Pre mature bulls get whacked

Market acted the way it acts when it is in confirmed correction phase as per Market Monitor. A holiday induced , low volume bounce on Friday had some people excited. For bulk of the day the market struggled to get any traction and finally it sold off hard. That should not surprise anyone tracking the action on Market Monitor. During last correction also there were lot of pre mature bulls calling for a turn before the readings reached turn zones.

When the market is about to turn, the Market Monitor readings will indicate that. At current levels, we are at best likely to have reflex bounces. Many market participants have been spoiled by the last 4-5 years action where such corrections quickly reversed and lead to rallies. Till now this correction is different, it is coming after a blowout phase , where many sectors and stocks had a climax run and then the market reversed.

If you recall when the readings on stocks up 50% plus in month were at extreme levels, not seen in years in October (Oct 5 to Oct 11 on Market Monitor), that was the climax phase. During that phase if you look at my posts, they said such high readings are not sustainable and lead to corrections. That is what happened. The extreme momentum phase resulted in correction. However quickly the correction transformed in to distribution phase.

Unlike normal correction, it had different feel from word go as stocks which had climax run started dropping fast and along with them other stocks started reversing. Breakouts were not having follow through. Remember my posts prior to Cancun trip where I was very uncomfortable with the action and reduced my market exposure to bare minimum. Since then I have been mainly in cash in all my accounts, that include my long term accounts and mutual funds accounts and only taking sporadic short term tactical trades.

When the Market Monitor indicates turn, there will be lot of opportunities to make money. Till then cash is king.