{"id":3385,"date":"2013-11-07T05:19:47","date_gmt":"2013-11-07T10:19:47","guid":{"rendered":"http:\/\/www.morpheustrading.com\/blog\/?p=3385"},"modified":"2022-04-06T15:05:05","modified_gmt":"2022-04-06T19:05:05","slug":"stock-market-defense","status":"publish","type":"post","link":"https:\/\/morpheustrading.com\/blog\/stock-market-defense\/","title":{"rendered":"Why Now Is The Time To Play Defense In The NASDAQ"},"content":{"rendered":"<p><img loading=\"lazy\" decoding=\"async\" class=\"alignright  wp-image-3388\" alt=\"NASDAQ defense\" src=\"https:\/\/www.morpheustrading.com\/blog\/wp-content\/uploads\/2013\/11\/play-stock-market-defense1-300x262.jpg\" width=\"180\" height=\"157\" title=\"\" srcset=\"https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2013\/11\/play-stock-market-defense1-300x262.jpg 300w, https:\/\/morpheustrading.com\/blog\/wp-content\/uploads\/2013\/11\/play-stock-market-defense1-110x96.jpg 110w\" sizes=\"auto, (max-width: 180px) 100vw, 180px\" \/>On September 6, while the NASDAQ Composite was still chopping around in a multi-month range, we wrote\u00a0<a title=\"Top 3 Reasons Why The NASDAQ Will Soon Breakout To A New High (from Sept. 6)\" href=\"https:\/\/www.morpheustrading.com\/blog\/top-3-reasons-nasdaq-breakout\/\" target=\"_blank\" rel=\"noopener\">an article<\/a> that listed the top 3 reasons the NASDAQ would soon breakout to a new high.<\/p>\n<p>In the very next trading session, the NASDAQ indeed jumped 1.3% and broke out to a fresh 13-year high, causing our market timing system to immediately shift from &#8220;Neutral&#8221; to &#8220;Buy&#8221; mode.<\/p>\n<p>Since then, the NASDAQ has gained 6% and many of our newsletter stock picks have locked in much larger gains (<a title=\"How We Gained 44% In $TAN\" href=\"https:\/\/www.morpheustrading.com\/blog\/4-tips-etf-trading\/\" target=\"_blank\" rel=\"noopener\">$TAN +44%<\/a>, <a title=\"How We Traded The Breakout In Silica Stock For A 43% Gain ($SLCA)\" href=\"https:\/\/www.morpheustrading.com\/blog\/breakout-stock-trade-slca\/\" target=\"_blank\" rel=\"noopener\">$SLCA +43%<\/a>, $BITA +37%, <a title=\"How We Bought $YELP On A Pullback\" href=\"https:\/\/www.morpheustrading.com\/blog\/how-to-buy-breakout-stocks-pullback\/\" target=\"_blank\" rel=\"noopener\">$YELP +31%<\/a>, and <a title=\"How We Bought A Pullback In LifeLock ($LOCK)\" href=\"https:\/\/www.morpheustrading.com\/blog\/buy-pullback-lifelock-lock\/\" target=\"_blank\" rel=\"noopener\">$LOCK +17%<\/a>).<\/p>\n<p>But there are <em><strong>KEY WARNING SIGNALS THE NASDAQ RALLY IS RUNNING OUT OF GAS<\/strong><\/em>\u00a0(at least in the near-term). Read on to find out why&#8230;<\/p>\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">TABLE OF CONTENTS<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/morpheustrading.com\/blog\/stock-market-defense\/#2_Simple_Ways_To_Determine_Overall_Stock_Market_Health\" >2 Simple Ways To Determine Overall Stock Market Health<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/morpheustrading.com\/blog\/stock-market-defense\/#Volume_Patterns\" >Volume Patterns<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/morpheustrading.com\/blog\/stock-market-defense\/#Leading_Stock_Performance\" >Leading Stock Performance<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/morpheustrading.com\/blog\/stock-market-defense\/#Distribution_Day_Pileup\" >Distribution Day Pileup<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/morpheustrading.com\/blog\/stock-market-defense\/#Leading_Stocks_Lagging\" >Leading Stocks Lagging<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/morpheustrading.com\/blog\/stock-market-defense\/#Why_Defense_Is_Now_The_Best_Offense\" >Why Defense Is Now The Best Offense<\/a><\/li><\/ul><\/nav><\/div>\n<h2><span class=\"ez-toc-section\" id=\"2_Simple_Ways_To_Determine_Overall_Stock_Market_Health\"><\/span>2 Simple Ways To Determine Overall Stock Market Health<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Although the bullish bias of the past two months has presented some great opportunities for momentum swing traders,<strong>\u00a0no bull market moves straight up<\/strong>\u00a0without eventually undergoing substantial corrections along the way (just as bear markets don&#8217;t fall straight down for too long without large, counter-trend bounces).<\/p>\n<p>Two of the most important technical factors that always play a major role in determining the trend bias of our proprietary\u00a0<a title=\"Overview Of Our Market Timing System\" href=\"https:\/\/www.morpheustrading.com\/blog\/market-timing\" target=\"_blank\" rel=\"noopener\">market timing model<\/a> are:<\/p>\n<ol type=\"1\">\n<li>\n<h3><span class=\"ez-toc-section\" id=\"Volume_Patterns\"><\/span>Volume Patterns<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Are the S&amp;P 500 and NASDAQ Composite generally gaining on higher volume (bullish accumulation days) or selling off on higher volume (bearish distribution days)? The running count of accumulation or distribution days \u00a0is a key element of the excellent <a title=\"What is CANSLIM?\" href=\"https:\/\/en.wikipedia.org\/wiki\/CAN_SLIM\" target=\"_blank\" rel=\"noopener\">CANSLIM methodology<\/a> of William O&#8217;Neil, and is one of the top factors in determining our overall stock market bias as well.<\/li>\n<li>\n<h3><span class=\"ez-toc-section\" id=\"Leading_Stock_Performance\"><\/span>Leading Stock Performance<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Perhaps even more important than the volume patterns in the broad market is the performance of leadership stocks. In a healthy market, the best stocks will always outperform the gains of the main stock market indexes by a wide margin (ie. NASDAQ gains 3% for the month, while a bunch of leading stocks zoom 30%-40% higher during the same period). However, in weak or weakening markets, the major averages will outperform (formerly) leading stocks.<\/li>\n<\/ol>\n<h2><span class=\"ez-toc-section\" id=\"Distribution_Day_Pileup\"><\/span>Distribution Day Pileup<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>On November 6, the NASDAQ Composite declined on higher volume, causing the index to suffer another bearish <em>distribution day<\/em>.<\/p>\n<p>By our count, this is the <strong>NASDAQ&#8217;s sixth distribution day within the past three weeks <\/strong>(the S&amp;P 500 has been acting a little better).<\/p>\n<p>As shown on the daily chart below, there have been four days of churning (higher volume stalling action), plus two more days of heavier volume with a lower close:<\/p>\n<p><img decoding=\"async\" alt=\"NASDAQ Distribution count \" src=\"https:\/\/www.morpheustrading.com\/\/~rick\/\/charts\/2013\/131107NASDAQ.png\" title=\"\"><\/p>\n<p>In a healthy bull market, a few days\u00a0of institutional selling within an uptrend is normal and can easily be absorbed by overwhelming demand.<\/p>\n<p>However, when the running count of distribution days exceeds <em>5 sessions within a 3-4 week period<\/em>, it is an<strong> immediate and very legitimate warning sign to the bulls<\/strong>\u00a0that a significant stock market correction may be just around the corner.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Leading_Stocks_Lagging\"><\/span>Leading Stocks Lagging<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>The high count of distribution days is bearish, but does not trigger a &#8220;Sell&#8221; signal in and of itself.<\/p>\n<p>For confirmation that the market is poised to pullback, one must also assess the performance of the top-gaining stocks during the current rally.<\/p>\n<p>Unfortunately,<strong> leading stocks have already been lagging the broad market for the past several weeks <\/strong>(as <a title=\"Leading Stocks Cooling Off...\" href=\"https:\/\/www.morpheustrading.com\/blog\/sector-rotation-bull-market\/\" target=\"_blank\" rel=\"noopener\">initially mentioned<\/a> back on October 29)<strong>,<\/strong> and many were also hit hard yesterday (November 6).<\/p>\n<p>Tesla Motors ($TSLA), one of the top gainers of 2013, reported its quarterly earnings and then plunged 15% yesterday.<\/p>\n<p>Mercadolibre ($MELI) similarly plunged 10% after its latest quarterly earnings report, while SolarCity ($SCTY) tanked 14% in (post earnings) after-hours trading yesterday.<\/p>\n<p>The screenshot below shows a few important leadership stocks that took a hit yesterday:<\/p>\n<p><img decoding=\"async\" alt=\"leadership stocks \" src=\"https:\/\/www.morpheustrading.com\/\/~rick\/\/charts\/2013\/131107LEADERS.png\" title=\"\"><\/p>\n<p>Another market leader, LinkedIn ($LNKD), is not on the list above, but the stock has already broken down below key intermediate-term support of its 50-day moving average. Next, it could potentially test its 200-day moving average in the coming weeks.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Why_Defense_Is_Now_The_Best_Offense\"><\/span>Why Defense Is Now The Best Offense<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>The combination of a high number of bearish distribution days and sudden weakness in leadership stocks has <strong>forced our proprietary timing model out of its two-month old &#8220;Buy&#8221; mode<\/strong> as of the November 6 close\u00a0(details of the newly updated trading \u00a0signal are restricted to actual <a title=\"Sign Up For The Wagner Daily Newsletter\" href=\"https:\/\/www.morpheustrading.com\/services\/swing-trade-alerts\" target=\"_blank\" rel=\"noopener\"><em>Wagner Daily<\/em><\/a> subscribers).<\/p>\n<p>Although it&#8217;s way<em> too early to declare the current rally in the stock market is dead<\/em>, we simply cannot ignore the fact that the major averages are now leading, while leading stocks are lagging (exactly opposite of what occurs in a healthy market).<\/p>\n<p>Rather than trying to stick with open positions and overstaying our welcome, we are now switching to very tight protective stops on existing swing trades that are in the money.<\/p>\n<p>Additionally, we will be exiting several new positions &#8220;at the market&#8221; on today&#8217;s open, as late-stage buy entries tend to get hit the hardest when conditions quickly turn sour.<\/p>\n<p>If you are struggling with the idea of exiting a position you only recently entered, <em>this is simply how it sometimes goes in the business of trading.<\/em><\/p>\n<p>We can never predict when leadership stocks will begin to crack, so <em>we must continue buying the best stocks until price and volume action gives us a valid reason not to. <\/em><\/p>\n<p>However, once leading stocks start breaking down en masse,<strong> it is best to step out of the way in the short-term.<\/strong><\/p>\n<p>You can always re-enter your positions if they hold up and leading stocks find traction again, but astute traders should now play defense until that happens.<\/p>\n<p><em>Morpheus has a pretty accurate track record of telling subscribers precisely when to buy, sell, or sit on the sidelines. See for yourself by <strong><a title=\"Risk-Free 30-Day Trial Signup\" href=\"https:\/\/www.morpheustrading.com\/services\/swing-trade-alerts\" target=\"_blank\" rel=\"noopener\">test-driving The Wagner Daily newsletter<\/a><\/strong> today.\u00a0<\/em><\/p>\n<div class=\"cfmonitor\"><center><script type=\"text\/javascript\" src=\"\/\/pagead2.googlesyndication.com\/pagead\/js\/adsbygoogle.js\" async=\"\"><\/script><!-- Footer of content --> <ins class=\"adsbygoogle\" style=\"display: inline-block; width: 300px; height: 250px;\" data-ad-client=\"ca-pub-7565144363001883\" data-ad-slot=\"7002222565\"><\/ins><script type=\"text\/javascript\">\/\/ <![CDATA[\n(adsbygoogle = window.adsbygoogle || []).push({});\n\/\/ ]]><\/script><\/center><\/div>\n","protected":false},"excerpt":{"rendered":"<p>On September 6, while the NASDAQ Composite was still chopping around in a multi-month range, we wrote\u00a0an article that listed the top 3 reasons the NASDAQ would soon breakout to a new high. In the very next trading session, the NASDAQ indeed jumped 1.3% and broke out to a fresh 13-year high, causing our market [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_links_to":"","_links_to_target":""},"categories":[3],"tags":[],"class_list":["post-3385","post","type-post","status-publish","format-standard","hentry","category-stock-trading-strategy"],"_links":{"self":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/3385","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/comments?post=3385"}],"version-history":[{"count":1,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/3385\/revisions"}],"predecessor-version":[{"id":11354,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/posts\/3385\/revisions\/11354"}],"wp:attachment":[{"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/media?parent=3385"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/categories?post=3385"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/morpheustrading.com\/blog\/wp-json\/wp\/v2\/tags?post=3385"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}