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  • Writer's pictureT. Livingston

Distribution In A Narrow Market Means Caution Warranted For Now

Stock market conditions continue to be narrow and are actually looking narrower and narrower each day. Distribution has started to pile up on the indexes, with heavy selling coming in today on all major indices. What's more concerning to me is that there aren't that many stock setups, and the few stocks that were holding up are beginning to falter.

When we look at the advance-decline line and the new highs-new lows, it is easy to see that this is not a broad-based rally. In fact, most stocks are doing much worst than the general indices, but even large mega cap-stocks are now beginning to falter as well.

Take NFLX, NVDA, and AMZN as examples. NVDA has been the clear market leader. It is now below its' 50-day moving average and looks like it may need some time to base. NFLX was setting up but quickly fell apart. AMZN was acting well but came in today on heavy selling. I took a small pilot position earlier this week, but quickly cut my position just above breakeven. My reasoning is simple: in a hot market, there will be a plethora of opportunities and at this point it's really not worth fighting the general conditions.

There are a few stocks I'm watching closely, with NVDA, ABNB, MNDY, UBER, AMZN, and PLTR being high on my list. While I'm bullish on all of these long-term, they do look like they need some more time to round out their bases.

Seasonality is also something I've been thinking about since the September-October timeframe often provides difficult trading conditions. If the 1990 comparison I blogged about last month continues to play out, some additional basing would make sense here and would lay the foundation for a strong uptrend in the coming months. I am still confident that the 2022 lows will hold, and that a long-term bottom is in place. However, the market is clearly signaling that this is not a time to be aggressive. The FED is also meeting this week, which may also be a catalyst for volatility. With all this in mind, I'm content to be cautious and wait. I'd actually prefer to see the market come in here. While that may sound odd, I believe a correction on the S&P 500 towards its' 200-day moving average or near the $4250 range would provide me with the opportunity to add more shares to my long-term trading account.

As for individual stock trades, there's really not much to do with such a narrow market. Ultimately, I will get aggressive, but it will be at the right time when the odds and general market are in my favor. Until then, I'm happy to sit and wait for the market to signal it's time to get busy.

Risk right. Sit tight.

Disclaimer: This information is issued solely for informational and educational purposes and does not constitute an offer to sell or a solicitation of an offer to buy securities. None of the information contained in this post constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. From time to time, the content creator or its affiliates may hold positions or other interests in securities mentioned in this blog or the associated Twitter and Instagram feeds. The stock or stocks presented are not to be considered a recommendation to buy any stock or stocks. This material does not take into account your particular investment objectives. Investors should consult their own financial or investment adviser before trading or acting upon any information provided. Past performance is not indicative of future results.


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