Stock Market Health Report: Uptrend Continues, But It’s Time to Be Cautious

by Darrin Donnelly on December 15, 2010

Click on chart to enlarge.

Click on chart to enlarge.

The NASDAQ broke its eight-day winning streak on Monday and has pulled back slightly from its highs.

Of course, considering that it was up for eight straight days, a pullback was expected and the index hasn’t been hurt too badly by this week’s mild decline. 

Despite the fact that we still haven’t gotten that aggressive high-volume up day I’ve been waiting for, the NASDAQ is still well above the 50-day moving average and, as you can see with the trend lines on the chart that accompanies this article, it remains in a Stage 2 uptrend.   

In other positive news, the Dow Jones Industrial Average broke into 52-week high territory on Monday and has maintained that level. 

Yet, while the indexes look good, they don’t tell the whole story. 

Several leading stocks – especially those based in China – have taken a beating this week and a few Darvas stocks hit their stops after strong runs. 

While the market trend is upward and we still have the “green light” to buy into new positions, you must trust your stops and exit when they’re hit, regardless of how healthy the market may look from afar.

Remember that leading stocks often clue us into the health of the market BEFORE the indexes flash clear sell signals.  When you see leaders start falling through key support levels, it’s good to be cautious. 

Now is not the time to aggressively load up on margin.  If you’re sitting on some major profits, don’t be afraid to sell a small portion of your position and lock in some of that profit.  If you’re buying into a new position, consider a smaller position than you would normally enter with.

But above everything else: trust your stops! 

Continue to use your best judgment and, when possible, try not to make trading decisions until the end of the day, but don’t over-think your positions.  If your stock goes down and clearly breaks support, exit the position.  Period.

For the exact sell points on all our Darvas stocks, check out the latest issue of Darvas Trader PRO.

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