-day. When a market trends above the 21-day for 25 days or longer we get the double whammy overdue break sell signal. We are within 0.7% of the 21 day so a 0.9% drop would bring us to an exposure count of +2 (55% invested). Obviously being so close, this could happen any day. The Power Trend establishes a +1 exposure count floor and will not end until the NASDAQ closes below the 50-day moving average. It is time to pay attention to sell signals in individual stocks and raise some cash if the market moves much lower. It is also time to identify the real leadership in your portfolio and decide how you are going to handle them if the market gets really soft here. My leading positions are KORS (up 79% from my initial buy point) and BWLD (up 24% from my initial buy point). I have more than half of my portfolio concentrated in these two issues.