Take Out Your Fair Share

It doesn't really matter whether this week's selling pressure is the start of a larger-scale correction or the pause that refreshes ahead of a new rally leg. More important, traders and investors need to respond proactively to whatever the ticker tape throws at us to take our fair share of money out of the market.

I'm talking about a flexible approach in which we accept the recent selloff at face value, raise cash levels and start the hunt for strong stocks that are starting to pull back to substantial support. At the same, let's consider the likelihood of another false breakdown by building a list of momentum plays that have held up well through the downdraft.

This bilateral approach will only work well if we pay close attention to what the market tells us in the next week or two. Here are the initial questions: Do we hold our ground after Monday's breakdown of the two-week trading range? Do the big gaps posted that day get filled and do sellers return in force when that happens?

S&P 500 Index Daily eSignal

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