Wall Street is starting to feel a little uneasy in the knees. With the NASDAQ clearly below September’s pivot-low early in Tuesday trading, a short-term sell signal for the index will be triggered.
It’s classic. The index corrected in September and u-turned higher at 3,093; however, the subsequent rally fell short, far short of clearing the hurdle of its previous high. Fresh lows following lower peaks are a portrait of the other side of the mountain.
ETF Stocks isn’t making a full-blown sell call; rather, the NASDAQ’s breakdown is just the opening shot. For us to issue a "get out" signal, the Dow and S&P will have to join the NASDAQ and fall below their September valleys. Both are close, but have plenty of work to do. The Dow must violate 13,413.51 and the S&P 1,433.32 to make it three-for-three a.k.a. confirmation.
Unfortunately, ETF Stocks market indicators are pointing to more weakness. Momentum is running south, and market leadership is failing. When the combo goes sour simultaneously, it usually isn’t good for stocks in the interim.
So what should you do? First off, pay close attention to the S&P and Dow to see if they join the NASDAQ in destroying support at the levels we’ve mentioned up top. If the firewalls hold, then buying the dip is the play. If not, initiating defensive strategies could be portfolio lifesavers.
Writing covered-calls against the stocks in your portfolio is one way to mitigate losses if a correction is here. Moving some portion of your portfolio to cash is another. That way you’ll have some liquidity to buy cheaper, quality stocks when the knife sticks in the cutting-board.
Buying an inverse exchange-traded-fund such as ProShares Short Dow30 (DOG) or ProShares Short S&P500 (SH) could prove to be a money-making move if the indexes do trigger a change in trend.
The buy or die answer should come shortly as 3rd quarter earnings get underway with Alcoa (AA) on Tuesday, October 09, 2012. So far, FedEx (FDX), Intel (INTC), and Caterpillar (CAT) warned that conditions are bad and getting worse for profits. If the fortunetellers prove correct regarding the 3rd quarter parade of earnings’ report cards, then it is a matter of when the Dow and S&P join the NASDAQ underwater.