Why I’m Watching This “Money Movement” Closely

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We’ve all heard the phrase “what goes up must come down.”

This, of course, is not normally the case with the markets – except when we’re stuck in a correction or bear market.

And that is the biggest question for traders: Are we in a correction or an outright bear market? From where I’m standing, it’s starting to look, smell, and sound like a correction at minimum.

The S&P 500’s “rip your face off rally” over the last nine days has put an extra 10% in investors’ pockets.

It’s also done a good job of getting people thinking about the possibility that an “all-clear” signal may have sounded for stocks, thinking that this is the time to be shoveling cash back into them.

Well, unfortunately, this week’s gains are starting to look even more like a sucker’s rally.

The S&P 500 started Thursday off on a weaker note, which is making sense. The last week’s daily volume has been lightening up in almost all sectors. We’ve had this talk before, but I’ll reiterate that lightening volume usually signals that a directional move is getting ready to reverse.

This morning, it reversed.

Complicating the picture is earnings season. It’s less than a week away, which means that we should be preparing for an increase in volatility.

That volatility is likely to be very, very profitable, but the question is: Which direction will that volatility take?

Well, earnings warning season is already in full swing. It’s giving us a big clue.

Signs Are Pointing Down – but We’re Not There Yet

Yesterday, Macy’s Inc. (NYSE: M) stock plunged after the company slashed its earnings and profits outlook. And more will follow as companies continue to reevaluate an economy that’s increasingly weighed down with worry.

So, I’ll just tell you what my screens are telling me.

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We’re at a tipping point, folks.

I’m watching the Russell 2000, and an old friend – the semiconductor sector.

These sectors have seen buying interest of late – the kind that indicates some speculative money moving into the neighborhood. This is the type of activity that needs to be watched.

A shift in the trend in these sectors will tell us that short-term traders remain in charge of the market and that stocks are set to go down as they take quick profits from the recent rally.

At this point, I’m not recommending any posture but a cautious one. I’m not committing capital to this dubious market right now, other than to pounce on any irresistible short opportunities – and let me tell you, they’d better be really irresistible.

I admit, it’s not exactly exciting taking a “wait and see” approach, but it’s not exactly exciting to lose money, either.

But when volatility returns, so will the profitable trading action. It probably won’t be long.

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