When to Get Out of Stocks Again

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September has entered like a bear, driving stocks lower for the third consecutive day. The selling in the last three days pummeled the S&P 500 to its worst September start in history, off 4.4%. 

Most distressing to the bulls is that the market fell on the good news that the August ISM Service Index improved to 53.3 from 52.7, which exceeded expectations of 51. That minor victory caused a blip higher, but was followed by more selling that ended at mid-morning with the Dow off over 300 points. The remainder of the day was spent clawing back some of the losses until, with 30 minutes remaining, buyers emerged taking back all but 101 Dow points.

NYSE ChartTrade of the Day Chart Key

In yesterday’s Daily Market Outlook, we reviewed the chart formation called the “bearish flag” on the S&P 500, noting that it has a high probability of breaking to the downside.

Today I’m attaching two other charts of the major indices. The first is the NYSE Composite, which is composed of all of the stocks traded on the NYSE. This is one of the broadest indices, and so along with the S&P 500, carries a great deal of technical weight. Despite its greater number of stocks, note that the NYSE Composite closed relatively lower than the Dow, indicating more broad-based weakness in the overall market.

 

Dow ChartTrade of the Day Chart Key

The Dow Jones Industrial Average is composed of 30 of the largest publically owned companies in theUnited States. I’m including it because the 30 stocks in this index have a strong following in the institutional investment community. Note that each index is forming the same pattern: the bearish flag.

A characteristic of the flag is that it points in the opposite direction of the final break, thus new investors and traders often think that they are observing a bullish formation and buy into it. Normally the upward slant lasts for two or three weeks before violently breaking through its support line. Therefore yesterday’s rally fits into the pattern of rallies prior to the breakdown.

Be prepared to see the market rally back to its bearish resistance line at NYSE 7,600 and Dow 11,670, which would be an ideal spot to sell short. The bearish resistance line for the S&P 500 is at about 1,240.

The course is now clear. Don’t be deceived by temporary market strength, whether it appears to be better news fromEuropeor a presidential speech, since the trend is down.

For one stock to sell now, see the Trade of the Day.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

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Article printed from InvestorPlace Media, https://investorplace.com/2011/09/daily-stock-market-news-when-to-get-out-of-stocks-again/.

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