Three Signs Of A Weakening Market

1. Small Caps ($IWM) have been severely underperforming over the past 3 weeks, essentially reflecting a new stage in the current uptrend – the so called flight to quality. This is not necessarily a bad sign, but a clear indication of decreasing risk appetite, which tends to feed on itself.

2. The major indexes ($SPY, $QQQ) had 3 distribution days in the past 13 days, which is certainly a reason for caution, but not for turning outright bearish yet.Tops in market averages are a process, not an event. Price/volume action gives enough clues before any major damage is caused.

3. There is a decent number of long setups that look like a Picasso – prior uptrend, followed by 5-20 days of tightening sideways price consolidation near major highs and yet very few of them actually break out. Those that do, are short-lived and quickly fade. Buyers don’t have the conviction to step in and push higher.

There are no reasons to turn outright bearish here. It seems that institutions are waiting for a pullback before allocating more capital. I assume that dips in high-growing names will be welcomed as buying opportunities, but in the meantime I raised cash this morning and pulled out of positions that haven’t performed according my expectations.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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My name is Ivan Hoff. I am a stock trader. I manage Stocktwits 50, Stocktwits Email and was featured in The Stocktwits Edge, which I edited. (More)

This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice.This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities.

Copyright © 2012 Ivanhoff Capital. All rights reserved.

In partnership with Part of the CNN Network

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