When I provide my daily trading plan tomorrow, I will be 100% in cash - something that doesn't happen all that often. At the close on Friday, I proceeded to close out all eight existing positions in my portfolio. But let me be clear, I'm not some dooms-and-gloom guy calling for a market crash on Tuesday or any day in the near future. Instead, I simply concluded that the risk at this stage of the rally was much greater than any reward that could be had. As a result, on that conclusion that came from a multitude of reasons, I proceeded to close out one position after another. 

What I believe we could see this upcoming week is some selling, perhaps similar to what we saw that followed the rally back on 1/5 of this month, with a worst case scenario of what we saw on 11/8 and thereafter for two weeks. 

So here are my reasons for selling.

  • NYSE Reversal Indicator is hitting extremes. 
  • Price is above the upper Bollinger Band - an inviting short-term sell-signal often times. 
  • Market as a whole is very overbought
  • Breadth in the broader markets last week continued to weaken despite the market rallying - a bearish divergence. 
  • Price that has, since December, been trading in a very tight price range, is now hitting that upper band. 
  • Should the market sell-off, I will be in the position to take advantage of the short-term weakness.

With this theory in place, there was three possible outcomes:

  • Right about the market, but I don't follow my own advice and stay as long as I was on Friday. Which would be pretty upsetting, since I was highly confident of the sell-off but I wasn't willing to follow my own advice. 
  • Wrong on market direction and I sold my long positions - well then, I just get right back in again! 
  • Right on market direction and I have no long positions - best case scenario - I avoid taking on unnecessary losses. 

Two out of three of the scenarios were acceptable and the one that was no acceptable was the one that included me staying long. But once again, I'm not  looking for some major sell-off or market crash - if it happens, then fine, but I am simply looking for the market to pullback some in the short-term, and then should the market cooperate, I'll jump back into my long positions. But for now, a breather seems to be in the cards.