How to avoid getting caught in a reversal

For last few days the market breadth was at extremes. Such extreme breadth is seldom sustainable. The Market Monitor indicated very high probability of correction and as a result on Members site we closed many position on Tuesday and yesterday morning a warning was posted about a likelihood of correction.

From Members Site:

Sticking my neck out

Posted by: easyguru, on Wednesday, September 23, 2009 07:58 EST

Based on Market Monitor readings, the action in speculative stocks, the surge of IPO expected to hit the market, the flood of secondaries, and my prior experience with Market Monitor, we are most likely to see a correction in next 5 to 10 days.

There might be a bit of speculative frenzy in beaten down stocks or low priced stocks for 4-5 days before that. But everything I see points to a high probability of correction at this stage. Such corrections have been so far dips in the main trend where MM readings have bounced back from around 300-500 levels.

Market typically tends to be easiest to trade just before a correction. So I am hearing lot of talk of this market will never correct and it is bull market, and how easy it is to trade and so on.

But I have seen this movie before. If you are on full margin such dips can badly damage you . So as of yesterday I have reduced my exposure to level where I am very comfortable. I am not going to be aggressively chasing things as of now and will only look for hit and run trades.

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