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Brandon Perry: What Is the State of the Stock Market?


The negative action in some key sectors indicates that it's time to be cautious.

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time.

On August 28, I wrote The Time for Correction Calls Is Not Nigh [subscription required] as I was adamant about the market not being ready to fall.

On September 2 [subscription required], I challenged the top callers, based on the internals, which showed we would go higher before resting. I began to waiver on my bullish stance on September 9 [subscription required] when we approached the pullback window. This past Monday, I dared to do the unthinkable [subscription required] and began selling down positions Monday by dumping small cap index ETFs. 

Now how do we stand?

Looking at three key sectors, I see pure carnage:

1) Transportation (XTN)

2) Retail

3) Banks (KBE)

In the last three days, transports and retail have made beelines for their 50 day moving averages, with the banks shooting for the 200.

This is not good my friends.

The S&P 500 (SPX) looks ready to fall apart and test some fairly low levels in the next few months. I'm not one to call tops. I learned that lesson a long time ago, but I do reduce risk when the market is sending clear signals, and it certainly is yelling at me to steer clear for a while. I plan to work out of some investment positions and start trading as it appears to me that we are entering a trader's market. 

As for downside targets? The number that comes to my head is an 8.5% correction, but the first stop would be around 1900-1915 in the S&P 500, a measly 5% from the top.

In the very near-term, I expect a bounce on Wednesday as the NYMO hit -72 on the close yesterday, and I plan to buy early if I see red, which would give a nice bounce opportunity from the 50 day moving average.

Stay nimble. Volatility is here again and a lot of money can be made short-term through discipline, accuracy and a good process. Be the ball!

Twitter: @TwistedMarkets
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