Up, Up and Away - Not

By Al Thomas

Been to any good action movies lately? You know, those with all those car chase scenes. Cars careening along at breakneck speeds followed by another crazy driver. First in one direction, then another in the opposite direction with screams of agony at the end.

Remind you of the stock market?

The market started up on April 22 and has been careening upward almost every day. Then Monday it slowed down and went sideways until Friday afternoon. Then something bit it in the butt. It broke through a significant chart formation that signaled a change of direction.

Volume was highest since April 18 verifying this was not just another pullback to buy.

For those who are technically oriented this was a signal of a change of direction. Those who own long term positions in mutual funds should be moving up their protective stops.

From the last closing price stops can be as close as 7 or 8%. Others may prefer 10% or 15%. Whatever risk the investor is willing to live with there should be protection just in case this is the start of one of those terrible 40% declines.

Donít rely on any fund manager to sell to protect the price of his fund from dropping through the floor. 99% of fund managers donít know how to sell or are not allowed to because of the charter of the fund.

A smart investor will call his fund manager to determine if his manager is allowed to sell or if the fund charter requires it MUST be fully invested at all times. If that is the case a wise investor will transfer all his funds into a money market account. Yes, you can do that and there should be no commission charge.

The market on this rise has become more and more over bought. This condition can remain longer than investors think, but it can suddenly change. My guess, and I can be wrong, that is what happened this past week. Friday the bears took control. This week will prove out whether the technician bear signal will be confirmed.

If a bear signal is shown to be in effect it will not tell investors how far down the market will go. It is not a good idea to guess with your money. Better to be out.

Up, up and away has been temporarily cancelled.

Copyright 2013 Williamsburg Investment Co. All rights reserved. Al's new ebook (32 pages) is available on Amazon.com for 99 cents. It explains the Golden Cross and the Death Cross. These are well known methods of determining long term trends in the market. If you only learn one method of technical analysis this would have kept you out of the 2000 and 2008 crashes and will keep you out of the next one that is coming soon. The title is Never Lose Money In The Stock Market Again.