Market Waves Caution Flag with Consecutive Distribution

Today marks the third consecutive distribution day for the major indices which is a fairly significant caution flag by CANSLIM standards.

Technically speaking a potential double top has formed which would mean further sell pressure is to come. A double top takes place when there is a major top followed by a retracement, rally, and a second top within 2% of the price of the previous top. On the NASDAQ these two prices points are 2535.28 and 2592.94 (2.3% difference). Overall though it is still too early to make a strong claim for this pattern’s validity.

All technical jargon aside, what this price action suggests is to simply be cautious moving forward. Consider taking some profits off any significant winners, tightening stop losses, and selling some weaker positions to raise cash.

The way I look at it is simple. If this turns out to be a natural pull back then I am in position to put my cash to work by strengthening my best positions, etc. If the market has topped and we see another 5 – 10% decline then I am knocked out of my positions to lock in profits and I move into full cash, thus avoiding any major damage. Charts below.

Stay frosty out there 8-) .

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