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Don't Dance, Sit This One Out

NEW YORK ( TheStreet) -- You should play the market the same way you should play cards. Be a card counter. I learned to play cards from my grandfather and he was great at both poker and bridge.

He looked at this hand and watched what others were discarding. He knew the odds of whether a discard and a pickup would improve his hand and only made a move when the odds were in his favor. He didn't bluff and never bet against the odds.

Invest the same way. Know the odds. Let's see what the odds are today.

My proxy for the market is the Value Line Index. The index is 1,700 stocks -- about 95% of the entire U.S. stock market capitalization and the Index is an arithmetic not a logarithmic index. All stocks are equally weighted. Most of you invest with the given numbers of stocks equally weighted so that's why I like the Index over say the weighted S&P 500.

I graph the index like a stock and as you can see, this Barchart graph of the hourly computed index over the last month does not have a defined momentum:

If I look at the Index like a stock here is what I find.

Technical indicators provided by Barchart:

  • 16% Barchart long-term sell signal
  • 80% Barchart short-term sell signal
  • Trend Spotter sell signal
  • Trading below its 20- and 50-day moving average
  • 2.66% off for the last 30 days
  • Relative Strength Index is 44.66% -- I like above 50%
  • Barchart computes a technical support level at 2949.17
  • Closed last night at 3012.47, which is below its 50-day moving average of 3055.90

    Other market indicators:

    Wednesday 67.06% of the stocks closed below their 20-day moving averages and while 202 stocks hit new highs for the month 1183 hit new monthly lows. If that's not enough 390 shares advanced while 3,485 declined.

    Conclusion: I'm not a market timer but I do pay attention to the market's trend. I'll never time the top and the bottom of the market but I should be able to tell when the market is 10% off it's top or 10% off its bottom.

    If I can sense the 80% in between and stay on the right side of the market, I'll be happy.

    My advice right now is to trim off the positions that are not performing properly and accumulate cash until you decided its time to get back into the pool. I want to see the Value Line Index trading above its 20-, 50- and 100-day moving average, have a Trend Spotter buy signal and support from the 14-day turtle channel. He is where we stand at the moment:

    This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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