In the last decade Commodity ETFs have been leading indicators of market advances and declines, specifically XME (raw materials), SLX (steel), and KOL (coal). These ETFs have started rolling over, demonstrating lower highs and lower lows. Not many professionals are noticing this trend. However, the rolling over of another well respected indicator, transportation stock, has been noted by market analysts. In contrast, lagging indicators such as the Dow Jones Industrial Average and the S&P 500 have continued to form higher highs, enticing average investors to participate.
Whenever we are having intense insider selling, such as during the month of February, then the chance of a meaningful equity rally will be extremely low. In the short term a euphoric upward wave is still possible but it will be short lived. The heavy insider selling and the increasing divergence of leading versus lagging indicators demonstrate that the clock is ticking
In this present market, the most difficult action for many investors is to simply do nothing. The next significant equity low is coming and we will have the cash to buy low and make another 20%. Just try to exercise patience!
Some subscribers are having a hard time doing nothing. They find trading to be exciting or somehow validating to the ego. Those who enjoy the excitement of trading will keep making mediocre decisions because they cannot bear the thought of just staying put. Once again remember that cash is a position in and of itself.
We do not trade for fun. We do it when and if there is a compelling reason to do so, such as times of great value, extreme fear in the market, or a high ratio of corporate insider buying compared to selling.
In the interim, here is an intelligent article for your reading pleasure. It was published recently on the MarketWatch website.